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Did We Have a Recession, or Not?


LOU DOBBS: It seems Treasury Secretary Paul O'Neill isn't the only one in Washington who questions whether or not we had a recession. Today Federal Reserve Governor Edward Gramlich joined the debate. He was speaking at an event organized by the Mortgage Bankers Association. Gramlich said, and we quote, "we have been through something that may or may not, that is may, or may not, qualify as a recession. Gramlich declined to comment further when the event ended.

Well, one man who has a certain view on whether we had a recession or not is our guest Lakshman Achuthan managing director of the Economic Cycle Research Institute and a MONEYLINE regular.

So why is it so important whether we use the nomenclature, the jargon, reach into the (UNINTELLIGIBLE) and say recession?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Because I think if we fail to recognize what occurred here, I think the reason the argument is there was one quarter instead of two quarters of negative GDP, so therefore no recession. What you do, is first, this revisionist kind of history, you allow...

DOBBS: Wait a minute. Wait a minute. Go ahead and finish.

ACHUTHAN: People are starting to say, what recession? It's very clear, by the classical definitions, that we had a recession. The fourth quarter of 2001 came up positive. Why did it come up positive? I think it came up positive simply because -- or primarily because of the attacks. We had very aggressive movements by the fed, which gave zero percent consumer financing, and you had a huge increase in car production. You also had a huge expenditure...

DOBBS: Are you saying we cheated, people went out, the car companies had zero financing, the fed did its job, injected liquidity into the system, the consumer, the investor stayed with...

ACHUTHAN: I'm not criticizing the policies that were taken, but what I'm saying is that unless we recognize there was a recession, what is likely to happen is we will start to think the way that we were thinking at the end of the 1990s, which was recessions are impossible.

DOBBS: Oh, OK, you're extrapolating from that. So we have to believe that these (UNINTELLIGIBLE) readers and diviners of the National Economic Research Bureau and your organization will sit there and say there is a recession.

ACHUTHAN: Well, a recession is defined by...

DOBBS: How about two quarters of negative GDP?

ACHUTHAN: We've had two big recessions where that never happened.

DOBBS: Well...

ACHUTHAN: In the '60s and in the early '80s. So it's twice that it's happened. It's important to recognize that there was a recession...

DOBBS: OK, Lakshman, I recognize. We all buy into it.

ACHUTHAN: I don't think everybody does.

DOBBS: I don't think so either, neither do I.

ACHUTHAN: I think you are going to see a revival of the new era (UNINTELLIGIBLE) and that's dangerous. (CROSSTALK)

DOBBS: But once we do it, so what? What do we do?

ACHUTHAN: Well, if you have a revival of this new era-type thinking, that sets you up for the next boom bust.

DOBBS: Are you going to able to avoid the boom bust? If everybody in the '90s was sitting there talking about, as you suggested, the business cycle had been suspended. We all know that's hogwash.

But we also know...

ACHUTHAN: How many times do people go back to saying that? In the '20s they went back to saying that, in the '60s they went back to saying that, towards the end of the 80s and towards the end of the '90s they went back to saying that. The moment you begin to say that, you set yourself up for the excesses that give you a recession.

DOBBS: 2001 is behind us. It's the beautiful year of 2002, we're off to a sparkling start, and we are in strong, recovery. The recession is well behind us, right?

ACHUTHAN: No double dips. We're going to have a recovery here, we are going to have relatively stable prices, and we are probably going to have good productivity growth. I think it's too tempting for the new era cheerleaders to resist, and I suspect you're going to hear a lot of it.

DOBBS: Not on this program. (LAUGHTER)

ACHUTHAN: Well, I try to keep you guys straight.

DOBBS: Lakshman, thanks a lot. I appreciate it. Lakshman Achuthan.