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)