Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. According to a report released by the Commerce Department this week, US consumer spending in September sunk to its lowest rate in seven months. This is just the latest data point of many that seemed to suggest we may be headed for a recession. Prakash Langani is an advisor at the International Monetary Fund. Before that, he was an analyst at the Federal Reserve Board's International Finance Division. He has spent a lot of time thinking about recessions and how economists predict them or don't. Prakash, thank you so much for joining me. I want to start with, as it were, recessions one oh one. You know, the other day, my fourteen year old son said to me, Dad, actually, what's the definition of a recession? And I got up to my two quarters in a row of negative growth of GDP and then I had to pause. So tell us, first of all, you know, what is the definition of recession that economists use? And also how did they come up with this definition, because you know, two quarters in a row seems vaguely arbitrary. Well, I think I think the first thing, if I was in charge, I would do is to ban the world real GDP. I think we should just call it incomes, and that resonates more with the general person. So a recession is a year in which incomes fall, and you're right that there's nothing magical about saying they should fall two quarters in a row. We could have picked one, or we could have picked three. Two was just kind of a rule of thumb that seemed to suggest that bad things were going to happen. So I think it's better to just think of a recession as a year in which your income is going to fall. That's an extremely superior that's definitely a much superior definition of recession. Why don't economists all use that, considering how much clearer it is. I don't know. I think we got addicted to this word real GDP, which means nothing to your son or to an ordinary person. I think if you told my son his income was going to fall, you'll get his attention immediately. But you know, I think there is you know, each each profession has its jargon. I don't want to be too harsh on my fellow economists, but it could be worse. You could be lawyers, believe me, right, always get worse. So a recession basically is a year in which your income is likely to fall. And that's unusual because at least since the Industrial Revolution the last two hundred three hundred years, incomes generally go up every year. So that's been a good thing that's happened to us as a species. But so recessions are unusual, but not that rare. Recessions happen about twelve fifteen percent of the time, so it's something to keep an eye on, and that's why I've been trying to study them. Well, that's actually conceptually very interesting and also very helpful. So the first point you made, namely that we treat a recession, at least colloquially, like it's this terrible thing. But that's against the backdrop of the assumption that our incomes should somehow always go up. And as you say, it's great for our species that that be the case. But what underpins that commitment to the idea of steady growth? I mean, that's even before you reach the thought that nothing grows all the time. And as you say, twelve to fifteen percent at the time we're actually not growing. But starting with the background assumption, this is a good opportunity to ask an economist, why, in the view of most people in the field, should we assume that somewhere between you know, eighty eight and eighty five percent at the time, our incomes will go up. I think, you know, what's happened is that since the industrial Revolution, we've generally found a way of doing things better. Every year, you know, you and I kind of find a way of doing our jobs better, aided by technology, aided by our own brains. Would say, you know, I screwed up on this and that last year. I'm not going to repeat it. I think because of what economists in their jargon called technological progress, our incomes have been going up at about two percent a year in sometimes the United States. Now, so the United States has had adjusted for inflation, it has had incomes go up two percent a year. And so because of technological progress, Now, should we always assume that will be the case as long as you know, we can find ways of doing our jobs better. Probably should we as we grow richer gets obsessed about having a two percent increase every year. Probably not, But still I think most people would say, having incomes go up at some reasonable rate is better than having them fall for sure. Yeah. So let me ask you a push about cycles. So if we had you know, a regular prediction of two percent growth over some period of time, you know, over say ten years, and yet we had some we knew that with some probability, there is going to be you know, randomness in the system, and sometimes it would go down, then we would expect that. You know, again, if you're around twelve to fifty percent more than one in ten times in a ten year period, we would have a recession. Right, So is that cyclical way of thinking about recessions a healthier way to think about it? In other words, don't panic and think that every recession is the harbinger of things in general getting worse. But just see it as you know, we're flipping the coin and you know over time it's going to even out. Yeah. I think you know. That's why you're seeing people worry about a recession right now, is because we've had an expansion of eight, nine, ten years, and people know that in the past at least expansions have not gone on for twenty years. So I think you're seeing a lot of people correctly worrying about the fact that if you have an expansion that's long in the tooth, it's about time to start worrying about whether it's going to keep going. And I think that, as you say that is the healthy way to think about it is that you know, recessions are kind of like the hurricanes of economic life. I mean, you know, with hurricanes, you have a hurricane season, so you have a bit of an edge, you know, went to look for them. But still we know that expansions don't go on forever, so having a long expansion means that we should start thinking about is the next one around the corner. And I think it's actually healthy that there has been all this concern about whether we're going into a recession. Speaking about hurricanes and predictions, you when your co authors wrote a much cited and very interesting paper which you published last year, suggesting that economists don't do that well at predicting recessions because they're, on the whole economists are too optimistic about growth and so they miss a significant number of the recessions that are out there. Tell me a little bit about what motivated you to do the study and what takeaway we should have from it. What sort of motivated me was, frankly, my own horrible forecasting record. So twenty years ago, I was my job when I was at the FED was to forecast economic growth for Korea. And you know, my boss had given me the job, saying, you know, God, I'm giving you the job of a lifetime. These countries grow seven percent a year, nothing changes, and I'm giving you the job of forecasting this. You should be thanking me. And this was, you know, nineteen ninety seven, and you know, people said, oh, something's going wrong in Korea. I said, okay, fine, I'll cut my forecast down from seven percent to three percent, which for me was like a huge deal. And people said, no, no, no, we think there's something else going