How GDP fools economists

Economists look to GDP to determine if the US economy is in a recession. Generally, it takes two quarters of the economy shrinking (economists call it negative growth, but they’re linguistically challenged) for the National Bureau of Economic Research to declare a recession. Of course, those two quarters indicate the bottom of the recession, by definition.

Omens of the fall

In the ancient world outside of Israel pagan priests discerned the will of the gods through omens in the sky and on earth.  Israelis didn’t need omens because they had revelation straight from God in the Torah. Omens came from the movement of planets and from the structure of kidneys in goats sacrificed to idols. Pagan gods would never have considered humiliating themselves by speaking directly to insignificant humans. The more omens a priest collected the more certain he could be of the will of the gods.

Investors today don’t have a revelation about the future. We have the Austrian business-cycle theory that tells us to expect a crash after years of artificially stimulating the economy with near-zero short term interest rates and massive buying of junk bonds by the Fed. But we can’t know the exact date, or even the quarter, when the crash will come. So like ancient pagans we have to rely on omens that suggest we are near the end of the expansion. These omens are what mainstream economists consider good news about the economy. Here are some gleaned from the kidneys of the Wall Street Journal.