3 min read

A one-armed economist

Economists can't decide if the US is in a recession or not; climate policy looks to be the biggest loser from Pelosi's visit to Taiwan; and the Bank of England is forecasting stagflation.
Cartoon showing Joe Biden with a bear.
Recession? No recession? At this point it's political theatre. Source

1—A one-armed economist

Former US President Harry Truman is said to have quipped:

"Give me a one-handed economist! All my economists say, 'on one hand ... on the other.'"

The same is true for recessions: economists are split as to whether or not the US is in one after it recorded two consecutive quarters of declining GDP, which is generally – at least for as long as we've been reading economics textbooks – the standard technical definition (see, for instance, the RBA's explainer here).

But that's on one hand. On the other hand there's the US which, as is often the case, does things a little differently to everyone else. A recession there is unofficially defined by the National Bureau of Economic Research, usually well after a recession has already finished (how useful!). That difference in definitions has led to a whole lot of politicising over semantics; even Wikipedia was forced to freeze edits on its recession page "after the Biden administration insisted that the US economy has not entered a economic downturn":

"New Wikipedia users made additions this week that violated Wikipedia policies. The revisions set off an editing war that drove registered volunteer editors to repeatedly revert changes in order to comply with the site's policies — which, in this case, required proper citation and no political bias."

So is the US in a recession, or isn't it? It's definitely in a technical recession, although given the tiny decline – less than the margin of error in calculating GDP – and the fact that 528,000 new jobs were added just last month, it's unlikely that the US is already in an actual recession.

That's not to say the US won't be in an actual recession sometime soon, as inflation runs wild and the Federal Reserve rapidly tightens the monetary spigots. But for now, the US is in a mild technical recession – pending the inevitable data revisions.

For a couple of economists' takes, you can read Robert Barro's view on why the US is already in recession here (~4 minute read), or Joseph Politano's view on why the US is not yet in recession here (~9 minute read).

2—Pelosi fallout

China may have responded relatively tepidly to US House Speaker Nancy Pelosi's trip to Taiwan in terms of military action but don't be fooled – it's sending a message in other ways. On Friday, China's Ministry of Foreign Affairs announced eight "countermeasures" in response to Pelosi's visit, which basically involved severing cooperation in international arenas such as military, immigration and narcotics (e.g. fentanyl into the US).

But perhaps most significantly "talks on climate change" were also dropped, which could result in the two nations' 2021 Glasgow Declaration being dead in the water. If so, that would mean China may no longer work towards:

  • phasing down coal consumption;
  • eliminating global illegal deforestation;
  • increased action to control and reduce methane emissions; and
  • developing "concrete actions [on climate] in this decade".

China may never have intended to do any of the above, even before Pelosi's Taiwan trip. But with a weak economy and now a perfect excuse to keep energy prices down by burning more coal and cutting down more trees, you can be sure that's what Xi Jinping will look to do.

FWIW, China's isn't going alone here – as "part of a pan-European dash to ditch Russian natural gas and escape President Vladimir Putin's energy chokehold", European nations such as Germany, France, Italy, Austria and the Netherlands have all announced plans to reactivate old coal power plants, or allow existing ones to work past planned closing dates.

Great for coal producers, not so great for climate targets.

Check out The Diplomat's summary of China's response here (~4 minute read), and the Washington Post's coverage of Europe's coal plants here (~7 minute read).

3—Stagflation, coming soon

Tweet commenting on the Bank of England's stagflation forecast.
Inflation and stagnation, also known as stagflation. Check out the Bank of England's forecasts here.

4—Further reading...

🎱 That's a shame – Victoria University's (NZ) market forecasting/betting website PredictIt will shut down on 15 February after US regulators nixed its right to operate.

🏡 Toronto's (Canada) house prices "declined 3.9% in July from the month earlier, bringing the total drop since April to 13.3%". But they're still up 13% from a year ago.

☢️ "German Chancellor Olaf Scholz said extending the life of the country's nuclear power plants might 'make sense'."