Are recessions normal?

Make Me Smart June 22, 2022 transcript

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Kai Ryssdal: Hey, everybody, it’s Kai Ryssdal. You know on Marketplace and Make Me Smart, we give you the context you need to understand all the big things going on in this economy right now. But your kids have questions about that stuff too. And we have got you covered with our podcast Million Bazillion, answering all the questions your kids have about money and the economy. A new season is out right now. With questions like what’s inflation? What’s cryptocurrency? And how does a credit card work? That’s Million Bazillion from Marketplace. You can find it wherever you get your podcasts.

Kimberly Adams: And I’m Kimberly Adams, thank you for joining us for Whaddya Wanna Know Wednesday. And that means it’s time for all of us to get just a tad bit smarter by the way of answering your questions.

Kai Ryssdal: If you’ve got one you would like us to find the answer to, or that we might happen to know the answer to, you know what to do. Email us makemesmart@marketplace.org. Leave us a voicemail, our number is 508-U-B-SMART.

Kimberly Adams: Okay, our first question today comes from Dale in North Carolina. He wants to know why does the economy go into recession periodically? Is there a common cause? Or is it just a common consequence of multiple causes? Over to you, Kai?

Kai Ryssdal: Yes, actually, to both of those questions. So look, first, thank you very much for coming to my TED Talk. So look, first of all, there is this thing called the business cycle, right? And it’s a cycle for a reason. There are peaks and troughs. Troughs obviously, are recessions. Peaks are the point at which a recession starts. So let me explain. And we’re talking about this, obviously, because recession is on everybody’s mind these days. Jay Powell was on Capitol Hill today, he will be on Capitol Hill again tomorrow where he will be asked and was asked today about inflation and gas prices and a recession. And when’s it coming in? What’s going on, Jay? Please save us. So here’s the deal. Okay, that last bit I extemporized…

Kimberly Adams: Did you though?

Kai Ryssdal: Well, not really, actually. Because the Senate Banking Committee basically today said, Jay! Please save us! All right, so look, sometimes recessions just happen, right? Sometimes consumers and businesses just get a little meh about things, they start feeling not so good. Maybe because gas prices edge a little bit higher, or prices go up a little bit, or something bad happens. And they say, you know what?  You did that in such a New York accent.  I’m trying. And they start to pull back, right? Investors do, consumers do, businesses… And so you have a fall in what is called aggregate demand. And let’s remember that just for argument’s sake, give or take 70% of this entire economy is spending on behalf of or by consumers. So when consumers specifically start to feel a little squeegee about the economy and start to pull back, then businesses start to pull back because they’re not going to make as much money, they don’t order as many products, they aren’t able to raise prices, all those things. And so the economy starts to slow down. That’s the one main reason. Sometimes there’s a crisis like, oh, gosh, a pandemic, or perhaps a war. And that actually pushes the economy as opposed to the economy just kind of tipping, but crises can push the economy into a recession. And the last one is what may well be happening this time, which is that policy decisions, usually by the Federal Reserve, but not always, but policy decisions, specifically what to do about interest rates, which is once again, the cost of money, what to do about interest rates, helps push the economy into recession. And why am I bringing that up? Well, it’s pretty much universally agreed that Jay Powell and the Federal Reserve have been late in recognizing the sticking effects of inflation. Transitory was the word for a very long time. Now, it’s clear inflation sticking around and there was a case to be made, and many have, that Powell and the Fed should have started raising interest rates earlier, to push aggregate demand down. Remember that phrase from two and a half minutes ago? Right, and thus, perhaps cooled the economy a little bit before inflation got to 8.6%. So those are the three basic reasons. Now super quick, on the way out of this very long and winding answer. What is a recession? Well, a recession is not two consecutive quarters of negative economic growth. That used to be the sort of textbook definition of inflation but there’s a group of people…

Kimberly Adams: Negative economic growth.

