I am working on an article for Bloomberg.com, and I hit upon an interesting issue.
What, precisely, is a depression?
Is there an official definition anywhere? Rule of thumb? How can you determine if we are in one now . . .
~~~
Any good ideas, please use comments
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof. —John Kenneth Galbraith
Putting aside its incredible product line and pipeline of more, its still attractive valuation relative to earnings, and its $100 per share of cash that may be used for a dividend soon, Apple's stock has gone parabolic. And, parabolic moves always end one way, back to the place where the parabolic move began. Now, AAPL can of course power higher to who knows where in this move but the largest market cap stock in the world has now entered a tenuous phase, strictly technically speaking. But I digress. German investor confidence, the ZEW, in the next 6 months rose back...
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April 5th, 2009 at 7:53 pm
Sorry for the High School / Under Grad Econ definition……but isn’t a Depression 2 quarters of negative GDP with an unemployment rate greater then 10%…..
April 5th, 2009 at 7:56 pm
Depression = Recession where Real GDP declines 10% peak to trough.
April 5th, 2009 at 8:02 pm
that’s the label we use when we can’t plausibly apply any of the others without being ridiculed by the intelligensia, pitchforked by the hoi polloi or tskked by our grandmothers….
April 5th, 2009 at 8:02 pm
In a Recession you have creative destruction, which is good. In a Depression you have the permanent destruction of creative assets, resulting in a permanently lower baseline economy. Not so eloquent, but I think you get the gist.
April 5th, 2009 at 8:04 pm
A depression is a dirty word that we can’t use anymore!
Here’s a link to an op-ed by historian Steve Frasier on the silliness of the whole taboo on saying the word “depression.” Probably not what you’re looking for, but I found it interesting enough when I read it several months ago.
http://www.latimes.com/news/opinion/la-oe-fraser7-2008oct07,0,3451590.story
Since you asked, a depression isn’t about numbers. It’s about psychology. A recession is a real downturn in economic growth, but people accept it as manageable and controllable. A depression is a recession in which people have lost hope (for various reasons), creating a psychological dynamic of panic and despair that intensifies economic weakness.
April 5th, 2009 at 8:10 pm
While the “10% gdp decline” definition of a depression is often repeated as above, I personally dismiss it. After all, we essentially have a sample size of one, clearly not enough to establish definitive objective criteria.
For instance, I argue that when at least 20 of the top 50 financial institutions in the world are either insolvent, bankrupt, or under government control, it is hard to argue that this is a mere recession. That didn’t happen in any post WWII recession for instance.
I agree with Todd Harrison at Minyanville that you must include some subjective societal measure as franklin and bsneath note above.
April 5th, 2009 at 8:12 pm
We have had some difficulty with this issue as well when it comes to defining bear vs bull markets and recession vs depression, see here: http://moneyneversleepsblog.blogspot.com/2009/04/outrage-of-day.html
I think a depression is really quite arbitrary, not really a technical call. I think time is an important element, gdp decline alone is not enough regardless of the percentage in my opinion. I would think a depression would be characterized by above avg declines in GDP AND take place over an extended period of time, longer than a typical or bad recession. I think you have to look at other items such as unemployment hitting rare extremes in relation to historical averages as a guide as well.
The other issue is to a certain extent it doesn’t matter whether you call it a depression or a severe recession, the result is it sucks for the majority :)
http://moneyneversleepsblog.blogspot.com/
April 5th, 2009 at 8:17 pm
There is no official definition, because “depression” was always used to describe periods of business decline, and was replaced with “recession” the same way the “Defense” Department replaced the “War” Department, after the Great Depression/WWII. Hence a regular “depression” would be a “recession”.
Meaningless technically, but a P.R./Diplomatic/Political coup…
Which leaves the official definition of “recession”, which ain’t got diddly to do with GDP, since recessions are measured by the month, and GDP is calculated quarterly.
There is no objective, quantitative measure — it’s a consensus call by the econo-historians over at NBER.ORG, which is officially responsible for setting the date, usually 6 months to 2 years after-the-fact. Hey, they’re historical economists, remember? Posterity is watching…
If you’d like some useful indicators as a heads-up for recession and recovery, see Jack Schannep’s recent book, “Dow Theory for the 21st Century”.
–Johnathan
April 5th, 2009 at 8:17 pm
It is vitally important that everyone realizes that a Depresssion is NOT the same thing as the Great Depression. Our country has endured many depressions, but only one Great Depression. Since it was the most recent one, we tend to compare all depressionary times to that, when in fact we should be looking more at the 1800′s for typical depressions.
Having said that, this is a Deprecession that we are in, not a depression…
April 5th, 2009 at 8:25 pm
A recession, which we are in now, is when my neighbor loses his job. A depression is when I lose mine. (Not very original, but appropriate)
April 5th, 2009 at 8:27 pm
“(I will call this a recession, not a depression, until the cumulative fall in GDP equals or exceeds 8-10 percent-so far the fall in US GDP has been about 2%, and world GDP has hardly fallen)”
-Gary Becker
http://www.becker-posner-blog.com/archives/2009/03/the_treasurys_p.html
April 5th, 2009 at 8:29 pm
I don’t have a good definition but I agree with investorinpa there’s more than a sample size of 1, the US has had depressions before the Great Depression in the 1930s. There have been other depressions outside the US recently. From wikipedia…
British economic historians use the term “Great depression” to describe British conditions in the late 19th century, especially in agriculture, 1873-1896, a period also referred to as the Long Depression.[71] Several Latin American countries had severe downturns in the 1980s. Finnish economists refer to the Finnish economic decline around the breakup of the Soviet Union (1989-1994) as a great depression. Kehoe and Prescott define a great depression to be a period of diminished economic output with at least one year where output is 20% below the trend. By this definition Argentina, Brazil, Chile, and Mexico experienced great depressions in the 1980s, and Argentina experienced another in 1998-2002. This definition also includes the economic performance of New Zealand from 1974-1992 and Switzerland from 1973 to the present, although this designation for Switzerland has been controversial.[72][73]
The economic crisis in the 1990s that struck former members of the Soviet Union was almost twice as intense as the Great Depression in the countries of Western Europe and the United States in the 1930s.[74][75] Average standards of living registered a catastrophic fall in the early 1990s in many parts of the former Eastern Bloc – most notably, in post-Soviet states.[76] Even before Russia’s financial crisis of 1998, Russia’s GDP was half of what it had been in the early 1990s.[75] Some populations are still poorer today than they were in 1989 (e.g. Ukraine, Moldova, Serbia, Central Asia, Caucasus). The collapse of the Soviet planned economy and the transition to market economy resulted in catastrophic declines in GDP of about 45% during the 1990–1996 period[77] and poverty in the region had increased more than tenfold.[78]
April 5th, 2009 at 8:31 pm
before the ‘Great Depression’, they were called ‘Panics’, but, taking a page from Bernays, a new term was devised for the ’29-episode..helped ‘catapult the propaganda’ that aided FDR’s ‘silent’ 3/9/33 coup..
