Double Dips

Michael Boskin writes that double dip downturns are more the rule than the exception.

I find this to be a very misleading article. What he is writing about is what happens in an actual recession when sometimes real GDP does bounce up for one quarter before resuming its fall.

But that is not the impression the article actually presents. Most readers will think he is talking about a recovery — when the economy experiences several quarters of sequential growth and surpasses the prior peak before quickly falling into a second recession.

As he correctly points out this happened once, after the 1980 recession when the economy rebounded strongly and surpassed the prior peak two quarters after the bottom.

But it is the only example of a double dip recession in the post WW II US history –as this table demonstrates. It is a table of real GDP in recoveries with real GDP at the economic trough set equal to 100. the quarters where real GDP is less than the prior quarter are in red. The red quarters in the 1980 column are the 1981-82 recession.

As the table shows the only double dip is the 1980-81 recovery that was only four quarters long before the 1981-82 recession started. Also note that before 1982, when the great moderation emerged, the norm was for a four year business cycle of three years of recovery and one year of recession. The Fed tightened sharply during the 1980-81 recovery because they thought the 1980 recession was too mild and did not generate sufficient economic slack to sharply dampen inflation. This deliberately aborted recovery — when real GDP surpassed the prior peak — is the only example of what I would call a double dip recession. The Feds tightening also generated recessions in other OECD countries that Boskin cited to demonstrate that double dip recessions are more the norm than the exceptions.

I’m still trying to make up my mind if this article was; one, just a rapidly written article that is accidentally misleading; or two, an article designed to justify the NBER recession committee not having ruled that the 2009 recession is over; or three, something else.

If second quarter real GDP comes in as expected it will be about the same as the prior peak so the US economy should surpass the prior peak this year. In my book that qualifies this past year as a recovery and the NBER should declare the 2009 recession to be officially over.