on. These were, you know, people who were not even following Korea. These were people who were just talking to friends, reading the newspaper. And here I was kind of the sophisticated forecaster, and you know, I dug in my heels. I've very grudgingly, towards the end, cut my forecast to minus three as the year was ending. You know, Korea ended up at minus seven that year. So you know, I've always been intrigued about whether it was just me being terrible or if this was something that all my friends were also subject to. And lo and behold, as you said, I found that the record is just terrible. I mean, as you saw in that study. You know, we studied one hundred and fifty s recessions and only five were predicted a year in advance. And you might say that's a very very high bar to set, but you know, you can lower the bar and still the forecasting performance remains really bad. And you know, one fourth of recessions remain undetected even as the year is ending. So it's like forecasters are just not aware that the economy, it will turn out, has been in a recession the whole year, and one fourth of we can't even tell that the economy. It's only later and then the following year, the year after the rains have gone, that people will say, oh, it was raining, did you know so? But that makes it seem a little less bad, because if it's so difficult to detect the recession even when it's actually in action, it makes it seem like it will be much more difficult to predict it in advance, right, I mean, as you say, when it's raining, we know that it's raining, right, So that implies that rain is a binary, which maybe is not true if you live in England or Scotland. Maybe it's always a little bit raining. But I mean, imagine that rain is a binary either it's raining or it's not raining, and then it makes it easier to detect, and that, in turn, you would think would have some effect on our capacity to predict it. But if something's very hard even to detect, surely it should be even more difficult to predict. I mean, maybe only a handful out of one hundred and fifty three recessions doesn't seem like a very good success rate. Maybe we just have the wrong baseline. Maybe it should be hard to predict. That's the defense that many of my fellow economists offer. I mean I don't I don't fully buy it. I think that there is a bit of complacency. I think the suffering that in recessions inflicts on people is not really felt by my fellow economists and the salary jobs that you know, Yeah, I think we have to protected. I mean we are an I mean many of us are have high levels of education. We kind of managed to hold our jobs through recessions. I think if we were the common person, we would demand that economists try to do a better job. I mean, you know, fifty sixty years ago, we would completely bad at predicting hurricanes, and you know, hurricanes had used to have major loss of life following that, and we didn't. We said this is not acceptable because you know, people are dying. And I think we just don't see the damage that recessions inflict in the same way. And if we did, we would demand that economists try to do a better job. I mean, you're right that we may not be able to do so with complete success. I mean weather forecasters who are predicting hurricanes often, as we know, get us all worried, and then the hurricane changes course and they say sorry, falls along. But we don't blame them, you know, we said they're doing their best job. They're trying to protect us. I think economic forecasters should be treated the same way. I mean, these are people who are trying to protect us from job loss, which has you know, just as devastating consequences as what hurricanes do. I mean, you were asking me what got me motivated? One thing that also got me motivated in addition to My own poor forecast was that I was unemployed for a year and I could see the effects it had on me. And I've been studying the effects of what unemployment does to people, and so I've become very passionate about saying, you know, we should try to forecast recessions, we should try to take steps ahead of time so that we can prevent job loss during recessions. Well, those are That's a very fascinating perspective on it, and I appreciate that having had the experience of unemployment must raise your awareness and consciousness. And that actually brings me to the question that I wanted to follow up on, which is, let's think a little bit about the incentives of predictors. So you mentioned that when the meteorologists predict a hurricane and then the hurricane misses us or doesn't happen, we don't get that angry at them, yep. But that goes to their incentives, right, I mean, when they predict a hurricane and it doesn't come, we just think, instead of directing anger towards them or blaming them for the research us that we might have spent in preparing for the hurricane, unnecessarily, we say, oh, we're so glad, so overwhelmingly please that we weren't hit by a hurricane that that outweighs any irritation, and we might feel towards the meteorologists. And you know, if we expand from hurricanes to let's call them winter storms. You know, I'm from Boston and I still live in the Boston area, and you know, the prediction of great sizeable winter storms is an industry where great profits are made by local media, by local radio and television, because people will watch them if they predict a storm, and so they systematically I mean I've never read a study about this, but I would bet almost anything that you could show it into study that they systematically over predict storms because it's good for ratings, and as you point out, there's not that much downside for them if there's there's no storm. They don't internalize the full externality of the full spillover costs of their having made predictions. What about economists, I mean, if they predict recession, do they have something to lose? And I'm looking for some motivational account. I'm trying to be a good economist or a good you know, rational actor economists and see if there's some motivational explanation for why economists underpredict recession. Yeah, I've I've been studying that a lot too. I mean, I you know, many of these forecasters who have been studying are actually you know, friends, and I can talk to them, and for them, the reputational loss from falsely calling a recession would be huge. That's that's how they perceive it. And what they tell me is that they will make a forecast that things could be kind of bad, but they don't go into negative territory. But when they go to meet their clients, they may say, well, you know, I didn't want to move my forecast down into negative, but privately, I'm telling you I'm really worried. So they say they would prefer to do that then to go out and make a call. And there's a very good example from some years ago. There's this really nice place called the Economic Cycle Research Institute, which really tries to forecast recessions. And in September twenty eleven, their lead guy, Lakshmanachuthan, went on Bloomberg and said, there's going to be a recession called. He said, We've been telling our clients privately, but I feel I have an obligation to tell everyone else the public, that there's going to be a recession, and that recession didn't happen. And you know, for a year, Bloomberg would keep inviting this guy back. He would say, it's going to happen, It's going to happen. And then one year later he had to say, well, it turned out to be a false alarm. And my sense is that that did