April 5th, 2009 at 8:32 pm
There seems to be a relationship between depressions and debt level. In a recession it is possible to spend your way out of it but in a depression everyone is so overextended that it can’t happen.
April 5th, 2009 at 8:35 pm
A recession calls for tinkering.
A depression calls for complete restructuring
April 5th, 2009 at 8:38 pm
I agree ynotgoal…a bigger sample size will probably indicate that this is a Deprecession…
April 5th, 2009 at 8:47 pm
We have a more in-depth analysis of how to go about answering the depression debate if anyone’s interested at:
http://moneyneversleepsblog.blogspot.com/2009/04/defining-depression.html
Didn’t think it would be cool to clutter up the page with the world’s longest comment :)
April 5th, 2009 at 8:49 pm
Funny. We didn’t have any recessions until after the last depression. All “downturns” before the Great Depression were called depressions, but now we always refer to “After GD” as recessions. Could it be the marketing of such a word, depression, has been thrown out, and replaced with a less distasteful word called a recession? After all, we wouldn’t want people to get “riled” up like they did in the 20′s/30′s again, so it is better to not use the “D” word ever again.
April 5th, 2009 at 8:50 pm
Murray Rothbard’s “The Great Depression”, if I recall correctly, writes that the recessions prior to that time were all refered to as depressions. After that time the terminology – recession – was used as a euphanism for what had previoiusly been simple refered to as a depression.
I any case, and, ina practical sense, it seems to be related to financial shenanigans which requires De-Leveraging to get back to some semblense of normal.
April 5th, 2009 at 8:53 pm
A recession is a readjustment of the supply/demand equilibrium in number of units or dollars.
A depression is a significant mismatch between the product or service that is in demand and what is being supplied.
April 5th, 2009 at 8:54 pm
DanM – a very pragmatic and realistic definition
April 5th, 2009 at 8:56 pm
10% drop in real GDP along with an extended period of economic suffering…so that we don’t count the post WWII decline as a depression.
April 5th, 2009 at 8:58 pm
Agreed with those who state there is no official definition, that is my understanding.
Most that I have read says 4 consecutive quarters of negative GDP and/or GDP goes negative 10% peak to trough. Having outsourced much of our manufacturing, not sure well see that magnitude of GDP loss again ( I certainly hope not).
We had one Great Depression, I say we are in a depression now that is not Great, easier to get to when one considers the impact of outsourcing much of our manufacturing base.
April 5th, 2009 at 8:58 pm
doesn’t a depression involve deflation of assets and prices
April 5th, 2009 at 9:00 pm
We’ve never had more retail square footage per capita at exactly the time when a huge % of the population is winding down.
And we’re going to be cutting/limiting health care at exactly the time a huge % of the popultaion is going to be demanding more.
And
That’s only 1 example.
April 5th, 2009 at 9:01 pm
Myr – http://www.data360.org/dsg.aspx?Data_Set_Group_Id=230
April 5th, 2009 at 9:01 pm
“What happens in a depression, and makes it a psychological event as well as an economic and political one, is that the economic environment becomes so uncertain that people freeze. Not only are businessmen afraid to invest, but consumers are afraid to spend; instead they hoard cash.”
From a review of Shiller and Akerlof’s “Animal Spirits” by Richard Posner, published in the April 15 2009 issue of the New Republic
http://www.tnr.com/booksarts/story.html?id=52b85827-c5fe-43ee-9625-1149aa14c070&p=2
April 5th, 2009 at 9:02 pm
Whatever it is, we’re not in one (unless duration of negative growth, rather than magnitude of negative growth is a sufficient criterion).
April 5th, 2009 at 9:05 pm
ahab – isn’t that what is going on?
danm – commercial – retail (notice all of the new strip centers in your home town) is way overbought – cheap money – loans are going to fail – just like the home mortgages….
April 5th, 2009 at 9:09 pm
much to Wes Schott’s point, above:
“A general business slump of somewhat less severity and shorter duration is typically referred to as a recession. There is no precise dividing line that is generally recognized by economists to distinguish a recession from a depression, and incumbent policy-makers since World War II have almost always resisted describing their contemporaneous economic situation as a depression, preferring the milder sounding term “recession.” The term “recession” has largely replaced the older and more emotion-laden term “depression” in most economic literature as well, except in referring to such catastrophic slumps of the past as “The Great Depression” of the 1930s.”
http://www.auburn.edu/~johnspm/gloss/depression
April 5th, 2009 at 9:11 pm
DL – you do not know whether you are in “one” or not until after the fact – what makes you think that it is over, either in terms of duration or magnitude?
April 5th, 2009 at 9:12 pm
You know it when you (personally) are in it. Your friends know it too. Depression (economic) leads to Depression (mental) – You’re the last to know – but your friends and family know it when they see it – One depression can be kept at bay by “Meds” the other….well?! Both types of depressions lead to DEATH – a person can only bury their head in the sofa for so long – the longer the worser!
