former top Trump White House economist

The US economy has been remarkably resilient of late, surprising forecasters who insist we are facing a crash after nearly six years of expansion since the hit from Covid. So when will the wheels finally come out?

That will confuse professional forecasters who regularly predict impending doom, former top White House economist Tyler Goodspeed said in a new book.

Goodspeed has published a book titled “Recession: The Real Reasons Why Economies Are Shrinking and What to Do About It,” due out Tuesday. “Recessions are fundamentally unpredictable,” he said in an interview about the book. He served as chairman of the White House Council of Economic Advisers in the first Trump administration.

Goodspeed’s thought is extremely relevant to the war in Iran, but for now he asks readers to draw their own conclusions about it. Since leaving the government, he has started working as chief economist at ExxonMobil. Given the sensitive nature of the conflict, CNBC agreed not to ask Goodspeed directly about the war.

Still, energy figures prominently in Goodspeed’s analysis of when and why the United States has hit an economic wall for decades. The transcript of his speech has been edited for length and clarity.

CNBC: You say recessions unpredictable. What does this mean? There are many people trying to guess these.

Tyler Goodspeed: In summary, this means that recessions are about shocks, and these are shocks that we can neither fully predict nor effectively counteract.

We have tools to predict recessions, like the yield curve. But when you actually test these tools in the historical record, you end up with a lot of false positives and false negatives.

I’ll admit that I’m still looking at the yield curve just for a quick look. I’m not a believer in astrology, but I still check my horoscope from time to time.

You are only human. So there are recessions shocks. What does a shock that causes a recession look like?

There are many types. One is large aggregate macro shocks, such as a pandemic, that affect all sectors of the economy roughly equally and simultaneously. There is another category of shocks that directly affect perhaps only one or two sectors, but these sectors have very high connectivity with the rest of the economy.

If you look not just at the last 80 years, but actually at the last three and a half centuries, energy is one of the sectors that has caused or been subject to many shocks that have spread to the rest of the economy. It is not difficult to understand why, because energy is an input to many other sectors and it is very difficult to find alternatives to replace fuels, heating and materials that use petroleum products in a 12-month or even 24-month period.

But it’s not just energy. The relatively mild recession of 1960 was partly the result of a large-scale steel strike that occurred in late 1959, which created numerous inventory shortages in 1960. You can think about all the downstream effects of the steel shortage. The US economic recession of 1927 was a major contributor, with the Ford Motor Company halting all production for several months as it retooled factories to produce the Model A instead of the Model T. Again, you think about all the upstream and downstream connections of automotive manufacturing, and when that combines with a coal strike and boll weevil infestation in the Carolinas, don’t be surprised if you end up with a recession.

The point is that energy is not the sole cause of shocks, but it is involved in some of the shocks and in interesting ways.

You write in the book that high energy prices contributed significantly to the depth of the recession around the 2008 financial crisis, even though there was no war, an embargo, or any other major, obvious force hitting the energy market. What happened?

Honestly, it was one of the most surprising things for me. We all know the standard narrative about the 2008-2009 recession. We forget that the highest price of energy in general, and oil and gasoline in particular, since 1945 was not during the Arab oil embargo in 1973. It wasn’t after the Iranian revolution in 1979. It wasn’t during the First Gulf War in 1990. It was in June 2008 [when prices for Brent crude neared $150 a barrel].

By the summer of 2008, the average American household was spending nearly $2,000 more per year on energy, goods and services than it had just a few years earlier. Now, at the same time their mortgage payments were rising even higher, they were paying nearly $800 more a year in mortgage interest payments.

Are you telling me is this an energy price shock or a mortgage shock?

It looks like both. So can we stop recessions? Should we be doing things like stimulus spending?

Despite the rise of a more muscular and complex state, the duration and depth of recessions remained remarkably constant over time and were statistically no different after 1945 than before. Therefore, it seems unlikely that the state will end the economic recession.

But there’s plenty of historical evidence that contractionary fiscal and monetary policy during a recession can make things worse. The most notable examples of this are the Great Depression in the USA and the economic recession in the UK in the 1840s, which actually coincided with the Great Famine in Ireland. There is a lesson here that we must first do no harm.

While I find that economies collectively survived the recession, this does not mean that every individual or every household did so. At the very least, there’s a huge case for providing aid, and possibly even more aid, than your regular unemployment insurance, targeting places where that aid is needed during a recession.

During economic expansions, there is a tendency to think that we can drug or otherwise calm the economy to prevent recession. But the reality is that recessions will continue to happen because history keeps happening. There has never been an undying economic expansion.

What else do you want people to know about the recession?

Whatever happens in the next year or two, the long-term structural trend is toward longer-lasting expansions. We are getting better at absorbing the kinds of shocks that have historically led to a recession.

Thanks Tyler.