What Is A Depression And Are We In One?
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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Comments:
No. We're not lining up at the docks yet.
Okay, everyone post....
Have you lost your job?
NO
Interestingly (or not) I just looked up the official definitions yesterday for "recession" and "depression" (and as noted, there's no official agreement on the latter). Judging from what I read, and I'm not an economist, I think we're in a very deep recession and likely on our way to a depression.
I don't remember specifically what it was, but there's one aspect of a typical recession that we haven't met, and there are several aspects of a depression that we have met.
If we do end up in what can be agreed upon as a depression, I don't think it will be as deep as the one in the 30s. That one was accompanied by the Dust Bowl, which we may not experience. But then again, with global warming, who can tell for sure?
I think Brad DeLong's rule of thumb, noted in the article, makes complete sense: A depression is when the unemployment rate breaches 12%, or stays above 10% for three years.
@Gokuhouse: No, and I am about to be offered another contract to be kept on through the Summer of 2010.
I dunno, but I sure feel depressed. 8(
What if your coworkers lose their jobs and you get stuck with all the extra work and feel like you're about to have a heart attack from the stress?
I was going to say no till my boss just called me in to his office and laid me off. So yes we are in one.
I like how the vote is split 50-50.
There are several different ways to define a depression, so let's look at a few. GDP growth:
1930 - -8.6%
1931 - -6.4%
1932 - -13%
1933 - -1.3%
2008 - +1.3%
4Q 2008 - -3.8%
So we haven't had an entire year of negative GDP growth yet and would have to double our 4th quarter growth (in the wrong direction) to equal the contraction seen in 1930.
During the Great Depression unemployment was as high as 25%. We're sitting at around 7.5%. During the Great Depression wages fell (for those who still had jobs) 42%. In 4Q 2008, the median wage was UP 4% over 2007.
In other words, the economy would have to get twice as bad as it is now in order to reach 1930 levels. I'm not sure if that will happen or not. But as for now: No, we are not in a depression.
Nah, not quite yet.
@Gokuhouse: Yes, actually. Luckily, I was paranoid enough to stockpile enough money to float me for the next couple months until I can get another gig.
At the rate this is going, McD's, here I come.
@rugman11: Unfortunately, the government has moved the benchmarks on how it calculates GDP and unemployment since then. Most likely, the current figures are quite understated.
@Gokuhouse: Nope.
I have friends who have lost jobs but honestly they were unskilled or clerical work.
@snowburnt: Yeah, except my ex-coworkers got sweet-ass severances, and all I got was their work. But no, I am indeed quite grateful to not be them.
Gallup.com has a lot of good polls that indicate the mood of the country, including a graph that indicates how many people are hiring versus reducing/letting go. One poll I liked was "Did you worry about money yesterday?" 60% did not worry.
I think that once you start seeing multiple cases of suicides and murder/suicides that can be directly attributed to the economy and job market it is time to agree that if the accepted definition of a 'Depression'doesn't fit, the definition may need to be revised.
Whatever we're in, at least we can legally consume alcohol this time around.
4:15 on Friday. Time for some scotch.
@Gokuhouse: Not yet, but 18% of my company was laid off a few weeks ago, and that included Java developers and DBAs as well as the sales and customer service people who always seem to be the first cut at times like these.
They've also frozen salaries, although our business unit got a 6% bonus because we rock.
*sighs* i dunno...but sure sounds depressin...
Because of modern monetary policy (which was a reaction to the Great Depression), we pretty much can't have a depression like that again. The problem is that we now have something that is potentially worse. Its called Stagflation.
Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked. You end up with higher prices, the same salary and diminishing job security.
BTW - great photo for this post. For those of you not from New Jersey (which I hope is most of you), that is a sculpture featured at the Grounds for Sculpture in Hamilton NJ. "Bread line" I believe is the name.
It's quite moving in person.
We're not in one yet, but we're getting close. It's not even a U.S. problem anymore--the whole world is going down with us.
@j0sh: Off by one....
A slowdown is when your neighbor loses their job.
A recession is when you lose your job.
A depression is when an economist loses their job.
@Gokuhouse: No, I have not lost my job. The company did say in the summer that they foresaw a "reduction" of 1% happening soon. I heard there were layoffs in some of our slower areas of the country (transportation design industry) and it seems that the 1% is the magic number for now. I do have some savings to fall back on if I do get laid off.
Times are getting tough. My wife and her coworkers have taken a 16.75% pay cut (the ones not layed off) and I am working 36 hrs vs 40 hrs. I have a few children who can't find jobs with college degrees. I think things will get alot worse before they get better. Does any one know if they calculated the unemployment rate the same in the 30s. There are alot of people who have fallen off the unemployment rolls who are still unemployed and they don't count in the figures. The county I live in has a 10% rate but its really about 30% if you count everyone who wants to work.
It may be a depression, but people who compare it to the "Great Depression" either a) didn't live through that or b) don't know what they're talking about. The minute we don't have the internet (which alone makes it better then that time) and have no welfare, forced to work on the streets for food stamps and camping out at soup kitchens, then I'll believe it.
No but we are being bought. I'm worried because every time I have tried to put something aside, my old car ate it up.
Did I lose my job?
Yes.
For what it is worth...this is a good/funny related story:
A man lived by the side of the road and sold hot dogs. He was hard of hearing, so he had no radio. He had trouble with his eyes, so he had no newspaper. But he sold good hot dogs.
He put up a sign on the highway telling how good they were. He stood by the side of the road and yelled, 'Buy a hot dog, mister.' And people bought. He increased his meat and bun order, and he bought a bigger stove to take care of his trade. He got his son home from college to help him. But then something happened.
His son said, 'Father, haven't you been listening to the radio? There's a big depression on, the international situation is terrible, and the domestic situation is even worse.' Whereupon the father thought, 'Well, my son has been to college. He listens to the radio and he reads the papers, so he ought to know.'
So the father cut down on the bun order, took down his advertising signs, and no longer bothered to stand on the side of the highway to sell hot dogs.
His hot dog sales fell almost overnight. 'You were right, son,' said the father to the boy, 'We are certainly in the middle of a great depression!'
@Razorgirl: We just need to get the economy set up with a supply of Prozac! and as for the people it might just be Darwinian population control, but then "I still have a job" and that is my mantra in the morning thanks to my wife.
Not yet, but fortunately, I'm in an industry on solid footing (newspapers).
/sarcasm off
Those whose only metric is The Great Depression are ignoring the reason it has that name in the first place: there were other depressions before that weren't as Great, so, no, you don't need to hit 25% unemployment or a 13% drop in GDP for it to be a depression.
@MyPetFly: If you believe in that global warming bull shit--its not like our climate has fluctuated through out recorded time ! The main reason for my disbelief, is for the simple reason that liberals are pushing the idea of man induced global warming--and liberals are good at lying. Otherwise, what you say makes sense.
I've heard this somewhere before:
A recession is when your neighbor loses their job.
A depression is when you lose your job.