Yes, we’re saying the “D” word. Now that we’ve officially entered a recession — it’s time to wonder if we’re in a depression. We’d love to be able to give you a yes or no answer, but according to Marketplace’s personal finance guy, Chris Farrell, nobody agrees about what makes a depression different from a recession.
Ferrell found a bunch of definitions:
Richard Posner, the federal judge and University of Chicago scholar, recently said he believes we are in one: “I suspect that we have entered a depression. There is no widely agreed definition of the word, but I would define it as a steep reduction in output that causes or threatens to cause deflation and creates widespread public anxiety and a sense of crisis.”
Yikes. Here’s another definition, this one from Nobel laureate Ed Prescott and economist Timothy Kehoe, who “defined a great depression as a sustained drop of 20% or more in the economy,” Ferrell says.
Still another definition used the unemployment rate as a way to determine a depression from a recession — an unemployment rate of 12% or a period of three years in which the rate is over 10% would qualify.
What do you think? Are we in a depression?
What’s a depression? [Marketplace]
(Photo:kimberlyfaye)
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The media must be VERY careful. Consumer spending an confidence are a MAJOR driver of the economy. Yes, we are in a recession and a deeper than normal one.
However for the major media outlet on TV, the web and in print to keep running “Is the end coming?” and “How bad can it get?” stories over and over and over is simply ADDING to the stress and worry people are feeling and when they happens, they FURTHER cut back on spending which can actually cause the depression/nasty long recession the press loves chatting about the possibility of. REMAIN CALM!
Old, tiny houses in coastal California cities are still selling for $800,000. No recession or depression here.
We’re nowhere NEAR a Depression and while definitions vary, it’s pretty clear what WE ARE IN is a “falsely described” set of variables. Falsely described, of course, by journalists who are choosing to impart their view of the economic situations upon a less than understanding public.
This is a public which is unfamiliar with a recession. A public that hasn’t seen a real recession in about 20 year or so. Our recessions in the last 28 years have gotten progressively weaker and less hurtful. When we suddenly have one, we freak out and scream! And the journalists jump on the bandwagon.
A Depression is a set of circumstances that do several things:
1. Depress (hence Depression as a term of description) the Gross Domestic Product
2. Depress Employment significantly – increasing unemployment by 100% in a period of a year or so.
3. Depress prices to the point of deflation.
Have we had ANY of these things? No. Unemployment is up, but only by about 40% in the last year.
GDP has not shrunk yet, on an annualized basis, but did shrink in 4th Quarter.
Prices have not deflated, but are holding steady in relative terms.
There is a final aspect of Depression that isn’t well quantified, but does play a role – the lack of access to ready cash. That is, the restriction of lending and inability to gain capital.
This has clearly NOT happened, but people will argue it has because relatively speaking, it SEEMS like it has. But lending standards were so easy, and capital investment so risky, that we were living in a falsely pumped up situation. Current lending and capital investment standards are what most economic historians would call “normal”. That is, what we’d see in a relatively healthy economy. The only difference is that the economy is recovering from the shock of easy money…so it’s not providing the push that would be expected.
Ease up, guys…things are NOT that bad, and the economy is incredibly resilient.
It seems as if news outlets are missing a HUGE part of this “unemployment” crisis. It is FAR worse than the numbers suggest…by a LOT. The percentages are only based on unemployment pay CLAIMS. What about all of the people that had to take some time off from the workplace (went back to school, etc) and now cannot find jobs AT ALL. Perhaps they have SOME income from a spouse, but unemployed nonetheless. I’d venture to guess THAT percentage is even greater than the criteria used generally.
Where’s THAT article or acknowledgement?
i’ve not lost my job…yet. i have however been offered a new job 2 months from now, which gives me a safety net from the looming termination! lucky i’d consider that.
There is no difference between a recession and a depression. Both are simply 2 quarters of negative economic growth. We’re currently into quarter 5 or 6 (depending on who you listen to) of negative economic growth. The only reason we haven’t called past recessions “depressions” is to avoid the psychological attachment to the Great Depression. Incidentally, we had begun to move away from calling it a recession and towards the even more milquetoast term “market correction.”
Recession- When the economy corrects ITSELF (and returns to growth) after all of the weak ,speculative business plans have been liquidated and that capital is put to more productive use in profitable ,efficient businesses.
Depression- The economy has no ability to correct itself without some massive,disruptive, stimulative event that restores buying and more importantly,pricing,power. (Like when the Japanese wanted to conquer the world without even producing a snappy,well built car)
Does anybody remember when Reagan fiddled with the unemployment numbers and came up with a New N Improved way to calculate the unemployed? Presto chango he reduced unemployment by a few % points.
I wonder what the old figure would calculate today. Over 12%?