Commentary: Americans are not experiencing a #recession but should redefine “economy.”

Today’s announcement that the gross domestic product of the United States shrunk in the second quarter of 2022 by 0.9% will likely have the talking heads in the business media and on YouTube busy well into the afternoon and evening.  The politics is palatable because a poor performing economy not only negatively impacts the pocketbooks of American households but puts a serious dent into the political capital of the Biden administration.


President Biden’s administration began dampening the impact of today’s release days before GDP went public by arguing that there is no technical definition for the term “recession.”  As reported in The New York Post, Brian Deese, director of the President’s National Economic Council argued that two straight quarters of negative gross domestic product is not the technical definition of recession and is not a definition that economists rely on.

The Council of Economic Advisors also noted that one has to look holistically at data from sources that include the labor market, consumer and business spending, industrial production, and incomes before determining whether the economy is in a recession.

Gross domestic product as a data point provides an estimate of the total value of all goods and services produced by and in an economy during a specific period.

Investopedia, a financial services website, defines the economy as:

“A set of inter-related production, consumption, and exchange activities that aid in determining how scare resources are allocated.  The production, consumption, and distribution of goods and services are used to fulfill the needs of those living and operating within the economy, which is also referred to as an economic system.”

I would add to the definition that the economy is a matrix of rules tying together various markets in order to generate goods and services.  As I step back from the definition, I have to ask to what end this matrix of rules?

If we take a quick trip back to the 1600s when the British came to North America, they replaced the existing set of rules for the inter-related, production, consumption, and exchange of activities that allocated scare resources among the native population with their own. 

Over the next 400 years, this system changed from agricultural, to industrial, to services, to a current knowledge economy.  But the missing concept that connects all of them is the division of resources into property and reducing said division into financial assets. 

A complete definition of economy is where systems of production, distribution, and consumption are put in place to divide the natural world into financial assets.  To that end, where those assets are created and grow in value, that is the indication that the economy is growing.

Based on household balance sheet data from the Board of Governors of the Federal Reserve, I would argue that since 1982, with the exception of the period 3rd quarter 2007 to 2nd quarter 2009 (The Great Financial Crisis), the United States has never suffered a recession in the accumulation and growth in value of financial assets. 

Household assets in the first quarter 1982 totaled $13 trillion with a liability of $1.56 trillion, and net worth of 11.4 trillion.  By first quarter 2022, assets held by American households rose to $168 trillion with liabilities totaling $18.6 trillion at a net worth of $149 trillion.     

Politically, labor markets will continue to take on some importance, but as the structure of labor continues to change in the face of the growing value of financial assets, labor will play a less important component in determining the strength of the economy.

Labor will be the next “to what end” question.

Alton Drew

28 July 2022

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