Kai Ryssdal: Negative economic growth, sorry, yes. Thank you. There’s a group of people at the National Bureau of Economic Research, it’s called the Business Cycle Dating Committee, and they’re the ones who get to design. And what do they look at? They look at – and this is a quote – “a significant decline in economic activity”, right, aggregate demand that is spread across the economy. So not just one or two sectors, not just cars, or houses, but widespread. And that lasts for several months. Here’s the catch with this definition. We will not know we’re in a recession this time or anytime, until basically it’s over, until we have started pulling out of it. The NBR will note the peak of economic activity, the top, and then they will note the bottom, the trough. And once we start pulling out of that trough, once business picks up, once aggregate demand picks up, once financial conditions ease a little bit, then they will say oh, look, we’re in recession, from x period to y period. And that’s a very long answer. And I apologize for monopolizing the first five minutes of this podcast.

Kimberly Adams: I’m very interested. And I actually want to circle back to something you said like half-ish way through all of that. You were talking about what happens to consumer spending that can trigger a recession, and that consumers are carrying the weight of the economy. We don’t talk as often about business spending. How does what businesses are doing and how they’re making their spending decisions factor into whether or not we move into a recession? Which I understand we don’t know until after. But I understand that quite a bit about like how consumer spending plays into it but what about business spending?

Kai Ryssdal: So there are a couple of main slices, main tranches of business spending that you gotta pay attention to. One is – and you hear this a lot – inventories, right? How well companies are managing that backlog of supplies that they have to sell to consumers. And you might have seen Walmart and Target both in the last like three weeks came out and said, Holy cow, we way overbought inventory, we’re getting clobbered, and we have to too much on our shelves…

Kimberly Adams: Time to buy an air fryer.

Kai Ryssdal: That’s exactly right. Right. So that’s a challenge. And now Target and Walmart are going to pull back and they’re not going to spend as much on inventories, because they got a bunch of stuff sitting on the shelves, which by the way, they’re gonna have to discount and sell more cheaply. And thus, their profit margins go away. So they might not be able to hire more people or give raises or whatever. So that’s sort of one slice of it. The other slice is Cap-Ex, right? Capital Expenditures, the really big expenses that companies make on new equipment, new plants, those kinds of investments that will pay off but in the future, right? I mean, if you’re building a semiconductor plant, just a big one that’s reasonably in the news. That’s like a five-year investment, you know, and you’re not gonna spend a billion dollars and it’s gonna pay off tomorrow. And so there’s a lead and lag time that comes along with a lot of business spending, consumers it’s more immediate than businesses really. All right. Next question. Here we go.

Margaret: Hey, this is Margaret, from Okeechobee, Florida. And I wanted to see if you guys could make me smart on solar. So living in Florida and having all the gas issues and prices going up. I just don’t understand why a state like Florida, the Sunshine State doesn’t do more with solar panels. Why aren’t their solar panels on every house? We have so much sun it feels like a waste. Thanks, Make Me Smart!

Kai Ryssdal: Great question.

Kimberly Adams: But how would those panels survivals y’all’s hurricanes? That’s what I want to know. Okay, so, Kai, as you know, my family loves Disney World. And I’ve been to Disney World more than once. And one of the things that always stands out to me about these multiple trips to Florida is how it’ll be super sunny in the morning. Random thunderstorm will roll in in the afternoon. Cloudy rain downpour then sunny again in the evening, okay? All of this to say that, yes, Florida has a lot of sun, but it’s not actually as sunny as you might think. So the Florida Sun-Sentinel looked into this. This is a newspaper. And so one of the reasons that solar isn’t more popular in Florida is yes, Florida isn’t as sunny as you think. It turns out the states that actually have the biggest potential for solar energy tend to be a little bit more dry, and not have like the daily deluge like Florida does. Arizona and New Mexico, parts of Southeast California, West Texas, places where there’s not a lot of necessarily trees blocking the places where you might put the solar panels and maybe not as much nuances in the weather, shall we say? And then the other part of the limits on solar panels in Florida is that the state itself, prevents third-party solar power purchase agreements. Say that three times fast. Third-party solar power purchase agreements, which is basically this idea that other people could buy the solar panels that sit on your house, and you could work out some side sort of deal. And this is a big roadblock. These agreements allow a developer to build solar on a home at little to no upfront cost for the homeowner. And the homeowner buys electricity from the developer. Usually it rates lower than the utility rates, sometimes you can feed that energy back to the grid for a certain amount of time. And then at the end of that time, the homeowner can either sign another agreement or end the agreement and remove the solar panels, purchased the solar system, whatever. And that’s not so easy to do in Florida. And so solar energy advocates are trying to pass constitutional amendments in Florida that would actually allow these third party purchasing agreements. I’m going to start saying that instead of Peter Piper picked a peck of pickled peppers.

