There is a serious problem of what is a recession. Most people reject the NBER's definition of three negative growth quarters in a row. And that is sensible enough. It makes -0.1, -0.03 and -0.2 a recession, but not 0.2, -4.5, -7.0 or -4.5, -7.0, 0.0. This breaches common sense. Middle class America will tell you we have never emerged from the Great Recession? Do we look to middle and lower class data only, say the 60% spread around the income median (now, there's an idea) or to how the top 5% in income are doing? Some markets are in better shape than others. When commodity prices collapse is that a recession? The talk of recessions and recession calls is too amorphous to be realistic, meaningful or useful. Worse, it leaves us talking about and arguing over whether a recession is coming or not, that is, arguing about what we don’t know we are talking about. That could be taken as a definition of foolish.

It is much better, I suggest to understand how an economy operates, how its sectors interact, what the impact of various dislocations are, how various markets not performing well, affect various sectors. But that requires a good working knowledge of economics and much study of relevant data, both of which are more scarce than we would like. Ergo all the talk about “a recession” and “when it is coming” is forever upon us. Worse, all this is to say nothing of financial crashes which do create messes as we have seen, but are not at all necessary conditions to serious and prolonged economic malaise for many. We really do need to much better know what we are talking about and for whom.

To help in that regard, I suggest a taxonomic model of the economy to help us. For the US, we have the real sector which on the production side includes manufacturing for consumers, manufacturing for export, the service sector, the real estate sector, the real finance sector doing mostly intermediation, the production of raw materials and the agriculture sector with climate developments. Real investment, both public and private, operates to change aspects of real production, such as infrastructure and plant, equipment and robotics. On the consumption side the real sector includes consumption by consumers, consumption by governments and import consumption by both. The real finance sector doing intermediation includes classical banking, insurance and the like.

Then there is the financial non-intermediary side which is not the real economy. It includes the secondary financial markets for stocks and bonds, the activities of the Federal Reserve, including those intended to impact the real economy, and the speculative and rent seeking activities of banks, financial companies, hedge funds, private investors and others out for a fast return. The impact of the non-intermediation financial sector tends to be unstable, involves much buying and selling of blue sky and its creates bubbles to make fast money and busts which injure the real economy. This side of the non real economy tends to be predatory. The Federal Reserve is part of this and it is run and controlled for and by the big banks. (Three of the eight Fed Res banks are headed by GS guys alone, to say nothing of the other five.)

Game one in the non-intermediary financial sector is to make money fast and not lose any. Myriad ways are designed to do that. The new game in town is customized collateral debt obligations or CDO’s. New financial products have a strong central tendency to be sophisticated financial scams more than providing true financial services or good intermediation. Economists hold this sector of the economy in low regard for the trouble it causes for the real sector.Some refuse to even consider it.

This is a useful framework to assess how our real economy is doing and the threats to it from the non-intermediary financial sector. You could actually chart it and do periodic checks on the sectors and get a better feel for what is happening. Then discussion could shift from is or is not a recession coming to where are we out of whack and why and what problems will it actually cause elsewhere.