A national definition of economic depression – forgetaboutit!
April 5th, 2009 at 9:13 pm
@ Wes Schott
ding,ding,ding- you get the prize- that is what is going on- I don’t see a monetary fix when there is no demand
April 5th, 2009 at 9:16 pm
Deleveraging takes time. For everybuddies.
April 5th, 2009 at 9:16 pm
April 5th, 2009 at 8:25 pm
A recession, which we are in now, is when my neighbor loses his job. A depression is when I lose mine. (Not very original, but appropriate)
I wanted to say that! Waaaaaaa.
April 5th, 2009 at 9:16 pm
here’s a 2.0 example of what I was alluding to:
“Depression Economics: Normal Rules Don’t Apply
By Mark Thoma – December 16, 2008, 4:45PM
Paul Krugman is trying to get us to understand that depression economics is different from the economics of good times, that “normal rules don’t apply.”
http://tpmcafe.talkingpointsmemo.com/2008/12/16/depression_economics_normal_ru/
April 5th, 2009 at 9:16 pm
Many historians refer to major economic downturns during the late-nineteenth century, such as those falling in the years 1873-1878 and 1893-1897, as “depressions.” The downturn of 1907 began as a “panic” and that term is still applied. The Great Depression became “Great” because of its severity and duration. Thereafter, most commentators simply did not want to associate various post-World War II downturns with the far more devastating experience of the 1930s. Furthermore, the economics profession brimmed with confidence that nothing like the 1930s would ever be repeated (I recall being reassured of this by the one of the best economists at Swarthmore College, Clair Wilcox, during the mid-1950s). So post World War II downturns became recessions and, eventually, Wall Street imposed a technical definition of what they were and so did the economics profession.
Now that we have lived through an era of deregulation, we have arrived back at the nineteenth century in certain respects. Depressions then were marked by the overbuilding of railroads just as recent downturns have seen overbuilding of fiber optic cables and, most recently, housing. Banks failures often accompanied nineteenth century downturns and even triggered them (e.g. the failure of Jay Cooke & Co., 1873). These events to most people seem like ancient history but we are closer to them than we realize. Unfortunately, they lasted many years. And so may well the present downturn. And if this happens, observers will no doubt want to distinquish what we are experiencing from the “recessions” of the second half of the twentieth century. Already, I find writers using the term “Great Recession” to capture what we are going through. Even this blog question reveals the fear that we are indeed entering a new historical era that, alas, resonates with a more remote Amercan past.
Linguistic shifts sometimes are important historical markers. They often pivot far less on technical definitions than upon some widely experineced qualitative change. The old language seems inadquate; new terms are sought (and sometimes found by revisiting old ones).
Jon A. Peterson
April 5th, 2009 at 9:17 pm
history of the term depression
http://hnn.us/articles/61931.html
more
http://www.j-bradford-delong.net/tceh/Slouch_Crash14.html
http://en.wikipedia.org/wiki/Great_Depression
and a definition from here http://thehistorybox.com/ny_city/panics/panics_article1a.htm
Depression
Massive collapse of the economy that normally follows a period of prosperity. A depression is usually accompanied by a financial panic or a crash of the stock market as investors lose confidence and refuse to buy stocks or make loans. A staggering level of unemployment is the most immediate and debilitating result. Not all crashes reach the level of national depression, however. If the down turn in the economy is short lived and relatively mild, it is called a “recession.” Three major depressions, so defined because of the depth and duration of the collapse have occurred in American history: 1837, 1893, and 1929. Some historians add to the list the downturns in 1857, 1873, and 1907. There is a lot of dispute among economic historians and economists as to the causes of economic depressions.
some history of The Great Depression
http://www.dailyfinance.com/2009/03/07/did-new-deal-end-depression-history-says-deficit-spending-works/
April 5th, 2009 at 9:20 pm
Jon A. Peterson – you seem to be a wise and experienced person. Thank you for your comments
April 5th, 2009 at 9:24 pm
According to a recent Economist article:
“A search on the internet suggests two principal criteria for distinguishing a depression from a recession: a decline in real GDP that exceeds 10%, or one that lasts more than three years.”
April 5th, 2009 at 9:31 pm
IS – those seem like arbitrary criteria – perhaps screening criteria.
In any case, what seems to distinguish is that the monetary system gets over-leveraged and when it comes unglued (lack of confidence, or, whatever) the system has to be de-leveraged (depressive) to get things back into some sort of quasi-stable balance.
“Stability is unstable” – can you name the quote?
April 5th, 2009 at 9:33 pm
Depression is the term used by the liberal media to describe a recession when they can’t stand to have the Republicans in the White House for another term…
It’s also a term used by shorts to scare the public into selling their retirement stock holdings at low levels.
April 5th, 2009 at 9:35 pm
Wes,
“Stability is unstable” sure sounds like Minsky, Hyman
April 5th, 2009 at 9:37 pm
In my mind (granted that of a non-economist), the difference is as follows:
Recession: is an economic event where monetary policy is sufficient to resolve dislocations/adjustments in the economic model, and fiscal policy is harmful/ineffective.
Depression: is an economic event where fiscal policy is necessary to resolve dislocations/adjustments in the economic model, and monetary policy is insufficient (see also ~0% interest rates and TALF, TARP, alphabet soup du jour).
In this case, then, how much GDP shrinks is really just a confusion of causation/correlation. Because there is something broken structurally in a depression, it seems logical that GDP would drop more as the foundations are relaid…
But that’s just me…
April 5th, 2009 at 9:38 pm
The following is from “The Economist” December 30, 2008
http://www.economist.com/finance/displaystory.cfm?story_id=12852043
Before the 1930s all economic downturns were commonly called depressions. The term “recession” was coined later to avoid stirring up nasty memories. Even before the Great Depression, downturns were typically much deeper and longer than they are today (see right-hand chart). One reason why recessions have become milder is higher government spending. In recessions governments, unlike firms, do not slash spending and jobs, so they help to stabilise the economy; and income taxes automatically fall and unemployment benefits rise, helping to support incomes. Another reason is that in the late 19th and early 20th centuries, when countries were on the gold standard, the money supply usually shrank during recessions, exacerbating the downturn. Waves of bank failures also often made things worse.
