In case you were not getting enough inaccurate economic information and analysis from the Washington Post's news, editorial and oped pages, they invited Kevin Hassett, the co-author or the 1999 best-seller "Dow 36,000," to fill the gap in the Sunday Outlook section. Hassett uses his piece to refute 5 "myths" about recessions. None of the myths rises to mythological status in my understanding of the economy. Myth # 1 is "we are already in a recession." This is a myth? Mr. Hassett does not actually say that we are not in a recession, only that we will not know for sure until some time down the road. Myth # 2 is that the stock market usually tanks in a recession. I had not heard this one. I knew that the stock market usually declines around a recession, but I hadn't realized that the tanking was supposed to be during the recession. The sharpest decline associated with the last recession occurred after the recession was over, with the stock market plummeting more than 20 percent between November of 2001 and its trough the following summer. Myth #3 is that recessions used to be much worse. I hadn't heard that many people wandering the streets saying this one, although if we include the Great Depression in the mix and use our cutoff point as World War II, then the statement is true. The column also includes the strange assertion that, "the past three recessions may have seen slightly smaller drops in economic growth on average." This one is strange, because the 90-91 and 2001 recessions were both relatively mild, but the 1981-82 recession was the most severe of the post-World War II era by most measures, with the unemployment rate rising to 11 percent. Myth #4 is that recessions are bad for your health. Hassett cites recent research showing that deaths from a number of causes such as traffic accidents and various stress-related illnesses decline during recessions. While this may be true, it is important to include some caveats here. There are very strong links between health and income. The research finds that after controlling for income, recessions are associated with better heath outcomes. Of course, if a recession is associated with a large enough drop in income, the negative health effects of the income decline will swamp the positive effects associated with a recession and we will be seeing worse health outcomes because of the recession. Myth #5 is that there is a regular business cycle. Again, I didn't know that many people wandered the streets saying this (not where I live) but it would seem pretty hard to make this case given that we had decade long expansions in the 60s and 90s, compared with recoveries that only lasted 3-4 years in the 50s and 70s. I am always happy to see myth-busting, but I'm not sure this piece rises to the occasion. Fortunately, Hassett did not take issue with one of the points he made in his intro: "Economists have the same occupational hazard as baseball managers and football coaches: Every person on the street knows their job better than they do." Hassett wisely chose not to include this one on his list of myths. Since nearly all economists managed to miss both a $10 trillion stock bubble and and an $8 trillion housing bubble, there is pretty good evidence that this myth is true.
--Dean Baker
