What if they threw an economic recovery but nobody came?

What if they threw an economic recovery but nobody came? This is exactly the news coming out this week when the National Bureau of Economic Research (NBER) declared that the recession ended in July 2009. For most Americans, they were shocked to hear this news especially with near 10% unemployment and 16% underemployment. This declaration by the official gurus of the economy speak to two issues–one economic in terms of how we evaluate economies–and one political–how the declaration hurts Democrats and Obama.

First the economic problem. The declaration of the beginning and ending of recessions is looked at mainly by shrinkage or growth in the GDP. If the economy contracts two or more quarters then a recession is declared. Similarly, when GDP growth reemerges, then it has ended. Sounds simple? Yes and no.

The problem with this measurement is that it fails to look at the distributional issues in the economy–the winners and losers–and how the changes in the GDP are affecting specific people. In English, it fails to look at unemployment, declines in wages, purchasing power, and other similar factors in real fashion. In theory, NBER is supposed to consider unemployment as a factor, but in practice it is given short shrift. What all this means is that once the economy seems to be growing, regardless of who is winning, gaining, or losing, we have ended the recession.

This is a very trickle down theory of economics. It ignores the real world impact of a recession, such as the one we have now. It goes against what most people would say is the mark of an end of recession which is increased hiring, decreased unemployment, more sales, and increased consumer confidence.

Most of us do not think a recession has ended when corporate profits are up due to cost cutting that includes laying off people. It does not include a world where home sales and equity continue to shrink, mortgage delinquencies continue to rise, and credit is hard to get and therefore new investment is marginal. Looking only to gains on Wall Street and corporate profits essentially says middle and working class America does not count. Someday you will gain but not today. This is trickle down economics at its worst and it only creates a sense of skepticism towards economics and government.

This is bad news for Obama too. For a president criticized (rightly or wrongly) as being out of touch with the economy and average America, to declare the recession over is another slap in the face of many. Moreover the message of his town hall meeting–my policies are working, give them time–again suggests a trickle down theory at its worst. “Be patient, the benefits of my helping the banks and Wall Street will eventually reach you.” Or “Stay the course.” This is the Democratic message. Not a good one.

Obama and the Democrats need a different message. I remain convinced that Obama needs to fire his entire economic team. He needs to do that and announce new policies and a direction. Tell the American public that you too are unhappy with the direction of the economy and want a new direction. Announce new policies and force votes before election day. Make it clear by word and deed that you again want change. In effect, show anger with your economic policies and move in a new direction. Change and anger. That is how Obama got elected and that is what he again needs to run on.