Latest Cause of Recession: Common Sense

We're still not in a recession: Gross Domestic Product is still growing (1% in 2008 Q1). We haven't even had one quarter of economic shrinkage, let alone two to meet the standard economists' (or CosmoGirl's) defintion of recession. We're still buying more stuff and doing more business than the same period last year, just not as much as various financial interests would like us to.

Yet some pundits insist on calling the current economic situation a recession. Recession or not, why isn't the economy chugging along as vigorously as some would like? I humbly suggest the economy is experiencing a recession of foolishness and a resurgence of common sense:

1. Americans are being "more cautious in their spending and investment, restraining overall economic activity." If "normal" growth of 2.5–3% requires risky mortgages and other unhealthy financial behavior, maybe it's time to redefine "normal."
2. The economy is weak only because we let "market fundamentals" get "badly out of whack." To paraphrase business columnist Steven Pearlstein ["This Recession, It's Just Beginining," Washington Post, 2008.06.27], we did lots of things that don't make sense: consuming more than we produce, overexpanding industries, and pushing real estate values beyond our incomes with bad mortgages. In other words, we spent much of this decade living beyond our means. Restoring common sense means spending less on stuff we don't need... and accepting smaller GDP growth rates for some time.
3. The Big 3 U.S. automakers suffered double-digit declines in sales in April, largely because folks aren't buying trucks and SUVs at the breakneck pace of the 1990s. Toyota sales in April increased 3%. Could it be people are realizing they don't need four-wheel drive to go get groceries in June? When you build your business on irrational desires (as GM, Ford, and Chrysler have) rather than practical needs, common sense and frugality are your worst enemy.

The folks who blindly chant "growth is good" buy into a phony economy. Common sense may not produce double-digit growth, but it does lay the groundwork for a sustainable economy that serves real needs, not simply shareholder portfolios.