Wanna Bet ?

My pal James Pethokoukis is a 2002 Jeopardy! champion — so I don’t lightly challenge his knowledge of either the esoteric trivia or data driven facts.

However, when he — along with Messrs. Wesbury, Mankiw, & Kudlow — declared unequivocally that, since there have been no negative quarters of GDP, there is no Recession, I picked up that challenge. As the publicly available GDP data I pulled from the Bureau of Economic Analysis and the Federal Reserve Bank of Philadelphia showed, these gentlemen were incorrect: Recessions can and do begin with positive GDP data.

While no one can say for sure as of May 10, 2008 we are definitely in a recession, I certainly see plenty of evidence suggesting that is a very strong possibility.

Similarly, James cannot say for sure that a +0.6% = No Recession — though I graciously concede he also has some evidence to back up his claims. Indeed, Jimmy P. is so confident, he is now calling this The Recession That Wasn’t.

Well, we will find out soon enough eventually. Hence I propose the following bet: If a recession is eventually declared by the NBER, and if in between the official start and finish points there is any month in the first or second quarter of 2008, I win. In other words, if any part of Q1 or Q2 2008 is part of a recession, James loses. 

If there is no recession, or it there is one, but it doesn’t include any month in Q1 or Q2 2008, James wins.

Loser buys dinner for 4, at the restaurant of winner’s choice. Why 4? Winner’s and loser’s spouses are included. The wager includes dinner, wine, car valet, and tip.

James, do we have a bet?

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  1. Le Bernardin commented on May 10

    I bet $1000 (will wire it to escrow of your choice) that there will be no positive nor negative GDP recession this year.

    If you win, please keep $1000. If I win, you will take my girlfriend and me (two girls) to Le Bernardin (four star seafood restaurant in NYC).

    Deal or no deal?

  2. Charles commented on May 10

    Pethoukoukis is in good company. Joe Stiglitz used the “two negative quarters of GDP” while on TV lately. Surely he knows better, but there you have it.

    As for the NBER dating system, if anyone can figure it out, they deserve the $1000. For the life of me, I don’t understand how professional economists can put forward such a plainly non-systematic system.


    BR: NBER measures a recession as the “Peak to Trough decrease in business activity.”

    Those are easily quantifiable metrics, including employment, construction, manufacturing, industrial output, retail sales, consumption, etc.

    As to Stiglitz, he used the 2Qs as shorthand — and not, as JP did, to declare we could not possibly be in a recession.

  3. Mike commented on May 10

    Are they using the proper measuring stick to divine how much of the “growth” is actually “inflation”? If you can’t count inflation properly, then you can’t count growth, and if the recession pronouncement is based on bad data, then GIGO.

    The ugly truth is that we’ve been in recession for awhile now and everybody is finally waking up the joke that is “government statistics”.

  4. McLovin commented on May 10

    Wait for it – when the NBER declares a recession, despite the possible non-presence of negative consecutive quarterly GDP, expect “the usual suspects” to accuse the NBER of “liberal bias.” And there will be efforts to concoct a “conservative counterpart to NBER” that reflects their “reality.” LOL.

  5. rayg commented on May 10

    Barry-love the site….why didn’t CNBC ask Einhorn and Ackman about shorting phantom shares or naked short selling??? Bloomberg did a piece recently on this. Mark Mitchell has a blog that rips these guys and Cramer and Herb Greenberg on this same issue.
    There is a rumor that phantom shares may have led to the demise of Bear Stearns….well along with the out of money puts that were registered 5 days before the March expiration with strikes at $15, 20 and 22.50.
    Another story where a small-cap went public with all shares bot by the CEO of the company, yet many millions of shares traded on the IPO date…how so?


    BR: In order to short stock, you must borrow shares from someone — then sell them. (You cant sell what you dont own!)

    Selling without a borrow is called naked shorting. For those who don’t know, naked shorting is illegal.

    I do not believe t has ever been shown that either Einhorn or Ackman are naked short sellers.

  6. Kuds commented on May 10

    Hey Charles, can you find us a transcript of what Stiglitz said?

  7. Dhukka commented on May 10

    What I find interesting is that since Wesbury, Luskin, Kleintop, Bowyer, Kudlow et al. have been so horribly wrong up until now predicting a downturn in both the economy and the stockmarket, why would anyone place any credence in what they say now?