not do wonders for his reputation or the reputation of his company. And to me, that's unfortunate because I don't see that he was making that call either to become famous or to make money. He had already told his clients privately, but he just felt, here, we've just gone through the Great Recession. He was truly worried his company, based on their indicators, that twenty twelve would be a recession, and he thought it was a public duty. Just as with hurricanes, we think it's a public duty of forecasters to tell us if a hurricane is coming. He thought it was his public duty to do so. And the experience didn't end up well. I can picture two different stories about why in this case that you describe, it's so costly for an economist to predict a recession and not have it happened. So one is a story about safety in numbers. Right on this story, it's sort of conventional that most of the time there isn't a recession, and so economists defaults to predicting that there won't be a recession. And then if one person wants to say there will be a reception, he or she has got to put himself on the wine go out there. And then if he's right, sure, people might say he's a genius. But more of the time he's going to be wrong than right, and it's very costly because he's an outliers. He's stuck his neck out and others have not done so. And in that story, you might be able to fix this if more economists were willing to predict recessions simply by virtue of there being more numbers. You know, we're getting a group together, you might be able to fight off that that cost. The other story, though, is a story about self fulfillment. It might be that we sort of imagine that if enough economists say there's going to be a recession, that that has a recursive effect and helps drive a recession. Since there is some element of expectation having an effect on real world events, and so on that theory, we collectively we really don't want economists to say there's going to be a recession. We might know that they are under predicting recessions, but we like that because as a social matter, we prefer the optimism because we know that once in a while, too much pessimism can actually bring about a bad result. Do either these stories make any sense to either of them? Correspond to how you see the world? Yeah? No, I think the second thing that you mentioned is the only to me justifiable reason for caution in predicting recessions, because of the self fulfilling nature. You know. That's that's the difference between economic forecasting and weather forecasting. You know, we take preventative actions, but we don't influence whether or not there will be a hurricane, whereas with recessions there can be the self fulfilling nature. But to me, we are so far from having to worry about that, because, as I said, we are in a corner where we almost never predict a recession, even though they happen twelve to fifteen percent of the time. So to me, it's worth the risk of saying, let's try to move to a sort of world where we are always somewhat worried about recession. If a recession has just happened, I would say, then don't worry about it, because you know, if recovery has taken hold, it tends to be self perpetuating for a while, and it's fine. But once you get two, three years, four years into an expansion, then you start judging and trying to see what the odds are. So I think the language and the terminology should shift into more about, you know, what is the likelihood, and then you know, to be open about the fact that at at some times there will be a divergence in opinion, and then people can decide on that basis whether or not they want to make adjustments. So now we're in a moment when some economists really are starting to talk about a prediction of recessions. So let's talk a little bit about some of the indications. One is, you mentioned already that when a recovery has lasted for a good long time, it's getting I think you said long in the truth. Just statistically it seems probable there will there will come to an end at some point because you know, if you just look at the probability distributions, it's been the X number of years and so it's probably going to be over soon. Another is the so called inverted yield curve in the bond markets. Yeah, maybe let's take them in order. Let's start with the just the numbers game. You know, it's been a while, and then from there we can you can explain the inverted yield curve to us, and we can we can try to look at that a little more closely. Yeah. No, I think the you know, the duration of expansions has some predictive power for whether or not there will be a recession. So I think that's certainly one factor. But I think, off the other indicators, the yield curve is the most promising one, and the fact that it has inverted now, and that it had inverted prior to the previous five recessions, is something that we should take into account. So let me run by what I try to I'll give you my attempt to explain to my fourteen year old what the inverted yield curve was, and tell me where I where I went wrong. What I said to him was, look what's going on in an inverted yield curve is that people who are setting interest rates believe that the economy is likely to be much better over a long term than they expect it to be over the short term. And that's why it's a higher interest rate over the long term than it is over the short term. And that reflects I suggested, I think, maybe wrongly, a prediction that things are going to get worse before they're going to get better, as opposed to the more normal set of circumstances, where we think that that something out in the future is more uncertain and in the nearer future we're able to identify with a greater probability that things will go well, and so therefore the usual model is for the interest rates to be the other way around. Right, So where in that analysis did I go wrong? And I think that's that's exactly right. That is one of the channels. One channel that we typically used to say was that the FED or policymakers had somewhat more information about which way the economy was headed, and they were worried about the near term, and so short term interest rates were being lowered. But the problem this time is that the short term interest rates have been low for almost a decade now, right, So it can't be a good predictor that they think things are going to get Yeah, it can't be seems to switch to being some other thing. It's like now it's a feature of political economy that Yeah. So I think there are pressures on the FED, including from the president, but even before this president, other people were putting pressure on the FED to try to keep the interest rates low and to keep the markets happy. Yeah. I mean that's a constant of presidential wish list, is you know? Right every president, every president would like people to be able to borrow for relatively little money, right, Yeah. So going back a bit to our discussion on the recession, I think at this point, given the imprecision of our forecasts, it's ridiculous to be worrying about decimal places on our forecast. I mean, you know, changing a forecast from three point four to three point two is just meaningless given the range of error. So I think if we shift the discussion more to likelihoods of bad things happening, like recessions, then the discussion will also be more about what policy steps can we take now, either to keep the recession from happening or if we see a recession happening, what steps will we take? And