There’s a lot of speculation floating around regarding where we are in the business cycle; and I can’t help but throw in my two cents.
The technical definition of recession is two consecutive quarters of negative RGDP. It’s entirely true that since the recession that ballooned into the Great Recession ended in 2009, we haven’t experienced conditions that could be labeled as such, and the historical record demonstrates that the US has not been without a recession in any decade stretch.
Taking a look at the RGDP graph for the last decade on FRED, however, we have met the criteria half way three times: in 2011, 2012, and again in 2013. I suppose the proper term for it if it doesn’t entirely meet the criteria for a recession is a “slowdown,” but the look and feel is similar, only shorter in duration. And of course, I haven’t included in my count the more plentiful episodes microscopic growth of around a half of a percent. All told, there have been 8 quarters out of the last nine years that were recessionary or barely a whisper from it. Perhaps this is why the period has often been dubbed as the recovery-free expansion, the lost decade, or other terms bearing the connotation of living on the edge of disaster.
Of course if we look farther back in our economic history, on the RGDP graph we have a nice, healthy trend that ends abruptly at the start of the recession in 2007 as the economic dead of winter is ushered in. So this last decade of living on the brink is an entirely foreign experience that I’ve often “munched” on here with the help of the equation of exchange in order to take a look at the dead weight loss compared to trend, which I won’t belabor here. But the point is that while going through a long period of demand management that has more or less jumped the shark, both potential and real capacity tends to stagnate and disappear as firms appropriately size themselves for reality. And, folks, this is where we are or were coming from just a short time ago.
I suppose where one believes we might presently be in the business cycle depends entirely on one’s view of the last decade. Though I think the concept of a business cycle is on shaky ground due to the monetary component of recessions, I tend to take a longer term view in the belief that the Great Recession pulled us down and monetary policy management issues subsequently didn’t allow us to get back up; and getting back up calls for change from the stale, state-imposed “new normal” to something else that has a lot more freedom attached.
I am sure it can feel uncomfortable going from a somewhat stable, but much less fruitful world to one where dreaming is worthwhile and possibilities are endless. But without delving too deeply into my opinion of the concept of “overheating,” it is probably sufficient to say that the arguments for its applicability to the present are unconvincing, The world of endless possibilities is the one I believe has the best chance of leaving everyone better off in the longer term in terms of the advancement of egalitarianism it provides and perhaps solving many of the political problems we currently have; such as immigration because I think people are less inclined to care about it when they feel secure.
The RGDP gap graph is from ngdp-advisers.com (hyperlinked)