Setting the Stage for a Debate
While traveling through Wonderland, Alice met Humpty Dumpty. He was reading the dictionary that he wrote.
Alice asked Humpty if he would discuss recession. “Sure, I will discuss anything,” said Humpty.
Alice quipped, “This sure seems like a strange non-recession.”
“Oh,” said Humpty. “In Wonderland, when you hint there may be a recession, you automatically agree to a debate”.
“Wonderland loves nothing more than a debate on recession,” said Humpty, adding “I will moderate and keep score.”
With that, Humpty blew a horn signifying an unscheduled debate.
Cast of Characters
- Mad Hatter: Jerome Powell, Fed Chair
- Red Queen: Janet Yellen, Treasury Secretary
- March Hare: John Kerry, U.S. Special Presidential Envoy for Climate
- Humpty Dumpty: President Biden
- Alice: You decide
The Debate is On
“Three on one does not seem fair,” said Alice.
Humpty admonished, “If this was a scheduled debate it would have been 57-1. No one in Wonderland thinks we are in a recession or that one is imminent.
“Since you made the challenge you go first.”
Housing
Alice started with housing. “Existing Home Sales Decline for the Eleventh Straight Month.”
“Sales are down 38 percent since January. That has never happened outside of a recession.”
“And not only that”, Alice continued, “Housing Starts and Permits Down Again in December Closing Out a Dismal Year.”
“Jobs,” responded the Red Queen. “Jobs,” said the Mad Hatter. “Jobs,” said the March Hare.
Humpty awarded 3 points to Team Wonderland.
Inverted Yield Curve
Alice then brought up the inverted yield curve. “The Yield Curve is the Most Inverted Since the Early 1980s,” said Alice.
“Jobs,” said the Red Queen. “Jobs,” said the Mad Hatter. “Jobs,” said the March Hare.
Humpty awarded another 3 points to Team Wonderland.
Industrial Production
Alice then turned her attention to Industrial Production. “Signs Say Industrial Production Has Peaked and so a Recession is Imminent,” said Alice.
“Jobs,” said the Red Queen. “Jobs,” said the Mad Hatter.
Alice thought she knew where this was going. However, the March Hare blurted out “Climate Change”.
With that reply, the debate took a turn.
Climate Change
“What’s climate change have to …” started Alice, but she was rudely interrupted.
“Jobs,” said the Red Queen.
“Good paying jobs,” said the Mad Hatter.
“Union jobs,” said the March Hare.
Humpty announced “Nine points to Team Wonderland”.
The Mad Hatter then added, “We expect to spend $50 trillion on climate change. And that will create 10,000 jobs.”
“Ten more points to Team Wonderland,” said Humpty, “One point for each 1,000 jobs created.”
Jobs Saved
“What!?” said a shocked Alice who noted “That’s $5 billion for every job created.”
“Tut tut,” replied the Red Queen.
“Jobs are jobs, said the Mad Hatter.
“My dear Alice,” started the March Hare. “In Wonderland, we not only count jobs created, we count jobs saved.”
“Some people think the World Will End in 12 Years if we do nothing, but our calculations are different.”
“Our super-proprietary climate models say Florida will be totally underwater in precisely 5.7368 years and California will slide into the ocean 13 seconds later making Las Vegas a beach resort.”
The March Hare continued “There may be some advantages to Florida going underwater, but to save California we first have to save Florida.”
“That’s a moot point because everyone knows we don’t play politics in Wonderland,” added the Hare.
“There are 9,563,000 jobs in Florida and 17,753,000 jobs in California and we will save every one of them.”
“That’s over 27 million jobs saved.”
Team Wonderland cheered as Humpty awarded them another 27 points, one for each million jobs saved.
Inflation
“But what about the inflationary aspects of spending $50 trillion to create only 10,000 new jobs,” asked Alice.
“Let me handle this one,” said the Mad Hatter to his team. “There will be no inflation from this because we do not count food or energy and we are thinking about not counting shelter, cars, and air travel.”
“8 points to Team Wonderland,” said Humpty.
“Why count anything at all?” Alice asked sarcastically.
Not picking up on the sarcasm, Humpty shouted “One point to Alice.”
Team Wonderland nodded approval.
Full Time Employment
Alice pointed out the huge discrepancy between jobs and employment. “Nonfarm payrolls are supposedly up 2.9 million but employment is only up 916,000.”
