First of all, let’s identify what a recession is. A recession is defined as negative growth in our economy. Great, now we have to identify how we measure the economy. The gross domestic product, or GDP, is the dollar value of goods and services our great country produces in a given year. Back to the recession, most will say we are in a recession if we suffer 2 consecutive quarters (6 months) of negative GDP growth. The funny thing about GDP is that it only measures what is reported to the government, so its not perfect (I’m looking at you Wesley Snipes), but that is a different issue.

Lets put that in simple terms. We will use the economy of Weakistan for our example. Weakistan had a GDP of $100 in 2007. Gold lined streets here we come. In 2008, GDP rocketed forward to $110. It doesn’t seem like much but that’s a growth rate of 10%. 2009 rolls around and its not pretty. GDP fell to $108. The decade ends with a 2010 GDP of $107. Now pretend instead of years, those were quarters. Thats a recession.

Where were we? Oh yeah, we were learning about how bad recessions are. Recessions aren’t so bad. The media will try to convince you otherwise. Does this sound familiar?

“The latest indicators might be pointing towards more recession fears, more information after the break.”

They did huh? If you’ve got time to wait for their “break” then you’ve got time to read the rest of my post. When they speak of indicators, they mention unemployment, interest rates, foreclosures etc. Don’t worry about it. Here’s something they won’t tell you: we won’t know we are in a recession until its over.

I’ve got an insider secret about recessions, it probably won’t affect you. Most of the people that suffer in recessions took on more risk in the past and were the big winners when the market was big. Example: I’m a mortgage broker and make a bunch of questionable sales for my own profit. Maybe I even went so far as to lie about income or other debts on the loan application to push it through. Well I made piles of cash from 2002-2006, and now my mortgage company is bankrupt. I took the risks. Here’s another example for all the old fogies out there that remember the 1990’s. Its 1996, and I’m looking to invest in tech companies to get in on some of that easy money. I pull in 800% growth and then in 1999 everything crashes. I took the risk, I reap the reward or punishment. But I digress.

These economic indicators the media loves so much are just resetting back to the norm. When we talk about GDP and the stock market, we hear about growth being x% at an annual rate. It never actually grows at that rate. Sometimes its more and sometimes its less. Our economy is like that show-off at the gym. He puts too many weights on the bench press and does 4 really powerful and fast reps. Of course now he has to stop and rest. He probably looks around to see if anyone was watching. Every once in a while he strains something and you don’t see him for a few weeks, there’s your recession. Meanwhile, you were on the elliptical machine listening to the latest Carrie Underwood track and pinching your love handles wishing you looked like her. If you weren’t paying attention to Jerk-O on the bench press, you never noticed he came and went. Focus on yourself and you won’t notice the recession either.

By The Weakonomist

The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics.

categories: economics