Why Warren Buffett Is Right About The Recession And Economists Are Wrong

Warren Buffet, who appears on CNBC so often that he probably gets invited to its holiday party,  told the cable channel’s Becky Quick this morning what anyone who has a pulse already knows — the recession is not over — even though a group of economists few Americans have heard of says it ended last year.  As he often does, Buffett minces no words.

I think we’re in a recession until real per capita GDP gets back to where it was– before. That is not the way the National Bureau of Economic Research measures it. But I will tell you that to any– on any common sense definition, the average American is below where he was before, or his family, in terms of real income, GDP.  We’re still in a recession.  And– and we’re not gonna be out of it for awhile, but we will get out of it.

The Oracle Of Omaha is right of course.  Most Americans struggling to pay their bills feel the same way.  Survey after survey shows people are as worried as ever about their economic future.   Members of the National Bureau of Economic Research(NBER) ,who officially define when recessions start and end, seem to hide in their ivory towers issuing statements that confuse most people who barely remember their Econ 101 classes in college.

For instance,  almost every story in the press about the recession defines it as two quarters of a contraction in real Gross Domestic Product (GDP).  As NBER explains on its website, not all recessions follow that rule of thumb. “Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them,” it says.   The wise sages say they consider Gross Domestic Income, which is practically the same as real GDP,  to be equally important.  NBER also considers other factors as well such as the depth of decline of economic activity when analyzing the health of the economy.

NBER economists would win a gold medal in word parsing if one were awarded.  Consider how carefully they use the word ” recession.” “It’s more accurate to say that a recession—the way we use the word—is a period of diminishing activity rather than diminished activity,” according the NBER. The difference between “diminished” and “diminishing” activity doesn’t seem to be explained. It’s also besides the point.

Most Americans chose to describe the economy using adjectives that won’t be reprinted here which may not be technically correct offer far more useful explanations. Academic debates over the recession don’t really capture the extent that many people are suffering.  Reaction to the declaration that the recession was “over” ranged from shock to bemusement.

Most prominent investors including Buffett don’t need to have a bunch of economists telling them that things are bad.  They can see it for themselves.

–Jonathan Berr