I think fiscal policy is going to play a very big role, namely finding ways to put money quickly in the pockets of people and companies. And I think I see a bit of hope there because all this talk about whether or not a recession will happen is provoking at least some very sensible people to think about, you know, what would we do if if he really started to think that a recession was on its way, or if we recognized it early enough, you know, what would we do? What do you consider to be the most the most promising. I think money in people's pockets is what you're talking about. Yeah, exactly. I think that some of the things that were done during the Great Recession kind of you know, either through some kind of cash transfer or some other schemes which turned out to be pretty promising in countering the depth of the Great Recession, are what people are talking about. So, you know, Heather Bouchet at the Washington Center for Equitable Growth and Jay Shamba of the Hamilton Project at Brookings, they have a new book basically on you know, how to be recession ready, and to me, Again, this goes back to the kind of analogy with hurricanes. I mean, we don't know when it's coming or where it will hit the most, but we ought to be recession ready and think about what schemes we have, And indeed, the most promising thing in my view, is to just have ways of providing direct stimulus, basically finding ways of giving cash to people who will be a acted. So there are people, including at the fair, who are thinking about some kind of rules that would go into place, which says if unemployment in a certain region goes up x percent, we would immediately start giving checks to people there and so on. And I think that that's exactly the way we do with hurricanes. We say who's getting affected? You know, where are the floods, what do people need? And we provide that help. And I think that's what we should be doing with recessions. Well, that's an optimistic way of thinking because it offers us some tool to address it, and I want to I just want to close by asking Percash, how bad do you think this one is going to be? I mean, you've been pretty clear that you think a recession is is coming. Do you think it will be a long one? Do you think that it has the capacity to be more than a recession, and that obviously will have serious consequences for the policy recommendations that you make. Well, first, to be clear, so I don't lose my own jobs. Everything I've said is my view and not the IMFs. I think the IMA is still predicting two percent growth in the United States and mostly and elsewhere, and you've told us exactly why go on? Yeah, so you know, making clear that these are my own views, but my own views that are based on the fact that, as I said, expansions that get long in the tooth tend to end, and so in terms of probabilities, I think we should be prepared based on the yield curve, based on a couple of other indicators, consumer sentiment, there is the Institute of Supply Management's index. I think based on all these there's enough reason to be prepared for one. My own personal view is that, you know, this doesn't need to be a d procession. I think we went through essentially the next Great Depression just a decade ago. So I think with preparedness and particularly with an attitude that says we have to think about what policy responses we can put in place, we should be well to write it out. Thank you very much, Percussion. Those are very very helpful points, and I'm very very grateful to you for your description. Thank you. Thanks No, it's a pleasure. Now for our sound of the week. That was the sound of victory, specifically victory in the National League pennant for the Washington Nationals, sending them to the World Series for the first time in the recent history of their franchise. The truth is that for a Washington DC team to go to the World Series is a kind of world historical event. The last time, and indeed the only time a baseball franchise in our nation's capital one a World Series was in nineteen twenty four. That's nearly a century ago, and Walter Johnson, one of the greatest pitchers of all time, was still pitching for the club. Then. Not only was there a long period of mediocrity, but ultimately, between nineteen sixty and two thousand and five, there was a forty five year drought of any baseball at all in Washington, d C. That's right, the national pastime was not played at their professional level in the nation's capital. This opportunity for the Nationals then isn't just something for DC fans, long suffering though they may be. It's actually about something much bigger. It's actually about the question of whether baseball truly is and remains a national pastime for Americans. The statistics make you think that it isn't really the case any longer. There was a time when nearly every American child, or at least the boys, played baseball in a serious way. There was a time where baseball dominated national consciousness. During World War Two. If American troops wanted to make sure that their lines weren't being infiltrated by clever spies from the other side who happened to speak English, they would ask them baseball questions on the assumption that every legitimate American would know the answers, while a foreigner might not. Today, there's just no way that questions like that would work. If we have a national sport in statistical terms, it might be American football, and if you look at the sport from the United States that's garnering the greatest degree of world attention, that would be professional basketball. Baseball in some sense, has come to be seen then as old fashioned, as too slow, as unexciting. In some way, not as up and coming American. The fact that the Washington Nationals now have a shot at the World Series is not going to save baseball from the duldrums to which it has to some degree entered. It might, however, remind us that baseball could still have a central place in our national consciousness, even without needing to dominate all of the other sports. After all, even Washington, d c. Doesn't stand in the same kind of civic position relative to the United States as it once did. True, it's still our nation's capital. Still many tourists come and visit it to try to learn about civics, but the city itself is royaled in political controversy. An impeachment inquiry is going on. No one right now would think that Washington, d c. Is a shining ideal of what the capital of a great republic should be. Under these conditions, the fact that the World Series will come to the capital is just a pleasant recognition that our system still has some nice parts to it. Lots of countries in the world play baseball, some today play it better than the United States. The unique association of baseball with the country and with the capital is not what it was, and that might just be a good thing. Maybe we can be a little more realistic about what sport is, a little more realistic about what politics is, a little more modest about whether the United States of America can ever function as a shining light to the rest of the world. Deep Background is brought to you by Pushkin Industries. Our producer is Lydia Genecott, with engineering by Jason Gambrell and Jason Rostkowski. Our showrunner is Sophie mckibbon. Our theme music is composed by Luis GERA special thanks to the Pushkin Brass, Malcolm Gladwell, Jacob Weisberg, and Mia Lobel. I'm Noah Feldman. You can follow me on Twitter at Noah R. Feldman. This is Deep Background.

Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. According to a report released by the Commerce Department this week, US consumer spending in September sunk to its lowest rate in seven months. This is just the latest data point of many that seemed to suggest we may be headed for a recession. Prakash Langani is an advisor at the International Monetary Fund. Before that, he was an analyst at the Federal Reserve Board's International Finance Division. He has spent a lot of time thinking about recessions and how economists predict them or don't. Prakash, thank you so much for joining me. I want to start with, as it were, recessions one oh one. You know, the other day, my fourteen year old son said to me, Dad, actually, what's the definition of a recession? And I got up to my two quarters in a row of negative growth of GDP and then I had to pause. So tell us, first of all, you know, what is the definition of recession that economists use? And also how did they come up with this definition, because you know, two quarters in a row seems vaguely arbitrary. Well, I think I think the first thing, if I was in charge, I would do is to ban the world real GDP. I think we should just call it incomes, and that resonates more with the general person. So a recession is a year in which incomes fall, and you're right that there's nothing magical about saying they should fall two quarters in a row. We could have picked one, or we could have picked three. Two was just kind of a rule of thumb that seemed to suggest that bad things were going to happen. So I think it's better to just think of a recession as a year in which your income is going to fall. That's an extremely superior that's definitely a much superior definition of recession. Why don't economists all use that, considering how much clearer it is. I don't know. I think we got addicted to this word real GDP, which means nothing to your son or to an ordinary person. I think if you told my son his income was going to fall, you'll get his attention immediately. But you know, I think there is you know, each each profession has its jargon. I don't want to be too harsh on my fellow economists, but it could be worse. You could be lawyers, believe me, right, always get worse. So a recession basically is a year in which your income is likely to fall. And that's unusual because at least since the Industrial Revolution the last two hundred three hundred years, incomes generally go up every year. So that's been a good thing that's happened to us as a species. But so recessions are unusual, but not that rare. Recessions happen about twelve fifteen percent of the time, so it's something to keep an eye on, and that's why I've been trying to study them. Well, that's actually conceptually very interesting and also very helpful. So the first point you made, namely that we treat a recession, at least colloquially, like it's this terrible thing. But that's against the backdrop of the assumption that our incomes should somehow always go up. And as you say, it's great for our species that that be the case. But what underpins that commitment to the idea of steady growth? I mean, that's even before you reach the thought that nothing grows all the time. And as you say, twelve to fifteen percent at the time we're actually not growing. But starting with the background assumption, this is a good opportunity to ask an economist, why, in the view of most people in the field, should we assume that somewhere between you know, eighty eight and eighty five percent at the time, our incomes will go up. I think, you know, what's happened is that since the industrial Revolution, we've generally found a way of doing things better. Every year, you know, you and I kind of find a way of doing our jobs better, aided by technology, aided by our own brains. Would say, you know, I screwed up on this and that last year. I'm not going to repeat it. I think because of what economists in their jargon called technological progress, our incomes have been going up at about two percent a year in sometimes the United States. Now, so the United States has had adjusted for inflation, it has had incomes go up two percent a year. And so because of technological progress, Now, should we always assume that will be the case as long as you know, we can find ways of doing our jobs better. Probably should we as we grow richer gets obsessed about having a two percent increase every year. Probably not, But still I think most people would say, having incomes go up at some reasonable rate is better than having them fall for sure. Yeah. So let me ask you a push about cycles. So if we had you know, a regular prediction of two percent growth over some period of time, you know, over say ten years, and yet we had some we knew that with some probability, there is going to be you know, randomness in the system, and sometimes it would go down, then we would expect that. You know, again, if you're around twelve to fifty percent more than one in ten times in a ten year period, we would have a recession. Right, So is that cyclical way of thinking about recessions a healthier way to think about it? In other words, don't panic and think that every recession is the harbinger of things in general getting worse. But just see it as you know, we're flipping the coin and you know over time it's going to even out. Yeah. I think you know. That's why you're seeing people worry about a recession right now, is because we've had an expansion of eight, nine, ten years, and people know that in the past at least expansions have not gone on for twenty years. So I think you're seeing a lot of people correctly worrying about the fact that if you have an expansion that's long in the tooth, it's about time to start worrying about whether it's going to keep going. And I think that, as you say that is the healthy way to think about it is that you know, recessions are kind of like the hurricanes of economic life. I mean, you know, with hurricanes, you have a hurricane season, so you have a bit of an edge, you know, went to look for them. But still we know that expansions don't go on forever, so having a long expansion means that we should start thinking about is the next one around the corner. And I think it's actually healthy that there has been all this concern about whether we're going into a recession. Speaking about hurricanes and predictions, you when your co authors wrote a much cited and very interesting paper which you published last year, suggesting that economists don't do that well at predicting recessions because they're, on the whole economists are too optimistic about growth and so they miss a significant number of the recessions that are out there. Tell me a little bit about what motivated you to do the study and what takeaway we should have from it. What sort of motivated me was, frankly, my own horrible forecasting record. So twenty years ago, I was my job when I was at the FED was to forecast economic growth for Korea. And you know, my boss had given me the job, saying, you know, God, I'm giving you the job of a lifetime. These countries grow seven percent a year, nothing changes, and I'm giving you the job of forecasting this. You should be thanking me. And this was, you know, nineteen ninety seven, and you know, people said, oh, something's going wrong in Korea. I said, okay, fine, I'll cut my forecast down from seven percent to three percent, which for me was like a huge deal. And people said, no, no, no, we think there's something else going