The Contented Cow Blog

Building Workplaces That Work

Who am I to argue with Warren Buffett? He’s made brilliant decisions about investments, business strategy, and other things in his 77 years, and it’s made him one of the wealthiest people on the planet. But he’s not right about everything. On Monday of this week, he declared that the US is in a recession “by any common sense definition of the word”.

I don’t know what a common sense definition of “recession” is.  Maybe Harry Truman said it best: “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”

But I do know that the commonly accepted definition of economic recession is “two or more consecutive calendar quarters with negative economic growth, as measured by real Gross Domestic Product, or GDP”. USA Today calls a recession “a widespread decline in economic activity lasting more than just a few months.” There is no “official” definition of recession, but that last one sounds a little vague and fuzzy to me. I go for the one we can measure in real terms.

I’m not naive. Business is down in many sectors of the economy. People have lost jobs. And homes (for many, homes they couldn’t afford in the first place). The credit market’s in deep trouble. Consumer spending is down (wonder why…). People are hurting, and the economy is clearly growing at a slower pace than it has for most of the last decade.

But it’s not a recession.

Some parts of the US are doing well. Others are not.

Some would say “What difference does it make what we call it? The economy’s in trouble, and that’s all that matters.”

But it does matter what we call it. If we’re going to call this a recession, when in reality it’s a slowdown, what word are we going to use for a recession?

We’ve enjoyed, and perhaps become accustomed to, and complacent about, the growth of recent years. But since the 4th quarter of 2002, scarcely a year after the worst terrorist disaster this country has sustained, the economy has grown - as in - gotten bigger than the quarter before - every single quarter. Some quarters it’s grown a lot (2003, quarter 3, 7.5%; 2007, quarter 3, 4.9%). In other quarters it’s barely grown at all (the 1st and 4th quarters of 2007, 0.6%), but it has grown.

I have a teenage boy at home. In 2006, he grew a foot - literally. Since then (thankfully, for his mother and me, who are charged with clothing him), his growth has moderated. But he’s still an inch taller than he was when school started in August. His growth has slowed, but he hasn’t shrunk!

Slowing growth is not, repeat not, the same as decline.

I’d like to suggest that we, and the pundits, and the investors, and the media, spend less time wringing our hands about an impending recession, and get on with the work of being more productive, as in putting more Discretionary Effort, or OOMPH!, as we call it, into what we do every day. Go the extra mile to serve your customers, be creative in convincing them that what you’re selling will solve a problem of theirs. Pay more attention to how you’re spending your company’s money, so it’ll earn a bigger profit next quarter.

And while it’s apparently not in vogue these days to offer any hopeful economic news, I’m going to advance some anyway. A careful check of the business cycle in the US since 1854 reveals that periods of economic expansion are always (ALWAYS) longer than periods of economic contraction - and they’re getting longer. History is the best predictor of the current slowdown. And if history is any indication, it’ll be shorter than the expansions on either side of it.

As if Warren Buffett needs to take advice from me - I wish he’d stick to what he knows best - investments, and running Berkshire Hathaway. And I wish he’d stop playing fast and loose with the English language. We’re not in a recession. I just hope he, and others, don’t succeed in talking us into one.

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