Page 10-- Sunday. October21, 1979-The Michigan Daily
'Recesssion' definition is elusive
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From The Associated Press
Question: What's the difference bet-
ween a recession and a depression?
Answer: When your neighbor loses
his job, it's a recession. When you lose
yours, it's a depression.
YOU HAVE probably heard the joke
before. But it is worth remembering
because it points up an important fact:
Economics is not an exact science. And
statistics do not always tell the whole
For almost two out of three
Americans, inflation - not its cure -
has already shredded the family
budget, an Associated Press-NBC News
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poll shows. The cuts have been felt the
most by the average Americans, blue-
collar families and those earning less
than $25,000 a year.
Sixty-four per cent of the public now
says inflation has cut into their stan-
dard of living, up from 52 per cent in the
December AP-NBC News poll.
Late last week the Commerce Depar-
quarters in a row.
. THE SECOND quarter of 1979
brought the first decline; the GNP
dropped at an annual rate of 2.3 per
cent. Many people expected a third-
quarter drop as well. It did not happen;
the GNP increased at an annual rate of
2.4 per cent.
Does that mean there is no recession?
'The .standard of iring of the e'ralge American
ha~s to dec('ln. 1I(011on't ik onE canf escapeWthat1.'
-F1ederal Reserre 1Boalrd1 ChairmanillPahliiVolck~er
tment released figures on the amount of
the Gross National Product (GNP) -
the total output of goods and services -
in the third quarter of 1979.
One of the conventional definitions of
a recession is based on the GNP. Ac-
cording to the textbooks, the n'ation is in
a recession if the GNP declines for two
"YOU CAN'T stick tothat definition
too closely," said Bill Hampel, an
economist with the Credit Union
Two consecutive declines in the GNP
are one signal of a recession, Hampel
said. But that is all they are. You have
to look at other things as well, at the
basic underpinnings of the economy.
By custom, Hampel said, the final
decision as to whether a recession has
occurred is left to a group called the
National Bureau of Economic Resear-
ch. The bureau, in Cambridge, Mass.,
uses a lot of complicated formulas. And
it often does not come to a conclusion
until after the recession is over and
G. WILLIAM Miller, the Secretary of
the Treasury, said in July that the coun-
expected it to end in the first or second
quarter of next year. Miller said Friday
that people should not be misled by the
new set of statistics. "We expect the
economy to return to slow or negative
growth in the next few quarters," he
People also are saving less. During
the third quarter, Americans saved
only 4.1 per cent of their income.
During September, consumers with-
drew $800 million more from their
savings accounts at savings and loan
associations than they put in. Less
money in savings and loan associations
means less money for mortgages. And
that means a slowdown in another key
area of the economy- housing.
The Federal Reserve Board, meat-
while, has been trying to slow the
growth of the economy. It is following
what is called a tight-money policy. If
there is less money available, the
economy cannot grow. If the policy,
works, its impact will show up when thi
figures for the fourth quarter of 1979 ark-
At the urging of Chairman Paur
Volcker, the Fed slapped tough credit
restrictions on the nation's bank'
earlier this month, with the blessing of
President Carter. In defending these
moves, Volcker told the Joint Economic-
Committee of Congress last week:
"The standard of living of the average,
American has to decline. I don't think:
buoyant, manageable; ready for wind-swept days.
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