Recessions are recessions even when they are different, Mr. President

President Biden tried to convince Americans that two consecutive quarters of negative GDP growth is not a recession even though that has been the definition of one for quite a long time. He and his economic sycophants have tried for a week to redefine a recession based on employment and not GDP. But it does not work that way. Recessions can be different and this one is.

In many recessions, demand collapses, companies lay employees off, unemployment soars, and government reacts by passing spending programs to “stimulate” the economy. People go back to work and life goes on. The characteristic of this kind of recession is that most people actually do quite well during the recession, while those that lose their jobs bear the brunt of the reduced economic activity until the economy rebounds.

In this recession, the culprit has been skyrocketing energy costs embedded into the cost of everything we buy, and it has driven up prices far faster than wages have gone up. Those higher prices were “cushioned” in 2021 by a massive stimulus bill, but now that it is wearing off, people are realizing they are poorer than they were before Biden got elected. The stimulus money was a “blowout” party and now the hangover is setting in.

The result is while very few people have lost their jobs, most people are worse off than they were before, and cumulative effect of their reduced purchasing power is behind the current recession. And that is a big problem.

The lack of real GDP growth is being experienced by everyone in the form of a lower standard of living, which explains why so few are happy with Biden’s handling of the economy. This recession is far broader than most since nearly everyone has experienced the impact of inflation rather than the narrower effect of some people losing their jobs. But at the end of the day, our country is “making less” stuff and that “less stuff” means we are in recession as our money goes to energy and not “more stuff”.

Because we don’t have massive job losses yet, Biden’s argument today that the massive green energy spending bill will help grow the economy out of recession seems lame on its not face. We do not need to put people back to work, they are not unemployed. But we are going to add to inflation as the cost of this spending gets translated into higher prices for goods and services.

The spending is largely for green energy projects. Independent of your view on “Green Energy”, it is time to be honest with the American people. If you are embarking on a path where the cost of energy is permanently higher than it was before Biden took office, standards of living for Americans will have to come down to compensate for the higher cost of that energy. Energy is part of everything we buy, and its higher cost will translate into less money to buy other things… in other words a lower standard of living.

The more America relies on “expensive” energy the lower our standards of living will be. The faster we transition to expensive energy the faster our standard of living will decline. Right now, the purchasing power of the average American is down 5% net of their wage increases. Eventually, once this new lower standard of living becomes incorporated into our GDP numbers, we will come out of the recession and our economy will begin to grow, but we will be left for the foreseeable future less well off than we were before Biden got elected.

To regain the standard of living Americans were at in 2019, one of three things will have to occur, ideally both.

1. We need to drive down the cost of energy in inflation adjusted terms below the level it was in 2019, whether that is through fossil fuels, renewable, or nuclear energy, we need the cost of energy to go down… right now, that is not possible with “Green Energy” in most of the country (it is simply too expensive to generate), but it could be someday when technology improves. Shorter term the obvious answer is to return to making fossil fuels more readily available and expanding our nuclear energy infrastructure.
2. We need to improve the productivity of Americans. Turns out working from home did not make people more productive based on an array of studies. It does not mean it can’t work, but for now it is not. But other things like artificial intelligence machines and robots could make up for lost human productivity or even shifting the workforce from “overhead” jobs to production jobs by streamlining overhead costs could make Americans more productive. We need to do some serious re-engineering of our processes if we are going to raise standards of living in the face of high energy costs. The government historically through regulations have added to overhead, it needs to end this and focus on streamlining its demands on businesses, so people can work at making stuff and not shuffling paper.
3. We need more people to go to work. Not unemployed people, we don’t have enough unemployed people to make any real difference in our economic growth. We need the millions of young people and seniors that can but choose not to work to work some. Eliminating earned income impacts on social security benefits could have a huge impact. Right now, once seniors earn about a certain threshold the effective tax makes working stupid, working should never be stupid. For young people creating flexible part time jobs that fit their schedules will help the nation to create more “workers” out of citizens that simply could not work a traditional job.

But the problem with Biden right now is his focus on traditional government spending and “green energy” not on overcoming the regulatory issues that make flexible jobs creation difficult, or on driving down the cost of energy, or improving productivity. That requires a different mindset, and Biden and his bureaucrats don’t have it. And so, even if we come out of recession, don’t expect and surge in GDP or American standards of living until Washington changes.