But a recent analysis by Saul Eslake, chief economist at ANZ bank, concludes that the difference between a recession and a depression is more than simply one of size or duration. The cause of the downturn also matters. A standard recession usually follows a period of tight monetary policy, but a depression is the result of a bursting asset and credit bubble, a contraction in credit, and a decline in the general price level. In the Great Depression average prices in America fell by one-quarter, and nominal GDP ended up shrinking by almost half. America’s worst recessions before the second world war were all associated with financial panics and falling prices: in both 1893-94 and 1907-08 real GDP declined by almost 10%; in 1919-21, it fell by 13%.
April 5th, 2009 at 9:39 pm
Mark E Hoffer – that is my recollection as well. Kind of a funny statement when applied to the sciences and engineering, but when applied to the ecomony, hmmm, it seem quite descriptive.
April 5th, 2009 at 9:41 pm
R of the Kn – you talkin’ serious inflation here bud?
April 5th, 2009 at 9:45 pm
Well, the 10% drop in GDP sounds like the official one. I would say look at the GDP growth curve, and if it “recedes” that would be a recession, and if it drops below the trend line that would be a depression. Literally a dip in the GDP growth curve itself below the overall trend line.
But what do I know.
April 5th, 2009 at 9:54 pm
donna – that seems pretty reasonable in a quantatative sense, but how are we going to define the trend line?
April 5th, 2009 at 9:54 pm
Wes,
I hear you, though if you want to parse it out over the ‘sciences and engineering’ fields, those cats know, or certainly should, that ‘stability’ is a chimera..
http://www.thefreedictionary.com/chimera
def. 2 #3.
April 5th, 2009 at 9:59 pm
MEH…that is good… A fanciful mental illusion or fabrication…I thought a chimera was the “vanishing twin” ala Tyler Hamilton’s bs excuse.
April 5th, 2009 at 10:01 pm
Milton Friedman called the Great Depression the “Great Contraction” which fairly definitively described what was happening with economic output and activity at the time.
IMO, this should be called The Great Fed Failure because their policies caused the banking crisis, and the up to now, relatively mild contraction in output and employment, and it is their actions trying to save the status quo that is ultimately going to bankrupt their only asset–the US Dollar’s usefulness as a medium of exchange and a store of value.
April 5th, 2009 at 10:02 pm
Wes,
to your ‘stability’ point:
“In his talks to Congress at the end of February, Chairman Greenspan dropped in these words, which did not make the highlight reels, but nonetheless should be listened to:
“People experiencing long periods of relative stability are prone to excess. We must thus remain vigilant against complacency.”
The record imbalances, which Roach alluded to, are inherently unstable. They are the proverbial unsustainable trend. Yet things seem to be rocking along just fine. One of America’s finest theoretical economists, Hyman Minsky, gave us this great quote, “Stability is unstable.” What he meant by that is that the longer things remain the same, the more we expect them to remain the same and the more complacent we get. Thus, when things actually do change, the shock is much greater. Few have “remained vigilant.” The long-term stability of trends is the seedbed for asset and credit bubbles of all types.”
http://www.dailyreckoning.com/unstable-stability/
“03/03/05 In a recent talk with Congress, Greenspan warned against Americans becoming too content with the economy, that they need to prepare themselves for the shock of what would happen if those “kind strangers” were to stop supporting us. John Mauldin explores… ”
the DR is another one of the Good ones..
April 5th, 2009 at 10:06 pm
It has been and continues to be a time for deleveraging
April 5th, 2009 at 10:07 pm
Curm – by GOLD
April 5th, 2009 at 10:18 pm
I don’t know what a “Depression” is technically speaking, but I do know stuff like this is Depress-ing…….
http://www.huffingtonpost.com/2009/04/05/what-did-andrew-cuomo-kno_n_183327.html
April 5th, 2009 at 10:22 pm
Mannie,
if Cuomo’s deeds @ HUD under Clinton were known..
April 5th, 2009 at 10:35 pm
Wes Schott @ 9:11
“what makes you think that it is over…?
I might ask you why are you so certain that it has started?
A lot depends, of course on the definition. If it requires a 10% decline, peak to trough, I don’t think we’ll see it. On the other hand, if four consecutive quarters of negative growth is sufficient to qualify as a “depression”, then perhaps we’ll squeak through and get there (although my bet is that one quarter of 2009 will be positive). As for asset prices in general (not just real estate) falling throughout 2009, I am quite confident that Ben will print enough dollars so that it won’t happen.
But it is true, I cannot prove that we aren’t in a depression; you cannot prove that we are in one.
April 5th, 2009 at 10:47 pm
A recession is a regular economic contraction, of modest duration, from which a way out can be seen (e.g: I lost my job as an internet tycoon, but I can go back to bookkeeping – as I did before the internet boom; or plumbing – as I did to put myself through college; or both, if need be). I might have to tighten my belt, but the bills will be paid. Eventually, things will get back to normal.
A depression is a uncontrollable economic disaster from which a way out cannot be determined – the results of which will most certainly change the structure of society. No one is hiring anywhere – even at the grocery store. Those who do find employment cannot expect to meet their obligations at their new pay scale. People are losing their homes and going hungry. Insecurity and uncertainty are everywhere.
April 5th, 2009 at 10:49 pm
DL, good point, but, I have to think it has sarted. In any case – cool comments. Helicopter Ben will do his best, no doubt.
April 5th, 2009 at 10:50 pm
My personal definition…
Recession – Significant negative impact on a country’s economic growth because of a dislocation of resources.