    Some classic quotes in over the last 6 months:

    Brian Westbury on Kudlow and Co, 12/12/2007, “This whole recession is a figment of people’s imagination.” Jerry Boyer “Here here.”

    Jeff Klientop on CNBC – 12/14/2007, the stockmarket has “fully priced in the full extent of any economic slowdown”

    Brian Westbury on CNBC on, 12/24/2007, “The US Equity market is about 25% undervalued today. (At the time the S&P was 1496)

    Brian Westbury on CNBC on, 1/22/2008, “There is really no evidence that the economy has turned over”

    Brian Westbury on CNBC on, 1/24/2008, “Well I’ve never felt like we even came close to a recession, nor would we come close to a recession”

    Don Luskin on Kudlow and Co, 02/01/2008, “I think we’re in a slow spot no question about it but we’re not in a recession and we’re not going to go into a recession…there is essentially no real evidence for it.”

    Jerry Bowyer on Kudlow and Co, 02/07/2008, “I see no evidence of recession in the data” …….. “The recession that never was, is over”

    Bob Stein on Kudlow & Co, 03/13/2008, “We are going to have 2% growth in the first half of 2008, that’s not a depression.”

    Brian Westbury on CNBC on, 3/20/2008, “We’re not going to have a recession. In fact the economy is going to finish the year on a very, very strong note……Our forecasts say about 2% growth here in the first quarter and probably about one to one and a half in the second quarter. So we think we’re going to avoid anything that looks like a recession this year, yeah there’s some weak data right now, ahh but to me it does not look like recessionary kinds of data.”

    Regardless of whether the US technically has a recession. These guys have been horribly wrong, they didn’t even see a slowdown coming. Unfortunately, as is the nature of economic forecasting, there is no accountability.

  8. Charles commented on May 10

    Kuds, Stiglitz published an OpEd in the NYT here in which he defines a recession as two quarters of negative growth.

  9. bdg123 commented on May 10

    I’m not sure why a certain group of people want to deny that things are bad. It’s the same people who want to tell people that we talk ourselves into a slow down. I guess all of those people losing their homes might be able to talk their way back into them. What really upsets me is that the longer we are in denail as to what needs to be addressed, the longer this putrid mess will linger. Before this is all said and done, their positions will be laughable.

  10. CDizzle commented on May 10

    IMHO, the generally accepted FUNCTIONAL definition of ‘recession’ is two consecutive quarters of negative GDP growth.

    It’s been said on this site, and all over where folks understand “the big picture” (in so many words): who cares?

    As a sports fan, the analogy I’ll offer is calling LeBron “the next MJ”…or Chris Paul “the next Tiny Archibald.” It doesn’t matter. What does matter is that LeBron and Chris Paul are gooooood.

    To tie it back, it doesn’t matter if the GDP reported negative is cuddled by parantheses for 2 consecutive quarters as much as 1) the rate of change of economic growth, 2) the health of the US labor market, 3) the sentiment of the US consumer and 4) the health of the global economy.

    Handing out grades: 1) D+, 2) C-, 3) D, 4) B. Gee, too bad I listed them in order of importance, again IMHO.

    Another important variable is “relative deprivation,” otherwise known as the gap between rich and poor. It’s growing.

    In other news, take Mandarin classes.

    Also, FWIW, by my definition, we’re in a recession, characterized by a “significant decline” in economic activity within the domestic economy.


    : Your andsmy opinions, while interesting, matter not.

    Here is the definition of a recession, by the people at NBER who officially are in charge of such things.

  11. KJ Foehr commented on May 11

    bdg123 | May 10, 2008 11:09:59 PM
    “I’m not sure why a certain group of people want to deny that things are bad. It’s the same people who want to tell people that we talk ourselves into a slow down.”

    I would really like to know why these guys say what they do. I can’t bear to listen to Westbury and Luskin anymore; I hit the mute button. I already know what they are going to say, so why bother? And it is just so annoying to hear people say things that I know in my heart they don’t believe. I mean, they can’t really believe that stuff can they? They couldn’t have such bad judgment and still keep their jobs in the industry could they?

