Does the ECRI CAUSE Recessions?

The Economic Cycle Research Institute (ECRI) released a report on September 30, 2011 with the ominous title: “U.S. Economy Tipping into Recession.” The ECRI provides its full report only to its professional clients (I would love to get my hands on it!). However, the synopsis was pretty informative.

The most surprising thing I learned is that over a large swath of American history, economic expansions typically lasted three years or less:

“…it comes as no surprise to us that, with the latest expansion only a couple of years old, we’re already facing a new recession. Actually, such short expansions are hardly unheard of. From 1799 to 1929, nearly 90% of U.S. expansions lasted three years or less, as did two of the three expansions between 1970 and 1981. In other words, such short expansions are unusual only with respect to recent decades.”

The ECRI goes on to suggest that the length of these expansions are little influenced by the actions of policymakers. Moreover, the U.S. is experiencing an extended, secular decline in economic performance: “…at least since the 1970s, the pace of U.S. growth – especially in GDP and jobs – has been stair-stepping down in successive economic expansions.” Very somber words for economic policymakers who claim to have all the answers and the perfect prescriptions.

Typically, after reading prognostications like these from economists, I just tuck them away in the back of mind for potential future reference. However, the ECRI apparently has an exceptional record predicting recessions. The ECRI brags about its record here:

“Why should ECRI’s recession call be heeded? Perhaps because, as The Economist has noted, we’ve correctly called three recessions without any false alarms in-between. In contrast, most of those who’ve accurately predicted a recession or two have also been guilty of crying wolf – in 2010, 2005, 2003, 1998, 1995, or 1987.”

I assume this quote means that the ECRI has correctly predicted the last three recessions without any false positives. This amazing record got me thinking…maybe the ECRI has such a good record exactly because its predictions provide the final force tipping the economy into recession? After all, the ECRI is a well-respected economic institution. Its professional clientele must include big corporations and other economically important organizations. Like now, the ECRI makes its predictions of recession in the midst of a lot of economic turmoil, hand-wringing, and debate. The ECRI’s proclamation would then become the confirming signal to many that it is time to start descending into a recessionary bunker: trim workforces, cut budgets, save more, consume less, deleverage, etc… In other words, the ECRI sets in motion the very forces that guarantee the outcome it predicts.

I am of course trying to back into explanation ECRI’s stellar record, but I think it is plausible enough to warrant some consideration. If the ECRI misses this call, I will back off my suspicions. If the ECRI correctly predicts the FIFTH recession without an intervening false alarm, I will lobby for a full investigation. No institution should have that much power…besides there is just something eerie about economists getting something consistently correct.. 🙂

Be careful out there!

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.