Kai Ryssdal: Oh, you did that well.

Kimberly Adams: Thank you. It’s almost like I work in broadcasting. Okay, next up, we have a question about gas prices.

Savannah: Hi, my name is Savannah and I’m calling from Long Beach, California. I was just wondering, I saw a few posts on Tik Tok about a gas boycott. And I was wondering if something like this would work to lower prices and like what scale with the boycott need to be to work? And if something like this has ever been done before? Cheers Make Me Smart. Thank you!

Kai Ryssdal: Wow. So look, if you’re going to boycott gas, you got to boycott gas and oil for a very, very, very long time. It just, I mean, a one day thing isn’t going to do it, a two day thing isn’t going to do it. And look, I know last week, we talked about, you know, what can consumers do to take care of inflation. And I said, stop buying anything that you don’t necessarily need? That’s kind of the answer here, right? So a couple a couple of points. Number one, oil and well, oil, specifically right? Oil, whence we get gas, is traded in a global market. So a boycott here isn’t going to do much globally, right? We’d have to get like global oil consumers to stop. And then we might be able to keep up. And you saw actually there is a historical example. If we look at April 2020, I was out driving around just to kill time actually. And the roads were empty.

Kimberly Adams: Wasting gas.

Kai Ryssdal: Wasting gas. But at that point, gas was like $70, oil is like $70. So we had to give it away. And in point of fact, and thank you Marissa for pointing this out in the notes, if you remember there was a crazy moment in late April early May of 2020, when crude oil went negative, where you actually had to pay somebody, you had to pay somebody $36 to take a barrel of oil off your hand. It was cray cray. So that’s the scale. Yeah, it was wild. And Stacey Vanek Smith, God love her, I mean, she used to be at Marketplace and now she’s at at NPR doing the Indicator and Planet Money. She did a great piece on how can something that has an intrinsic value, right, a barrel of oil has an intrinsic value, how can that be negative? Anyway, that was a great piece. So that’s the scale of boycott that we would need to make a dent in global oil and/or gas consumption.

Kimberly Adams: Just to put a pin on that, by the scale of global boycott, you mean shutting down the entire global economy? …the first COVID shutdown, right? That’s the scale we’re talking about to make a dent.

Kai Ryssdal: Exactly. And so this is not a thing like let’s boycott Walmart because we don’t like XYZ policy they have, or Apple because of the conditions at Foxconn in Shenzhen or anything like that. This is a global commodity, traded globally, used globally that oh, by the way, isn’t just gas, right? If you think about oil, it’s in plastics, it’s in chemicals. It’s in almost literally everything in this economy.

Kimberly Adams: And in our bodies.

Kai Ryssdal: And yeah, it’s in our bodies. It’s in micro pellets. It’s in all that stuff. So I admire the spirit. But the reality is really hard. Truly hard.

Kimberly Adams: Good question, though.

Kai Ryssdal: Yeah, no, it’s a really good question. And look, I get the sentiment, right, because you’re like, oh my God! But anyway, John in Texas, here’s what he wants to know. Excuse me. How much of the low unemployment rate can be attributed to recruiting sites like LinkedIn and Indeed?

Kimberly Adams: It is hard to say exactly what impact, if any, these sorts of job-hunting sites have on the unemployment rate. But there was a study from the University of Pennsylvania where researchers found surprisingly, that there’s no evidence that online job searching tools have had an effect on overall US joblessness. And that came from the Center for Equitable Growth as well. One of the explanations for that could be that while online job sites dramatically increase the number of job applications per listing, you know, it doesn’t necessarily increase the number of jobs. It just may mean that if it’s easier to apply for a job, you can just upload your resume very quickly. But at the end of the day, they still need one person. And that ease of application sometimes creates mismatches between the open jobs and the job seekers. Glassdoor says that on average, each corporate job opening attracts 250 resumes.  Wow. That’s crazy. But how many of those resumes are like real?

Kai Ryssdal: Yeah, that’s true. That’s a good point.