Example: 10% of country X is dedicated to designing, producing, repairing typewriters and some jerk invents the word processor.
Depression – Macro economic forces cause a dislocation of resources which is so widespread and massive that an economy loses purpose. The pervasive mood becomes hopeless and powerless.
Why did WWII end the Great Depression? Because everyone woke up the morning that war was declared and had a purpose.
So far in this “downturn”, 5.1M people have been told that they are no longer needed. 5.1M Dear John letters.
Dear John,
Thanks for all the work for these X years. Turns out that your not useful. Apparently the economic engine of the richest most successful country in the world doesn’t need your skills/help. Feel free to stay in bed tomorrow and the next day. Don’t call us and we won’t call you.
Sincerely,
The Global Economy
April 5th, 2009 at 10:53 pm
MA, good defintions. quite qualatative, which is fine. Where are we now and where are we going in this recession cum depression, or not?
April 5th, 2009 at 11:06 pm
Check this out folks…
Swiss slide into deflation signals next chapter of crisis
By Ambrose Evans-Pritchard
The Telegraph, London
Sunday, April 5, 2009
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/511057...
Watch Switzerland closely. It is tipping into deflation, the first Western country to succumb to Japan’s disease.
April 5th, 2009 at 11:10 pm
Touching about the weight of psychology plus some old sayings, to me a Depression is when the generation that last went through one (officially) no longer has a voice (except through books and quotes); they’ve moved on and the living proclaim it’s never been so bad (in their memory). Therefore I would seek a metric that reflects excessive labor surpluses (i.e., layoffs/reductions-in-force/etc.). Unemployment means less and less in absolute terms as the economy shifts further away from its legacy manufacturing base so finding that tipping point where that metric needs to surpass is a challenge. Obviously!
April 5th, 2009 at 11:25 pm
So many great definitions! In my mind, a recession can be ended by using simple monetary policy, the safety net works for most of the unemployed, they take hits to their pocketbooks but it is not catastrophic. The business cycle works it’s magic in that the marginal producers are forced out, new competitors come on the scene. People go back to work and consumption resumes. This also is more of a national rather than international phenomena.
A depression is the worldwide perfect storm of over leveraging by all market participants large and small, lax regulations and enforcement, and in this era, newly unregulated off the balance sheet time bombs that have exploded which come together to cause the economy to collapse. Total restructuring of the economy, banking system and regulations are needed to replace what destroyed the economy in the first place.
Monetary policy has no effect on the collapsed economy; changes in fiscal policy are needed. It took the massive spending of WWII to finally get us out of the Great Depression with huge unemployment after the war ended but there was enormous pent-up demand in the economy which allowed for expansion. It remains to be seen if there will be a similar way out of this depression.
April 5th, 2009 at 11:27 pm
Here are a pretty wide range of thoughts: http://community.livejournal.com/the_recession/tag/definition+of+depression
Two of my personal favorites from these -
1.)
CR reader Rob_Dawg suggests this, instead:
Peak unemployment + duration in months +
peak decline in GDP [all totaling] greater than 40 equals it’s been a Depression.
Using Rob_Dawg’s definition, the current slump stacks up like this, so far:
Peak U3 Unemployment Rate: 8.5%
Duration in Months: 16
Approx. peak to trough decline in GDP: 3.4% (estimated using around a -7% annualized rate of decline in Q1 2009)
Thus, by RD’s reasonable definition, the recession, presumably still-in-progress, achieves a total score of about 27.9 out of a required 40.1 to qualify.
I would add the caveat that both employment and GDP are quite possibly going to be revised even lower for the Dec. 2007 – March 2009 period, in benchmark revisions ahead. (Consider the birth/death model magic, consider all of the undocumented workers never officially counted, and consider how likely it is that Q4 2007, Q1 2008 and/or Q3 2008 GDP is revised lower, consider that the very method of determining U3 is tighter today than it was pre-Clinton, and realistically, this formula may already be running decidedly above 30).
http://community.livejournal.com/the_recession/300358.html?mode=reply
2.)
What Constitutes an Economic Depression
1. Total GDP Peak to Trough Contraction: At least 6.5% qualifies
2. U6 Unemployment Rate: 16.7% or more for at least 8 months qualifies
3. U3 Unemployment Rate: 10.5% or more for at least 9 months qualifies
Of far less importance to us in determining whether or not a downturn qualifies as a Depression is a recession’s duration. But, for whatever it’s worth, on average, the consensus call is 24 months. Also of low importance is the relative strength or weakness of the recovery. For the record, the consensus call is for a subdued to somewhat effective recovery.
In summation, if annualized, peak-to-trough GDP contraction arrives at 6.5% or more, this community will begin referring to this downturn as a Depression. If U6 Unemployment comes in at 16.7% or more for at least eight months, we will begin referring to this downturn as a Depression. Finally, if U3 Unemployment comes in at 10.5% or more for at least 9 months, we will begin referring to this downturn as a Depression.
http://community.livejournal.com/the_recession/185228.html
April 5th, 2009 at 11:30 pm
Massive job losses.
April 5th, 2009 at 11:48 pm
Recession or Depression?
“It seems highly likely that the current recession will be the
longest in the postwar period, at slightly less than two years
according to the consensus of professional forecasters. More -
over, the 2007-09 recession may even be deeper than the
average of all postwar recessions. However, parallels with the
downturn of the 1930s are sorely misplaced—at least as measured
by the actual and expected decline in real GDP, real GDI,
or the rise in the unemployment rate.”
http://research.stlouisfed.org/publications/es/09/ES0915.pdf
April 5th, 2009 at 11:50 pm
gmesomo Says:
April 5th, 2009 at 8:25 pm
A recession, which we are in now, is when my neighbor loses his job. A depression is when I lose mine. (Not very original, but appropriate)
Yes…one son-in-law lost a job and has found another, a son is on furlough (both of these kids have Masters degrees), nephew out of work, brother-in-law out of work, friend from church has to take 4 days/quarter off without pay to avoid layoffs….. These aren’t people that have poor work habits – they just got hit by the bus. If it isn’t a depression, it is the most depressing recession I’ve heard about since my Dad told us stories of getting only an orange for Christmas.