on. These were, you know, people who were not even following Korea. These were people who were just talking to friends, reading the newspaper. And here I was kind of the sophisticated forecaster, and you know, I dug in my heels. I've very grudgingly, towards the end, cut my forecast to minus three as the year was ending. You know, Korea ended up at minus seven that year. So you know, I've always been intrigued about whether it was just me being terrible or if this was something that all my friends were also subject to. And lo and behold, as you said, I found that the record is just terrible. I mean, as you saw in that study. You know, we studied one hundred and fifty s recessions and only five were predicted a year in advance. And you might say that's a very very high bar to set, but you know, you can lower the bar and still the forecasting performance remains really bad. And you know, one fourth of recessions remain undetected even as the year is ending. So it's like forecasters are just not aware that the economy, it will turn out, has been in a recession the whole year, and one fourth of we can't even tell that the economy. It's only later and then the following year, the year after the rains have gone, that people will say, oh, it was raining, did you know so? But that makes it seem a little less bad, because if it's so difficult to detect the recession even when it's actually in action, it makes it seem like it will be much more difficult to predict it in advance, right, I mean, as you say, when it's raining, we know that it's raining, right, So that implies that rain is a binary, which maybe is not true if you live in England or Scotland. Maybe it's always a little bit raining. But I mean, imagine that rain is a binary either it's raining or it's not raining, and then it makes it easier to detect, and that, in turn, you would think would have some effect on our capacity to predict it. But if something's very hard even to detect, surely it should be even more difficult to predict. I mean, maybe only a handful out of one hundred and fifty three recessions doesn't seem like a very good success rate. Maybe we just have the wrong baseline. Maybe it should be hard to predict. That's the defense that many of my fellow economists offer. I mean I don't I don't fully buy it. I think that there is a bit of complacency. I think the suffering that in recessions inflicts on people is not really felt by my fellow economists and the salary jobs that you know, Yeah, I think we have to protected. I mean we are an I mean many of us are have high levels of education. We kind of managed to hold our jobs through recessions. I think if we were the common person, we would demand that economists try to do a better job. I mean, you know, fifty sixty years ago, we would completely bad at predicting hurricanes, and you know, hurricanes had used to have major loss of life following that, and we didn't. We said this is not acceptable because you know, people are dying. And I think we just don't see the damage that recessions inflict in the same way. And if we did, we would demand that economists try to do a better job. I mean, you're right that we may not be able to do so with complete success. I mean weather forecasters who are predicting hurricanes often, as we know, get us all worried, and then the hurricane changes course and they say sorry, falls along. But we don't blame them, you know, we said they're doing their best job. They're trying to protect us. I think economic forecasters should be treated the same way. I mean, these are people who are trying to protect us from job loss, which has you know, just as devastating consequences as what hurricanes do. I mean, you were asking me what got me motivated? One thing that also got me motivated in addition to My own poor forecast was that I was unemployed for a year and I could see the effects it had on me. And I've been studying the effects of what unemployment does to people, and so I've become very passionate about saying, you know, we should try to forecast recessions, we should try to take steps ahead of time so that we can prevent job loss during recessions. Well, those are That's a very fascinating perspective on it, and I appreciate that having had the experience of unemployment must raise your awareness and consciousness. And that actually brings me to the question that I wanted to follow up on, which is, let's think a little bit about the incentives of predictors. So you mentioned that when the meteorologists predict a hurricane and then the hurricane misses us or doesn't happen, we don't get that angry at them, yep. But that goes to their incentives, right, I mean, when they predict a hurricane and it doesn't come, we just think, instead of directing anger towards them or blaming them for the research us that we might have spent in preparing for the hurricane, unnecessarily, we say, oh, we're so glad, so overwhelmingly please that we weren't hit by a hurricane that that outweighs any irritation, and we might feel towards the meteorologists. And you know, if we expand from hurricanes to let's call them winter storms. You know, I'm from Boston and I still live in the Boston area, and you know, the prediction of great sizeable winter storms is an industry where great profits are made by local media, by local radio and television, because people will watch them if they predict a storm, and so they systematically I mean I've never read a study about this, but I would bet almost anything that you could show it into study that they systematically over predict storms because it's good for ratings, and as you point out, there's not that much downside for them if there's there's no storm. They don't internalize the full externality of the full spillover costs of their having made predictions. What about economists, I mean, if they predict recession, do they have something to lose? And I'm looking for some motivational account. I'm trying to be a good economist or a good you know, rational actor economists and see if there's some motivational explanation for why economists underpredict recession. Yeah, I've I've been studying that a lot too. I mean, I you know, many of these forecasters who have been studying are actually you know, friends, and I can talk to them, and for them, the reputational loss from falsely calling a recession would be huge. That's that's how they perceive it. And what they tell me is that they will make a forecast that things could be kind of bad, but they don't go into negative territory. But when they go to meet their clients, they may say, well, you know, I didn't want to move my forecast down into negative, but privately, I'm telling you I'm really worried. So they say they would prefer to do that then to go out and make a call. And there's a very good example from some years ago. There's this really nice place called the Economic Cycle Research Institute, which really tries to forecast recessions. And in September twenty eleven, their lead guy, Lakshmanachuthan, went on Bloomberg and said, there's going to be a recession called. He said, We've been telling our clients privately, but I feel I have an obligation to tell everyone else the public, that there's going to be a recession, and that recession didn't happen. And you know, for a year, Bloomberg would keep inviting this guy back. He would say, it's going to happen, It's going to happen. And then one year later he had to say, well, it turned out to be a false alarm. And my sense is that that did