This morning the Bureau of Labor Statistics confirmed what we already knew: for most people, this is a recession. There are enough numbers out to confirm that, under the old rules from the NBER, the decline in incomes, personal wealth and employment would be enough to offset the meager growth in inflation driven growth. However, under the Bush friendly rules promulgated ad hoc as a way of declaring the 2001 recession prematurely over, we are not in recession. The best way to put it is "life is hard, out there, for you people."

This means I need to talk about things like the Gini co-efficient, meso-inflation and assorted other things they won't tell you from the ordinary business press. It also means that if we take the Commerce Department and the NBER at their word, the news is not better, but worse. What's worse than a recession? Not having one when it should happen, and creating a greater imbalance for when it will happen later.

But let's slice some turkey first.

Let's take the bullshit by the horns, which Barry Ritholtz saw quickly, and that is that the GDP deflator is only 2.4% annualized. Now what does it mean if consumer inflation is running at 5%, and the GDP deflator is only half that? It means a collapse in prices of that which is in the GDP deflator, but not in the CPI-U. What is the single biggest thing here? Why the asset value of houses. More or less, the Commerce Department said that this is not a recession, because the housing crash counts as growth.

Which gets us to the meso-problem here in these numbers, and in the numbers in many other inflation series from around the world: namely, using inflation and deflation to offset each other as if they had the same valence. There is a complex mathematical thing I could explain here about the use of tensors to measure inflation, which shows what the problem is - but why bother - the theory only exists to explain something which ought to be common sense. If an economy is paying more for what it buys, and getting less for what it sells, and its asset base is eroding, then it's economy is contracting in real terms. Perhaps one can create a nominal measure which masks this, but that's only cooking the books.

The market understands that the US economy is using monetization to avoid writing off the lost value of capital. This is showing up in the sharp drops in the value of the dollar against independent currencies, and against the trade weighted average of the dollar. Measured in trade weighted terms, rather than devaluing dollars, the commerce department's sluggish growth over the last two quarters becomes outright contraction. You want "two quarters of negative GDP?" Well you've got them measured in the world average of currency. What has happened is a sleight-of-hand to turn the devaluation of the dollar into non-inflation.

How did this work? Well gas prices and housing prices are in tension. The fall in housing prices is being used to offset the rise in gas prices in the GDP deflator. Presto! Having to bleed money to hold on to your house becomes "growth".

Now I predicted this in 2002, namely that we would see a "Japanification" of the American economy, that the currency would be devalued both to prop up exports and as a tax - a tax that would be used to pay for the war - and that the collapse of the bubble would be used to offset the inflation rate. This has led to what it led to in Japan, a perpetual "Bright Depression", where nominal growth at the top of the economy in assets that are over-valued because they are artificially constrained in liquidity - read, everyone agrees not to sell their 9 Billion Puppies on the open market, because they won't fetch that much any more,and thus carry them on the books as worth 9 billion dollars - to create an illusion of more growth than exists.

This leads to a phrase that you've been hearing more of over the last year, and will start to hear stated in the top down media: the Gini Co-efficient. It is another creeping colonization of mesoëconomic explanations into the macroëconomic environment.

Let's take this a step at a time. In microëconomics, the distribution of income does not matter, because, in theory, those who have deserve, or will lose it soon enough if they don't. In macroëconomics, the distribution of income doesn't matter, because aggregate supply and demand are aggregate supply and demand, and, if their is a maldistribution, it will show up as a drop in aggregate demand, a decrease in aggregate supply, at which point either production will drop, as demand drops, or prices will increase, as supply decreases over demand, or, in the worst case scenario, there will be a deflationary spiral. The net of this is to a classical Keynesian, the rich being to rich is a problem that will show up in aggregate measures and the government sector can correct this by taxing, spending, borrowing, or some combination of the above. Money, in macroëconomics, doesn't matter.

But what if it does? And what if, as is happening now, the wealthy can keep themselves busy and isolated from everyone else, and produce enough churn to create the illusion of an expanding economy?

Why then you can get a situation where the macroëconomic indicators are sufficiently stable not to call for government intervention - or worse to call for bad government intervention, like mailing partial rebates on the inflation tax, or large war spending bills - and exacerbate, rather than ameliorate the effects.

Now what is happening in open economy macroëconomics is that the economy is shifting from producing non-tradables like houses, to producing tradables at rates the global economy will pay for. Exports are where the effort is going to go. A rule of thumb from studying the neo-liberalization of other economies - developing economies, because effectively the US is becoming a developing economy - is that it costs 1% of GDP to convert 1% of GDP. Since this is often converting 1% of GDP from internal consumption to exports, and 1% of cost comes out of internal GDP as well, this means that the lower half of the economy takes a 4% hit - 2% doubled, since they are half of the economy - each year of conversion, and only sees an improvement when the exports start improving standards of living. So this generally means a 4% hit, a 2% hit, but that piles up for the entire conversion period, which is often 4-10 years (I'm looking here at Boliva, Columbia, Ecuador, Argentina, Indonesia, Vietnam, China and Russia as examples. If someone wants to pay for a year of my life to produce the doorstop statistic survey, I'm game.) Which is why neo-liberalization is generally unpopular with domestic populations. Worse if they get Thatcherized, and they see only about half of the benefits of exports, because foreign investors are taking half.

To summarize this, what Bill Clinton did to Russia and Argentina, Bush is doing to America. "And it's worked out pretty well so far." To quote the tag line from Iron Man. Open your eyes, the solution is not laborite socialism, nor a return to a slightly less nasty version, but a fundamentally different road.

Back to these numbers.

So what all of this means is that the numbers as presented are accurate, but uninformative to the question that most Americans want to know. What they say is that the very small elites are prevailing in their gambling to keep control of the economy, while producing a radically lower standard of living for everyone else. They are continuing in their gamble to incarcerate or keep in the military the small core of people who are willing to break bones to make political change. Here.

If this is the question you wanted answered, then the GDP number is remarkably informative. That is they are just barely scraping by in the game of Grand Theft, Economy.

Don't expect hiring to pick up any time soon, since hiring growth is going to be limited to the amount that we can export, and that will drop, as the global manufacturing economy continues to contract, and the resource economy becomes more unstable from the inflation we are exporting.