The Great Non-Recession

I was puzzling over the recent news that the recession (that we are all feeling) is officially not a recession until it gets worse, like "we" all know it is going to, but "they" don't. "They" know that it is not a recession because they measure the output of the economy, and the output of the economy is larger, albeit by a tiny amount, than it was before. Follow me here.

They measure the economy in DOLLARS. Let's read that again.

They know it is not a recession, because the output of the economy MEASURED IN DOLLARS is larger than the previous economy MEASURED IN DOLLARS. So as long as the real inflation rate is higher than the nominal rate of growth, then the real economy (measured in bricks, cars, pizza, or back rubs) is actually shrinking.

Now I finally understand why the growing economy sure feels like a shrinking economy. I understand why the office buildings near me that used to be full of employees are empty and available for lease, and why my building is partially empty. I understand why there is less traffic, and I can get to the office faster. I understand why all of those fancy houses in the country are foreclosed and are sitting empty, or are full of people who can't pay their bills.

For anyone who still doesn't understand, let's take a trip to Fantasy Island. It is a nice place with tropical weather, no hurricanes, a healthy manufacturing base of hand carved wooden idols, and all that they eat is coconuts which are grown locally. Let's look at their economy for a comparison. The local currency is coconuts since everyone eats them, and many people grow at least a few. Normally coconuts would not be a good store of value because they spoil, but it works here because they are consumed fast enough.

Last year, they carved 1000 idols of Alan Greenspan. Each idol sold for US$10. Their entire economic output (of manufacturing) was 10,000 coconuts, or US$10,000. Each US$10 used to buy $10 coconuts.

This year, they carved and sold 500 idols of Ben Bernanke. (They don't understand it, but the export market has dried up, and they can't even sell the ones that they have.) Fortunately, when they can find a buyer, the price has gone up in dollars to $25 each. Of course, due to currency fluctuations between the coconut and the U.S. dollar, it now costs $5 per coconut to feed their families.

The new economy's manufacturing base has now rocketed up to a manufacturing base of $12,500, and amazing year over year growth of 25%! Life is great. Each worker now has 2.5 times as many dollars per idol, and only has to work half the time. Oh, and don't forget that his family is STARVING because now he has (50 idols * $25/idol * coconuts/$5) = 250 coconuts for the whole year. Last year his family had (100 idols * $10/idol * coconuts/$1) = 1000 coconuts to feed them for the year. He can't raise coconuts, because all of his coconut trees were cut down to make logs to carve idols of Alan and Ben out of.

If you think that this is far fetched, just look around you. This is exactly what is happening. Some people are receiving more than ever, and it is buying less than ever. Other people are receiving the same as always, and are hurt both ways. It isn't quite as dramatic (yet) as Fantasy Island, but it could get there. Growing Economy? My... Foot.

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This post is my original work, but I am giving it away. If you find any part of this post useful in any way for any purpose, feel free to copy, modify, and use this in any way, in any format, in any medium. This license only covers my original post, not any derivative works or comments about this post. I think it would be cool to see this made into an animated online video. Credit will be gratefully accepted, but not required.