Alice also said she expected revisions to the strong jobs numbers noting Microsoft to Eliminate 10,000 Jobs Before the End of March
“Jobs,” said the March Hare.
“Jobs trump employment,” said the Mad Hatter.
“Off with their heads,” said the Red Queen, “It will be great for jobs.”
Losing Jobs is Great for Jobs
“That’s impossible,” said Alice. “Chopping off heads, by definition, cannot possibly be good for jobs.”
Alice was sure she won this point but the March Hare rebutted.
“The more jobs we lose and the faster we lose them, the more likely we will be able to spend $50 trillion to create and save jobs,” said the Hare.
“It’s imperative we lose enough jobs right away to save the world,” added the Mad Hatter.
“Off with their heads,” said the Red Queen.
Closing Remarks
“O.K. We need to wrap up,” said Humpty.
Alice lost the coin flip and had to go first.
She cited a litany of factors suggesting that a recession either started or was imminent.
Alice went over the yield curve, full time employment, industrial production, inflation, and housing.
“Time’s up,” said Humpty. “Team Wonderland, what are your closing remarks?”
“Jobs,” said the Mad Hatter.
“Off with their heads,” said the Red Queen.
“Climate change,” said the March Hare.
Humpty awarded 82 points to Team Wonderland for those closing remarks.
“That makes the final score 654 to -97,” said Humpty. Team Wonderland erupted with a big round of cheers and high-fives.
Protest From Alice
Alice complained to Humpty. “This is a rigged score,” she bitterly said.
“Young lady, I don’t take kindly to those remarks. -97 is an excellent score for your side. If you didn’t suggest to not count anything regarding inflation, the score would have been 654 to -987. You are the first person to ever score a point against Team Wonderland!”
“I am going back to my wall to tell you how it is.” With that comment, Humpty climbed a ladder, sat on his wall, and started lecturing Alice.
“In Wonderland, inflation is always and everywhere a good thing,” admonished Humpty.
“Sometimes, like now, we pretend to do something about inflation to keep the Wonderland peasants from revolting.”
Soft Landing
Humpty continued “Regarding recession, I get to make the call. A recession is whatever I say it is. It happens when I say it does.”
“And as long as I preside over this wall there will be no recession, lectured Humpty.”
Humpty got increasingly agitated at Alice. His arms flailed wildly side to side and he started to slip.
Alice could not bear to watch. She turned away and muttered, “I don’t think this will be a soft landing.”
“Call out the king’s horses,” shouted the Red Queen.
“Money, money, money, money, money, money, money!” screamed the March Hare.
The Mad Hatter just stood there, too shocked to do or say anything.
Addendum
- Personal Spending Hits a Solid Brick Wall in December Despite Rise in Income
- What Do Initial and Continued Claims Suggest About Timing of a Recession?
Brick Wall
- Consumers literally hit the brick wall then went into reverse in November and December.
- Real PCE fell 0.2 Percent in November and 0.3 percent in December.
- Real PCE Goods were negative 0.9 percent in both months.
- Real PCE Services rose 0.2 percent in November and was flat in December.
Real PCE Consecutive Month Declines
- Real PCE declined 2 consecutive months starting March of 2020 when the Covid recession began
- Real PCE declined 2 consecutive months starting November of 2012
- Real PCE declined 4 consecutive months starting February of 2009, in the Great Recession
- Real PCE declined 4 consecutive months starting September of 2008, in the Great Recession
- Real PCE declined 2 consecutive months starting June of 2008, in the Great Recession
- Real PCE declined 2 consecutive months starting August of 2005
The series only dates to January of 2001. Of the 6 prior occurrences, four were in recessions.
The End
This post originated at MishTalk.Com.
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Mish
Q: What is a recession? What is an expansion?
A: The NBER’s traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee’s view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another. For example, in the case of the February 2020 peak in economic activity, we concluded that the drop in activity had been so great and so widely diffused throughout the economy that the downturn should be classified as a recession even if it proved to be quite brief. The committee subsequently determined that the trough occurred two months after the peak, in April 2020. An expansion is a period when the economy is not in a recession. Expansion is the normal state of the economy; most recessions are brief. However, the time that it takes for the economy to return to its previous peak level of activity may be quite extended.
Mish, I think this is one of your most entertaining posts ever! Thanks!