    And if they don’t really believe it, then they are purposefully lying in an attempt to convince people to buy stocks or hold the long positions they already have! And in this environment, I consider that immoral – to advise people to stay in stocks when we are still in credit crisis, whether the worst has passed or not, and still witnessing a deteriorating housing market with declining prices, AND an oil price shock!

    And its not just that their “opinions” are patently absurd that makes them so annoying, it is because they are so completely certain of their views! What economist worth his salt ever makes predictions with that level of certainty? None that I would ever trust!

    They are costing people money big time and should be sued for it, IMO.

    So who is paying them to do it, and why? Just to sell stock and generate commissions I suppose.

  12. kio commented on May 11

    Theoretically, you are not in equal positions. If the US is in reccesion, James is worse off to pay the dinner – economy shrinks. So, a good will would be to give him some discount – like no wine, car valet, tips.

  13. PureGuesswork commented on May 11

    I want to reiterate a point Joseph H. Ellis makes in his book Ahead of the Curve: too much emphasis is placed on the concept of recession. The greatest stress to the system–and economic pain–comes when the rate of growth is falling, and not at the abstract point when that rate falls below the zero line. That rate of growth peaked over a year ago–and that is why, I believe, on most polls people have been feeling negative about the economy for some time.

  14. Robert- commented on May 11

    In 20 years when the NASDAQ hits 10,000 …they’ll talk about “The NASDAQ Bubble That Never Was”.

  15. L’Emmerdeur commented on May 11

    Who the frak cares if we are “officially” in a recession? The single mother working two jobs who has to spend 40% instead of 30% of her income to feed her kids doesn’t give a crap what some Wall Street Suits think about recessions.

    The poor and the lower middle class are getting crushed, and, as we say in Greece, you guys are sitting around combing your pubes.

    Love you, Barry, but you’re the guy who keeps harping on economists pontificating from Bizarro World ivory towers. How is this ongoing debate about technicalities any different?

    Does it really matter if Myanmar’s GDP grew by 10% this year, if 100,000 of her citizens were just lost to a disaster?

    I think the problem here is that the numbers are, to say the least, suspect. You keep posting on this yourself. What’s the point of debating over fictional statistics? You might as well just fire up the Playstation and play a video game.

  16. Charles commented on May 11

    BR says NBER measures a recession as the “Peak to Trough decrease in business activity.”

    Those are easily quantifiable metrics, including employment, construction, manufacturing, industrial output, retail sales, consumption, etc

    Barry I do know what they say. I first posted on this issue about eight years ago –I might also point out that I was the first person to correctly answer your question about growth and recession. But I challenge you to take what NBER calls their procedure and reduce it to instructions that two reasonably intelligent people (say, with Ph.D.s in economics) could reproducibly use to arrive at the same conclusion every time.

    It can’t be done! If you look at their graph for 2001, the inflection points in outputs– arbitrarily chosen from the list they provide– show up at slightly different points or, arguably, not at all. They even say, “real personal income less transfers… has continued to rise in recent months and has not yet reached a peak.”

  17. Nick-Los Angeles commented on May 11

    Consider this: almost all talk of a recession, out of the mouths of “official” sources (and thus from the lazy news media) began abruptly, and exactly coincident with the beginning of the fed’s monetary loosening and massive lending programs, in the face of increasingly obvious dollar inflation.

    My take: the US has been in “real” recession for many years. The abrupt change in tone from government spokespeople, large banks, and news mouthpieces, served, in one way or another, to scare everyone into accepting the explicit bailing out of the banking complex at the cost of everyone else.

    It is clear that the fed is loaning huge money to banks at, frankly, criminally negative yields.

    The acute phase of recession, it seems, comes when “everyone knows we’re in recession”. When businesses scramble over each other to (rightly) reduce their sizes. That phase is now. But believe you me, the decline in USA value production began long ago.

    And now it’s time to start producing again. Out with the old, in with the new.

  18. Kevin commented on May 11

    How much time does the NBER have to declare a given period a recession? You posted a few days ago that sometimes a recession isn’t declared until after it is over. What is the normal timeframe for a recession announcement from that mysterious group? Couldn’t it theoretically come next year?

    Sounds like you should add a time constraint to that bet, there, BR.

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