April 5th, 2009 at 11:50 pm
The margin call of leveraged speculation by the masses, either by themselves or through an agent could be considered a depression. In the great depression, a term penned by a writer after the fact, fits that definition. The panic of 1873, it could be argued, was worse, but we don’t look too far back in our rear-view mirrors for comparison.
Though I was skeptical of multi-generational prognostications for years, and placed them in the gold-bug category of tin-foil hatters, Kondratieff analysis of the long term has it’s merits. Before this crisis began, consider the mentality of the average American in the years leading up to 2005. Leveraged optimism prevailed with no product, really, to speak of. We had entered into the age of the Bullshit Bubble. Perhaps, underlying this was the pent-up demand by the masses for alpha that they missed from dot.com, or the excess liquidity from pensions, 401k’s and borrow and spend trade also looking for alpha in a low-rate environment.
When the last disaster is so far back in the rear view mirror, you tend to minimize the risks of it’s re-occurrence. Why else would MBS’s be rated AAA, why else would pensions invest in them? Why else would someone write the “Black Swan” at the peak of this? You look to last year to compare the soundness of the system, not times before you were born.
Peak optimism, peak retirement savings, and peak speculation by the masses does us in every time.
April 5th, 2009 at 11:51 pm
How about a net loss in aggregate wealth of 10% or greater.
We’ve already reached that point, with a -40% loss of value in the stock markets and a similar loss in aggregate housing wealth.
April 5th, 2009 at 11:51 pm
There’s actually not even a definition of “recession.” Check the NBER site. There’s no definition, just a vague, hand-waving description.
As far as I can tell a “recession” is identified by a group of elders standing at the taffrail, squinting past their collective thumbs at the wake and nodding sagely to each other.
Since those sages necessarily change over time–as do their thumbs (read: economic belief systems and relative weighting of economic indicators)–those sharply delineated gray areas on all of Menzie Chin’s charts seem to be largely arbitrary. Or at least they’re arbitrary in their boundaries.
Given that, I find it astounding to see supposedly rigorous economists using those periods in correlations and regressions, as if they were some sort of natural (or at least clearly defined) entity–as opposed to a subjective construct comprising the very factors to which they are correlating.
Steve Roth
http://asymptosis.com
April 5th, 2009 at 11:53 pm
A recession is a caused by an excess of inventory and takes several quarters for them to rightsize. A Depression is caused by an excess of capacity and takes several years to rightsize.
April 6th, 2009 at 12:01 am
The “Great Depression” was vastly overstated. Lets be clear, it was over BEFORE Pearl Harbor as 1941 saw a signifigent return to employment. Obviously the war was helping as the US was pumping out equipment for the war, but the credit markets healed up in 40-41 alot(completely healing up in 1946).
After the slump, the economy roared for 30 years……..just like the previous 30 before it it. It was nothing more than a big mid-cycle slump. Sorta like 73-83 which could be called a “depression” in its own right.
The worst was the 71-99 slump of the 19th century. No wonder anti-capitalist movements blew up in that era and impacted 20th century thinking on how markets would be run.
April 6th, 2009 at 12:11 am
you will know it once you see it. When (if) we enter the depression there will be no doubt. As long as we are having these debates, it is a recession still.
April 6th, 2009 at 12:25 am
Photographs of the Great Depression
http://history1900s.about.com/library/photos/blyindexdepression.htm
April 6th, 2009 at 12:41 am
It is simple, we have a choice.
1.We could be as the deflationists want and let it all collapse while we purge the debt. We tried this in the 1870′s and it failed. The economy became more monopolized by the survivors and competition fell even further down the pole leading toward the reforms of the 1890′s and trust busting the bastards.
2.We could be like the monetary supporters want and bail out bad banks risking the US to interest rate shocks to finance the debt WITH NOTHING IN RETURN. The hope is to reinflate the consumer debt machine……….even though they have way to much debt. Uh, yeah.
3.We could as the fiscal investment side wants, rebuild America’s crumbling infrastructure, ridding ourselves of unfair trade agreements and rebuild a semblence of a manufacturing sector again. America is about the only country in the world that doesn’t need to export/import a darn thing. We could starve the rest of the world to cut population if we wanted too. By these investments, people will have jobs and pay down the debt and eventually government debt.
It doesn’t sound hard, but the monetary crew run the country right now and will have to be eliminated. The deflationist side SO BADLY wants to be in power so and will lie and cheat to do so. They intellectually create a history that sides with them, even though it is a lie. They create a intellectual formation of the future that is sadly failures of past failures. They are what they are: pathetic worshippers of JewishM ammon Gods. No different than the communists. 2 different sides of the same coin. Time for a different coin all together.
So that leaves the fiscal investment side: The time is now. Time to take back the country from the infidels and execute the false prophet deflationists for internationalism and treason.
Time for the egalitarians to let go of that enlightment lie and understand the natural aristocracy of men is the way toward the future. We will build a great nation and clean the filth that has wrecked it.
April 6th, 2009 at 12:44 am
A recession, which we are in now, is when my neighbor loses his job. A depression is when I lose mine.
“And a recovery is when Obama loses his……”
Well that is paraphrased from back in the Carter years when I was in HS. Substitute Geithner or Bernanke if you prefer…..
April 6th, 2009 at 12:59 am
“…The Kondratieff wave cycle goes through four distinct phases of beneficial inflation (spring), stagflation (summer), beneficial deflation (autumn), and deflation (winter). Since, the last Kontratyev cycle ended around 1949, we have seen beneficial inflation 1949-1966, stagflation 1966-1982, beneficial deflation 1982-2000 and according to Kondratieff, we are now in the (winter) deflation cycle which should lead to depression.