not do wonders for his reputation or the reputation of his company. And to me, that's unfortunate because I don't see that he was making that call either to become famous or to make money. He had already told his clients privately, but he just felt, here, we've just gone through the Great Recession. He was truly worried his company, based on their indicators, that twenty twelve would be a recession, and he thought it was a public duty. Just as with hurricanes, we think it's a public duty of forecasters to tell us if a hurricane is coming. He thought it was his public duty to do so. And the experience didn't end up well. I can picture two different stories about why in this case that you describe, it's so costly for an economist to predict a recession and not have it happened. So one is a story about safety in numbers. Right on this story, it's sort of conventional that most of the time there isn't a recession, and so economists defaults to predicting that there won't be a recession. And then if one person wants to say there will be a reception, he or she has got to put himself on the wine go out there. And then if he's right, sure, people might say he's a genius. But more of the time he's going to be wrong than right, and it's very costly because he's an outliers. He's stuck his neck out and others have not done so. And in that story, you might be able to fix this if more economists were willing to predict recessions simply by virtue of there being more numbers. You know, we're getting a group together, you might be able to fight off that that cost. The other story, though, is a story about self fulfillment. It might be that we sort of imagine that if enough economists say there's going to be a recession, that that has a recursive effect and helps drive a recession. Since there is some element of expectation having an effect on real world events, and so on that theory, we collectively we really don't want economists to say there's going to be a recession. We might know that they are under predicting recessions, but we like that because as a social matter, we prefer the optimism because we know that once in a while, too much pessimism can actually bring about a bad result. Do either these stories make any sense to either of them? Correspond to how you see the world? Yeah? No, I think the second thing that you mentioned is the only to me justifiable reason for caution in predicting recessions, because of the self fulfilling nature. You know. That's that's the difference between economic forecasting and weather forecasting. You know, we take preventative actions, but we don't influence whether or not there will be a hurricane, whereas with recessions there can be the self fulfilling nature. But to me, we are so far from having to worry about that, because, as I said, we are in a corner where we almost never predict a recession, even though they happen twelve to fifteen percent of the time. So to me, it's worth the risk of saying, let's try to move to a sort of world where we are always somewhat worried about recession. If a recession has just happened, I would say, then don't worry about it, because you know, if recovery has taken hold, it tends to be self perpetuating for a while, and it's fine. But once you get two, three years, four years into an expansion, then you start judging and trying to see what the odds are. So I think the language and the terminology should shift into more about, you know, what is the likelihood, and then you know, to be open about the fact that at at some times there will be a divergence in opinion, and then people can decide on that basis whether or not they want to make adjustments. So now we're in a moment when some economists really are starting to talk about a prediction of recessions. So let's talk a little bit about some of the indications. One is, you mentioned already that when a recovery has lasted for a good long time, it's getting I think you said long in the truth. Just statistically it seems probable there will there will come to an end at some point because you know, if you just look at the probability distributions, it's been the X number of years and so it's probably going to be over soon. Another is the so called inverted yield curve in the bond markets. Yeah, maybe let's take them in order. Let's start with the just the numbers game. You know, it's been a while, and then from there we can you can explain the inverted yield curve to us, and we can we can try to look at that a little more closely. Yeah. No, I think the you know, the duration of expansions has some predictive power for whether or not there will be a recession. So I think that's certainly one factor. But I think, off the other indicators, the yield curve is the most promising one, and the fact that it has inverted now, and that it had inverted prior to the previous five recessions, is something that we should take into account. So let me run by what I try to I'll give you my attempt to explain to my fourteen year old what the inverted yield curve was, and tell me where I where I went wrong. What I said to him was, look what's going on in an inverted yield curve is that people who are setting interest rates believe that the economy is likely to be much better over a long term than they expect it to be over the short term. And that's why it's a higher interest rate over the long term than it is over the short term. And that reflects I suggested, I think, maybe wrongly, a prediction that things are going to get worse before they're going to get better, as opposed to the more normal set of circumstances, where we think that that something out in the future is more uncertain and in the nearer future we're able to identify with a greater probability that things will go well, and so therefore the usual model is for the interest rates to be the other way around. Right, So where in that analysis did I go wrong? And I think that's that's exactly right. That is one of the channels. One channel that we typically used to say was that the FED or policymakers had somewhat more information about which way the economy was headed, and they were worried about the near term, and so short term interest rates were being lowered. But the problem this time is that the short term interest rates have been low for almost a decade now, right, So it can't be a good predictor that they think things are going to get Yeah, it can't be seems to switch to being some other thing. It's like now it's a feature of political economy that Yeah. So I think there are pressures on the FED, including from the president, but even before this president, other people were putting pressure on the FED to try to keep the interest rates low and to keep the markets happy. Yeah. I mean that's a constant of presidential wish list, is you know? Right every president, every president would like people to be able to borrow for relatively little money, right, Yeah. So going back a bit to our discussion on the recession, I think at this point, given the imprecision of our forecasts, it's ridiculous to be worrying about decimal places on our forecast. I mean, you know, changing a forecast from three point four to three point two is just meaningless given the range of error. So I think if we shift the discussion more to likelihoods of bad things happening, like recessions, then the discussion will also be more about what policy steps can we take now, either to keep the recession from happening or if we see a recession happening, what steps will we take? And