Kimberly Adams: Is this really a job that you want? Or are you just like throwing spaghetti at the wall, you know. Which I have certainly done in job searches in the past. So increasingly, employers are starting to use algorithms and software to sort through these job applications to see what’s real, and what may be, you know, nice academic researcher posting fake resumes to try and see if you’re discriminating in your hiring process. Which also happens. So these sites are helping people land some new jobs, but they’re also keeping job seekers out of the job market sometimes, because those algorithms might weed them out if they don’t quite know how to navigate them. Our wonderful colleague, Meghan McCarty Carino who covers workplace culture, says she’s heard from experts who say that people are passively getting job opportunities from sites like LinkedIn and Indeed, with the idea that you don’t necessarily have to be looking for a job for the job to come to you. And Kai, as popular as you are, I’m sure that you get LinkedIn messages all the time from people trying to lure you away.

Kai Ryssdal: Well, we’ll save that for another podcast, shall we? Anywho. Let’s do one more. We’ll squeeze it in here. I kinda love this one here. Here you go.

Robin 

Hi, this is Robin calling from San Clemente, California. And my question is specifically for Kimberly, I really want to hear her top five tips for using bitters. Obviously she’s a fan and I would like to learn how to integrate it. So please, make me smart.

Kai Ryssdal: I second that question.

Kimberly Adams: Well, it’s sort of like that hot sauce commercial. You know, you put that bleep on everything. Just put bitters in everything. So I have quite a few bitters. You know, there’s the typical, I guess, how do you say it? Angostura?

Kai Ryssdal: Those are the only ones I know. Actually. Angostura bitters.

Kimberly Adams: Yes, that’s the one you can get the grocery store. And I tend to like put it into any kind of drink that I just want to be fancier. So if I’m drinking pomegranate juice, why not throw some bitters in it? Having ginger ale? Sure, add some bitters.

Kai Ryssdal: Yeah, you’re gonna get through it. What does bitters do?

Kimberly Adams: It adds like, it fancified the drink. It tricks your brain, at least for me, into thinking you’re having a cocktail, especially when you don’t want to be like “drinking” drinking, but you want to get that sort of cocktail-y flavor. To me adding a dash of bitters into a non-alcoholic something really sort of like triggers that brain reaction for you. Just like it is two o’clock in the afternoon, I do not need to be having a cocktail, but I can have some pomegranate juice with bitters in it. And yes, I know that there is some alcohol content in bitters, but it’s negligible. But the nice thing about being here in DC, and I know in a lot of different places, there are all these like craft bitters. And so you can get multipacks of like bitters that cross all sorts of ranges. So I have like a six pack of bitters that have like smoke and habanero or grapefruit and rosemary or a lavender and hibiscus or, you know, sea salt and coffee. And, depending on what you put it in, sometimes you can taste a difference, sometimes not, either way you feel fancy. And then I have things like lavender bitters, which definitely have a stronger flavor to them. And so if I’m making a cocktail and I know I want to add a little floral note to it, but I’m not going to like go and stick a flower in it and wait for it to steep for a couple of hours. I’ll just put a couple dashes of lavender bitters in it and call it a day. And it makes me feel fancy. So that’s how I handle bitters.

Kai Ryssdal: I learned something today. Awesome. Thank you for that.

Kimberly Adams: Yeah. Well, thanks for the question, Robin. I hope you have a wonderful journey with your bitters. And thank you all for joining us for the journey of the show today. That’s all we’ve got. Thank you for listening. Kai and Amy Scott will be back tomorrow to hopefully make some sense of the news and make you smile.

Kai Ryssdal: In the meantime, you know what’s next. Questions, comments, drink suggestions, we’ll take anything, makemesmart@marketplace.org. Leave us a voicemail 508-U-B-SMART.

Kimberly Adams: Yeah, how do we fancify your beers. Make Me Smart is produced by Marissa Cabrera. Olivia Zhao is our new intern, although she’s not so new, she’s part of the team. Ellen Rolfes writes our newsletter.

Kai Ryssdal: Today’s show was engineered by Juan Carlos Torrado. He’s sitting there on the other side of the soundproof glass. Ben Tolliday and Daniel Ramirez composed our theme music. Our senior producer is Bridget Bodnar.

Kimberly Adams: Is it really soundproof, though?

Kai Ryssdal: I don’t know. Well, there’s an air gap in the middle, right? And then I don’t know. I’ll ask somebody.