Professor Nickolai Kondratieff ( pronounced “Kon-DRA-tee-eff”) Shortly after the Russian Revolution of 1917, he helped develop the first Soviet Five-Year Plan , for which he analyzed factors that would stimulate Soviet economic growth. In 1926, Kondratieff published his findings in a report entitled, “Long Waves in Economic Life”. Based upon Kondratieff’s conclusions, his report was viewed as a criticism of Joseph Stalin’s stated intentions for the total collectivization of agriculture. Soon after, he was dismissed from his post as director of the Institute for the Study of Business Activity in 1928. He was arrested in 1930 and sentenced to the Russian Gulag (prison); his sentence was reviewed in 1938, and he received the death penalty, which it is speculated was carried out that same year. Kondratieff’s major premise was that capitalist economies displayed long wave cycles of boom and bust ranging between 50-60 years in duration. Kondratieff’s study covered the period 1789 to 1926 and was centered on prices and interest rates. Kondratieff’s theories documented in the 1920′s were validated with the depression less than 10 years later.
Today, we are faced with another Kondratieff Winter (depression) when the majority of the world anticipates economic expansion. Each individual needs to weigh the risk of depression in light of Kondratieff’s work. ”
http://www.kwaves.com/kond_overview.htm
Kondratieff’s work has analogs in other fields of social sciences, as well.
see Strauss & Howe’s work:
http://www.fourthturning.com/html/excerpts_from_the_book.html
April 6th, 2009 at 1:05 am
Bridgewater’s Ray Dalio has following definitions for depression and recession, too good not to share…
A depression is an economic contraction that is due to a contraction in real capital (i.e. credit and equity) that arises from a shortage of credit worthy borrowers and/or a shortage of money to lend to them that ends when debts are restructured so that economically viable capital formation can resume. In depressions, a) a large number of debtors have obligations to deliver more money than they have to meet their obligations, and b) monetary policy is ineffective in reducing debt service costs and stimulating credit growth. Monetary policy is ineffective in stimulating credit growth either because interest rates can’t be lowered (close to zero) – which produces deflationary depression or because money growth goest into the purchase of inflation hedge assets rather than into credit growth – which produces inflationary depression.
A recession is an economic contraction that is due to a contraction in real capital (i.e. debt and equity) arising from a tight central bank policy (usually to fight inflation), that ends when the central bank eases. In recessions, central banks can control credit creation through monetary policy.
April 6th, 2009 at 1:08 am
You know you are in a depression when you see your anti-capitalist, environmental activist neighbour eating at the McDonald’s in a Walmart with a cart full of stuff.
April 6th, 2009 at 1:28 am
from Rothbard on Kondratiev:
“…As Kondratieff himself summed it up: the physical statistics of production and consumption, “taken as raw data, do not disclose the cycles with sufficient clarity.” Therefore, “in order to bring out the presence or absence of long cycles, it was necessary to use more complex methods in processing the statistical series” (p. 33–34). In short, in the vital area of physical series, of production and living standards, the “Kondratieff cycle” does not and cannot exist; it is a pure statistical artifact, a product of the fallacious statistical manipulations that Kondratieff employed to get his desired result.
Oddly, Kondratieff admits that his manipulations are unsound, that it is in fact illegitimate to break down the market economy into hermetically sealed “trends” and various kinds of “cycles” and expect to arrive at a meaningful result. He concedes that “all elements of the capitalist economy are organically interrelated” (p. 33) and that therefore, eventually he would somehow have to put it all back together. But in the meanwhile, all he could do was to isolate and therefore falsify. The ideal of integration was of course promptly forgotten….”
http://www.lewrockwell.com/rothbard/rothbard44.html
Rothbard takes a sharp pen to precise Kondratieff-wavelengths to get to this point:
“In short, government intervention cripples the market economy, and recession or depression is the painful but necessary adjustment by which the market reasserts itself, and liquidates the distortions committed by the government’s inflationary boom. After each depression, the government generates inflation once again, because it is the government’s natural tendency to inflate. Why? Quite simply, whoever is granted a monopoly of printing money (e.g., the Fed, the Bank of England) will use that monopoly and print – to finance government deficits, or to subsidize favored economic groups. Power will tend to be used, and the power to create money out of thin air is no exception to the rule.
And so we see – and this is the great insight of the “Austrian” theory of the trade cycle – that micro and macro economics are in harmony after all. The free market does tend to adjust harmoniously without boom and bust, without incurring clusters of severe business losses. It is government intervention in the market that creates the business cycle, and unfortunately makes the corrective adjustment of recessions necessary. The cause of the boom-bust cycle is not some mystical periodic Force to which man must bend his will; the fault, dear Brutus, is not in our stars but in ourselves, that we are underlings.”
April 6th, 2009 at 1:28 am
i’m not sure about depression, but someone at 12:41 sure has psychosis.
April 6th, 2009 at 1:32 am
Recession is when the weaklings cannot hang in there anymore. Depression will sweep away the supposedly strong stratum as well. In other words, most of both the debtors and creditors will not survive.
April 6th, 2009 at 3:24 am
What are you talking about, cramer says it’s over!
April 6th, 2009 at 4:21 am
i think the 10% contraction or 10% unemployment or longer than two years definitions of a depression are basically journalistic standards common in business writing. economists and statisticians may have originated them as standard research or reporting categories, but the terms have a fundamentally subjective rather than analytical force — in the same way that economists talk about “severe” as opposed to “mild” unemployment.
in particular, the quantitative aspect is arbitrary — why not 8%, why not 12%? why is a recession two consecutive quarters but not three? clearly what has been done here is that somebody (or bodies) looked at continuous economic data from some historical period (how far back, who knows), and decided, well, quarters is a standard reporting period, and two quarters seems to work better than three. i’m reminded of the treasury secretary who preferred “banana” to do the job.
what’s missing here is a structural or functional definition of a depression vs. a recession — an analytical foundation. for example, recession is a contraction, depression is a restructuring. recession destroys profits, depression destroys companies. of course you still have to apply arbitrary bounds (bankruptcies occur all the time), but if you put together two or three specific factors that define a depression as opposed to a recession, then you’re not just saying “bad” and “worse” on a GDP and quarterly yardstick, you’re saying something substantive and insightful.