I think fiscal policy is going to play a very big role, namely finding ways to put money quickly in the pockets of people and companies. And I think I see a bit of hope there because all this talk about whether or not a recession will happen is provoking at least some very sensible people to think about, you know, what would we do if if he really started to think that a recession was on its way, or if we recognized it early enough, you know, what would we do? What do you consider to be the most the most promising. I think money in people's pockets is what you're talking about. Yeah, exactly. I think that some of the things that were done during the Great Recession kind of you know, either through some kind of cash transfer or some other schemes which turned out to be pretty promising in countering the depth of the Great Recession, are what people are talking about. So, you know, Heather Bouchet at the Washington Center for Equitable Growth and Jay Shamba of the Hamilton Project at Brookings, they have a new book basically on you know, how to be recession ready, and to me, Again, this goes back to the kind of analogy with hurricanes. I mean, we don't know when it's coming or where it will hit the most, but we ought to be recession ready and think about what schemes we have, And indeed, the most promising thing in my view, is to just have ways of providing direct stimulus, basically finding ways of giving cash to people who will be a acted. So there are people, including at the fair, who are thinking about some kind of rules that would go into place, which says if unemployment in a certain region goes up x percent, we would immediately start giving checks to people there and so on. And I think that that's exactly the way we do with hurricanes. We say who's getting affected? You know, where are the floods, what do people need? And we provide that help. And I think that's what we should be doing with recessions. Well, that's an optimistic way of thinking because it offers us some tool to address it, and I want to I just want to close by asking Percash, how bad do you think this one is going to be? I mean, you've been pretty clear that you think a recession is is coming. Do you think it will be a long one? Do you think that it has the capacity to be more than a recession, and that obviously will have serious consequences for the policy recommendations that you make. Well, first, to be clear, so I don't lose my own jobs. Everything I've said is my view and not the IMFs. I think the IMA is still predicting two percent growth in the United States and mostly and elsewhere, and you've told us exactly why go on? Yeah, so you know, making clear that these are my own views, but my own views that are based on the fact that, as I said, expansions that get long in the tooth tend to end, and so in terms of probabilities, I think we should be prepared based on the yield curve, based on a couple of other indicators, consumer sentiment, there is the Institute of Supply Management's index. I think based on all these there's enough reason to be prepared for one. My own personal view is that, you know, this doesn't need to be a d procession. I think we went through essentially the next Great Depression just a decade ago. So I think with preparedness and particularly with an attitude that says we have to think about what policy responses we can put in place, we should be well to write it out. Thank you very much, Percussion. Those are very very helpful points, and I'm very very grateful to you for your description. Thank you. Thanks No, it's a pleasure. Now for our sound of the week. That was the sound of victory, specifically victory in the National League pennant for the Washington Nationals, sending them to the World Series for the first time in the recent history of their franchise. The truth is that for a Washington DC team to go to the World Series is a kind of world historical event. The last time, and indeed the only time a baseball franchise in our nation's capital one a World Series was in nineteen twenty four. That's nearly a century ago, and Walter Johnson, one of the greatest pitchers of all time, was still pitching for the club. Then. Not only was there a long period of mediocrity, but ultimately, between nineteen sixty and two thousand and five, there was a forty five year drought of any baseball at all in Washington, d C. That's right, the national pastime was not played at their professional level in the nation's capital. This opportunity for the Nationals then isn't just something for DC fans, long suffering though they may be. It's actually about something much bigger. It's actually about the question of whether baseball truly is and remains a national pastime for Americans. The statistics make you think that it isn't really the case any longer. There was a time when nearly every American child, or at least the boys, played baseball in a serious way. There was a time where baseball dominated national consciousness. During World War Two. If American troops wanted to make sure that their lines weren't being infiltrated by clever spies from the other side who happened to speak English, they would ask them baseball questions on the assumption that every legitimate American would know the answers, while a foreigner might not. Today, there's just no way that questions like that would work. If we have a national sport in statistical terms, it might be American football, and if you look at the sport from the United States that's garnering the greatest degree of world attention, that would be professional basketball. Baseball in some sense, has come to be seen then as old fashioned, as too slow, as unexciting. In some way, not as up and coming American. The fact that the Washington Nationals now have a shot at the World Series is not going to save baseball from the duldrums to which it has to some degree entered. It might, however, remind us that baseball could still have a central place in our national consciousness, even without needing to dominate all of the other sports. After all, even Washington, d c. Doesn't stand in the same kind of civic position relative to the United States as it once did. True, it's still our nation's capital. Still many tourists come and visit it to try to learn about civics, but the city itself is royaled in political controversy. An impeachment inquiry is going on. No one right now would think that Washington, d c. Is a shining ideal of what the capital of a great republic should be. Under these conditions, the fact that the World Series will come to the capital is just a pleasant recognition that our system still has some nice parts to it. Lots of countries in the world play baseball, some today play it better than the United States. The unique association of baseball with the country and with the capital is not what it was, and that might just be a good thing. Maybe we can be a little more realistic about what sport is, a little more realistic about what politics is, a little more modest about whether the United States of America can ever function as a shining light to the rest of the world. Deep Background is brought to you by Pushkin Industries. Our producer is Lydia Genecott, with engineering by Jason Gambrell and Jason Rostkowski. Our showrunner is Sophie mckibbon. Our theme music is composed by Luis GERA special thanks to the Pushkin Brass, Malcolm Gladwell, Jacob Weisberg, and Mia Lobel. I'm Noah Feldman. You can follow me on Twitter at Noah R. Feldman. This is Deep Background.