The Great Depression isn’t called “great” simply because it was a bad economic time. It made all economic times before it and since it seem insignificant in comparison. Every downturn our economy has endured since the Great Depression has been called a recession, mild in comparison. By now few dispute this is a bad recession, but what would a simple depression look like? It’s worse than now, but not as bad as the Depression (uppercase ‘D’).
No set rules exist to define depressions. Recessions are easy, two straight quarters of reduction in GDP. Since no one has a set rule, everyone has an opinion of what a depression might be. Here are a few such ideas:
- 3 Straight Years of Negative GDP
- 10% Drop in GDP
- 10% Unemployment
- A Recession that Doesn’t Self-Correct
- Economic Condition that Requires Normal Citizens to Sell Tangible Assets to Stay Afloat
A depression could be a combination of these, or include other factors. We currently don’t have 3 years of negative GDP, a 10% drop in GDP, or 10% unemployment. But few will disagree that this recession has not had a self-correction. In other words government has to step in to bring us out. Many people have had to sell tangible assets (think jewelry, TVs, etc) to get some extra cash, but it isn’t has bad as it could be. I wish I could say we aren’t heading towards a depression based on these criteria, but there has been no significant sign from econometrics to indicate recovery, yet.
Our government learned many lessons from that last Depression. By establishing regulators and government agencies we’ve created a system that will force industries to hit floors instead of digging themselves into a hole. Since recessions cause potentially endless downward spirals, agencies like the FDIC, Federal Reserve and the Department of the Treasury exist to control the spiral. Think of them as redirecting a lava flow into the sea instead of near a town. They couldn’t stop the volcano from erupting, but they can control the damage. Things look bad, and some of their actions are questionable, but without them this recession would be much worse.
While on the subject of recessions, the word is fairly new to our language. Up until the Great Depression, all recessions were simply called depressions. But when a ‘depression’ hit in 1937, economist and policy makers shied away ‘depression’ because it was no longer politically correct. Recession was born. We’ve since tried to avoid the word recession, remember all the media hype last year about people being afraid to call it one? Alan Greenspan even once called recessions a ’sideways waffle.’ I’m still trying to figure out what that means.
For additional reading please check out this AP story, “The D-word: Will recession become something worse?” Then come back here and tell me what you think. Are we going to be alright or is this time going to be known in 50 years as the Millennial Depression?
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. |
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I always liked the saying that says something like-
A recession is when you can’t buy what you WANT, and a depression is when you can’t buy what you NEED.
- I always felt that saying was apropos.