Economists have forecasted nine out of the last five recessions

Recession brings hardship for common people of society and also for economists, but in superlative terms. For common people, it is a painful surprise and perplexion about series of unpredictable developments concerning collapse of house prices, banking system, financial policy, and insolvency of insurance companies, job losses, inflation, and car sales and so on. It's hard enough to understand what's happening. However, for academic economists who are entirely dedicated to the subject, situation is unreasonably awkward and they feel like eating their humble pie when they fail to forecast the distressful recession. Different schools of thoughts propounding different theories are finding a shelter in such times. When we look back to history, we find that periods of severe economic distress have shaken up economics and economists have run over haphazardly to find the ways of recovery and forecast future meltdowns. It is well said that the astrology was invented to make the economy a more accurate science. To an economist, real life is a special case. There is one good joke in this context. During morning walk, three friends – Surgeon, Architect and economist were boasting about their profession’s supremacy. Surgeon said that he is very important because God Himself was a surgeon and the first thing He did was to extract Eve from Adam’s rib. The architect said, ‘wait a minute, God was Architect as he made the world in seven days out Chaos. Economist simply laughed and asked “ And who made chaos !!!”

It is a natural instinct of human being to look for someone to blame after the occurrence of crisis. Also, hindsight is always better than foresight; anyone can become wise after the event. Ever since the gravest Great Depression, there has been much soul-searching of the economics profession. There are too many criticisms leveled against economic profession. There is a large number of mathematical models, ideologies, theories, assumptions. There are monetarists, Austrian school economists, Keynesians, Marxists who have their own reasoning. But it is difficult to measure how much plausible their comprehension is because the debate for self-defense never ends. It has been observed that an entire field of experts dedicated to studying the behavior of markets failed to anticipate what may prove to be the biggest economic collapse of lifetime that has taken place in 2009.

However, to be realistic, it should be remembered economists don't run the economy. They don't even necessarily make the decisions which influence the economy. The failure of economists is partly due to the difficulty of keeping updated with a very fast changing financial system. But, there is still huge room for improvement.

What is recession? - The decline in river flow after a tempest has passed

A period of recession is a significant decline in economic activity. A recession documents simultaneous decline in employment, profit and investment, and an upscale inflation. A period of recession witnesses a stock market drop at the onset. It can also be sensed via the unemployment rate and subsequent claims, a housing recession and the use of index indicators.

In economics, the term recession is generally used to describe a situation in which a country's GDP (Gross Domestic Product), sustains a negative growth factor for at least 2 consecutive quarters However, this is the explanation that presents recession only as a definition to remember. To understand what it actually means, we need to first understand the meaning of GDP. It is the value of all final goods and services produced in an economy in a given year. These final goods are those goods which are not transformed into other goods. These goods are evaluated as per their market value. It means when the value of all final goods and services produced in a given year declines for two consecutive quarters, the state is referred to as “recession”. It is visible in real GDP, real income, employment, industrial production, and wholesale-retail sales in an economy.

Recession can be defined differently by different economists. Some economists also suggest that a recession occurs when the natural growth rate in GDP is less than the average of 2%. Typically, a normal economic recession lasts for approximately 1 year. A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits, falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. So, economic recession can be spotted before it happens. While the growth in GDP will still be present, it will show signs of sputtering and one can see higher levels of unemployment, decline in housing prices, decline in the stock market, and business expansion plans being put on hold. A severe or long recession is referred to as an economic depression. A devastating breakdown of an economy is called economic collapse. One definition that distinguishes recession and depression was a favorite of U.S. Presidents Harry S. Truman and Ronald Reagan. “A recession is when your neighbor loses his job; a depression is when you lose yours.” Nowadays, one funny comment is added these days to sum up the definition -Recovery is when Obama loses his job.

To be continued…………