Twitter, Assam, NPR discussed on The Indicator from Planet Money


Breath everyone indicator from planet money. I'm Cardiff Garcia. Today's episode begins with a question. Is there any way to know in real time if an economic recession has started and that's actually a tricky question but there is an answer the answer is called the psalm rule named after the economists. who recently discovered it a cloudy Assam and who is cloudy Assam so I have been twelve years at the Federal Reserve Board and the first ten years were on the staffs macro forecast the last two years I have worked in the division of consumer and Community Affairs and now I am the first director of macroeconomic policy at the Washington Center for equitable growth? You're the eponymous economist. After which the rules named. How can that be your new nickname? Police sure combined navy twitter profile excellent. I suspect cloudy. It might not end up using economist economist in her twitter profile. But after the break break you our listeners are going to get to hear my conversation with her explaining what the Psalm is and also why it matter so much that we identify early on when a recession historic. Finally policymakers can do if the sun will is triggered and a recession indeed has started. This message comes from. NPR SPONSOR TIAA committed to the idea that while most things in life run out from clean shirts in the morning to a favorite dessert at night lifetime income in retirement shouldn't learn more at Tiaa dot org slash. Never runout support also comes from Google from Connecticut to California from Mississippi to Minnesota millions of American businesses are using Google tools else to grow online learn more at Google dot com slash. Grow the last recession. You know the big one that ended roughly a decade ago started in December. Remember two thousand and seven but the committee within the economics world that officially identifies the start of a recession. Didn't make the announcement until December two thousand eight affoil year later. It's actually called a recession. Dating Committee were sounds a lot more fun than it actually is. That is economists. Cloudy Assam and she says it is normal normal for this committee to take a while to be delivered. Take its time when it's identifying the start of a recession see the recession dating committee weights because it wants to be sure that there actually actually was a recession and also because the committee is looking at a lot of data to confirm that there was quote a significant decline in economic activity Spread across the economy lasting more than a few months unquote. That's how the committee defines a recession into be cleared those experts and they're all very senior macro-economists macro-economists they're looking at the data all the time especially when the economy starts to soften but what they're using as a whole host of data now there is also an unofficial way to know if there has been a recession which is if the economy shrinks for two straight quarters which is obviously half a year but that takes a while to know also uh-huh especially since the quarterly growth statistics. Take a while to come out after each quarter ends so that if hypothetically a recession started last month in October we wouldn't find out about it until almost the start of next May so based on her research cloudy came up with a better way the psalm rule what is is the psalm rule. So this psalm rule. It's all based off the unemployment rate. Okay so quicken. Injection the unemployment rate that is the share of people in the labor force who do not have jobs but are looking for jobs and since the unemployment rate can sometimes fluctuate from month to month for arbitrary reasons. The summer looks at the three month. Average of the unemployment unemployment rate to smooth out those fluctuations back to Klaudia so he take a three month average of the monthly unemployment rate. Okay then I look at any month. Oh relative to the prior twelve months so I'm using thirteen months data and what I do is win the difference. So when the current unemployment rate is a a half percentage point or more above the prior low over that prior twelve months. Then we're in a recession okay. So there's a little bit to unpack there so here is what what it means in practice right now. The three month average of the unemployment rate is three point six percent so that's number to focus on three point. Six percent blissett starts rising and within the next year. Let's say July of next year it has climbed half a percentage point and it hits four point one one percent that means that the psalm rule has been triggered and a recession has started within the prior few months. Well in fact since the nineteen seventies. That's always he's been the case any time from the seventies on every time it triggers we are two to four months into a recession and the big advantage of the Psalm. Rule over over the other ways of knowing if an economy's in recession is that we find out much sooner that the recession has started and cloudy work on. Recessions does not stop there. She also so came up with a way. For policymakers to respond wants to SOM- rule has been triggered and we know the recession is indeed underway. And so I developed the Psalm ruled to put a proposal. Together that said payments to household individuals in a recession should be automatic. They should happen as fast as they can. In a recession they should be noticeable cinema thousand dollars or more and get that money out to household so they they don't have to cut back on spending as much there. They know that the government is trying to do something to support them. Cloudy is ideas. Note an economics as has an automatic stabiliser. It's automatic because once the economy does something specific like say it triggers the Psalm rule then. The response from the government is automatic. Those checks go out because Congress already agreed how the government will respond to stabilize the economy hence the name automatic stabiliser and cloudy. Saudis proposal is based on research from the past couple of decades including some of her own and that research shows that people will spend more money to boost the economy if they get a big one time payment than if they get a smaller steady stream of payments that hits their paychecks. Every couple of weeks and cloudy says. There's a good reason for why every household I should get a big check and not just those where someone has lost a job or had their wages cut early in a recession. It's hard to know who is going to be hit hard and and there's a lot of anxiety. There are a lot of households that no. They're on the margin and we want to support them. We don't want them to stop spending to stop supporting the lifestyle they have. So that's the idea and you know what the Psalm rule has become a big league hit with economists. But it's worth noting that Claudia herself is actually hoping for obvious reasons that we don't have to apply for a while. Here's a question that thinks on everybody's everybody's mind. What is the some real saying right now? We're not in a recession excellent. Yes that's a very happy thing. I did talk. Talk to someone and they're like well. This is going to be you know. The big test is when the next recession happens. And I'm like you know what frankly I'd be happy to wait a long time for that. Yeah no kidding thing you know decades and decades possibly be Australia. They've had like twenty seven straight years or something like that without a recession Cloudy Sam thanks so much for being on the indicator thank you and that's it that's the psalm rule if you want to know more about it how it works cloudy. wrote a detailed peace about it a and about automatic stabilisers brookings think tank earlier this year. We'll post a link to it at NPR dot org slash money and on twitter. This podcast gas was produced by Lena. Sons Gerry our editors Patty I or fact checkers Nadia Lewis in the indicator is a production of NPR. Also by the way the indicator is on Thanksgiving break tomorrow Thanksgiving Day and on Friday. So we'll be back on Monday and we wish all of you our listeners. A very happy and restful Thanksgiving holiday break.

Coming up next