April 6th, 2009 at 6:18 am
Intrade’s entry level depression contract is a 10% cumulative GDP decline:
“For the purposes of this contract only, a “depression” is defined as a 10.0% decline in GDP from its peak value. This market group also contains -15.0% and -20.0% contracts to allow trading on the magnitude of a “depression”.
This contract will settle (expire) at 100 ($10.00) if GDP declines by the percentage specified in the contract (or more) from its peak value between Q4 2008 and Q4 2010 (inclusive).”
I believe that after this episode is over, it won’t be called a depression…a new category will be added…”cataclysm.”
April 6th, 2009 at 6:25 am
Imagine a landscape where 1 in 4 have lost their jobs vs. the 1 in 10 we have today. How do you absorb that? Got demand?
April 6th, 2009 at 6:38 am
http://economistsview.typepad.com/economistsview/
From the Economist’s View today
“From Bubble to Depression”
“…both the Great Depression and the current crisis had their origins in excessive consumer debt – especially mortgage debt.”
April 6th, 2009 at 6:58 am
“From Bubbles to Depression?” WSJ opinion – Steve Gjerstad and Vernon L. Smith (linked at EV above)
“The hypothesis we propose is that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system. It appears that we are witnessing the second great consumer debt crash, the end of a massive consumption binge.”
April 6th, 2009 at 7:01 am
I’ve found the following definitions of ‘depression’ in a couple of different contexts:
1. Unemployment (per the BLS) that reaches 10%+ for four quarters.
2. GDP shrink of 10% or more in a 12-month period.
3. GDP shrink of 2% per quarter for six quarters back to back.
Long story short: there is no universally accepted definition. The term isn’t even much used any more, outside talking about the depression of the 1930′s. The term has become so mis-used, put on to such a high shelf, that it isn’t even used to properly denote the resulting economic impact of the banking collapse of 1873 or 1837 any more. It is as tho those who worship FDR from this side of the grave have appropriated the term for ONLY the 1930′s.
Now, for some background I found when looking for the same information you are:
Until the appearance of the NBER in the early 1920′s, the press (and apparently economists) used the term “depression” to mean just about any cyclical or extraordinary economic slow-down on a national scale. IOW, what we today call a “recession” (per the NBER) used to be called a ‘depression.’
People think that the “Great Depression” was what made the term fall out of use, but in fact, this I found to be not true. By the late 20′s (prior to ’29) the NBER was already changing their nomenclature away from “depression” for a regular, cyclical recession in earnings. They weren’t looking at employment too much (yet), they were looking at economic and earnings expansions.
Now, one more interesting thing I learned from a lot of reading: before the NBER and even until the end of the 30′s, there were a LOT of business analysts and early economics jocks who refused to believe in what we call the business cycle today. They refused to believe that economic expansion/contraction was a regular and cyclical thing, instead preferring to believe that downturns were the fault of some one-off in policy or some particular industry.
Anyway, I hope all of that is useful to you in some way.
dave
ps — I wrote a note to the NBER asking them whether the move away from “depression” in the papers of the leading economists who formed the NBER in the mid/late 20′s was a deliberate policy of the NBER or economics profession (or academia) or merely a personal issue with the the NBER’s top economists at that time. I have to date (six months later) not received any response.
April 6th, 2009 at 7:01 am
As with most words, the dictionary would list more than one definition.
One would have something to do with emotional state. Another would have something to do with a hole in the ground or a low point on a surface. A third would be economically oriented and describe bad times.
The definition most commonly used today involves hype and media sales. It is a term used to make today sound terrible and tomorrow even worse. It is related slightly to the definition describing economics, but is actually a term to scare people into coming back tomorrow to find out more. Advertisers then pay to be a part of the soap opera events that the media will create and unfold for as long as the public continues to pay to be frightened.
April 6th, 2009 at 7:06 am
The D-word: Will recession become something worse?
It may not be another Depression, but it might be another depression
Tom Raum and Daniel Wagner
Associated Press Monday March 2, 2009, 6:40 pm EST
http://finance.yahoo.com/news/The-Dword-Will-recession-apf-14519637.html
A Depression doesn’t have to be Great — bread lines, rampant unemployment, a wipeout in the stock market. The economy can sink into a milder depression, the kind spelled with a lowercase “d.”
And it may be happening now.
The trouble is, unlike recessions, which are easy to define, there are no firm rules for what makes a depression. Everyone at least seems to agree there hasn’t been one since the epic hardship of the 1930s.
But with each new hard-times headline, most recently an alarming economic contraction of 6.2 percent in the fourth quarter, it seems more likely that the next depression is on its way.
“We’re probably in a depression now. But it’s not going to be acknowledged until years go by. Because you have to see it behind you,” said Peter Morici, a business professor at the University of Maryland.
No one disputes that the current economic downturn qualifies as a recession. Recessions have two handy definitions, both in effect now — two straight quarters of economic contraction, or when the National Bureau of Economic Research makes the call.
Declaring a depression is much trickier.
By one definition, it’s a downturn of three years or more with a 10 percent drop in economic output and unemployment above 10 percent. The current downturn doesn’t qualify yet: 15 months old and 7.6 percent unemployment. But both unemployment and the 6.2 percent contraction for late last year could easily worsen.
Another definition says a depression is a sustained recession during which the populace has to dispose of tangible assets to pay for everyday living. For some families, that’s happening now.
*snip*
April 6th, 2009 at 7:47 am
America is about the only country in the world that doesn’t need to export/import a darn thing. We
———————-
The US is a net importer of the most important product on the planet: oil.
April 6th, 2009 at 7:51 am
It sure looks like we dropped the word depression from our collective vocabulary at the exact same time we became a hedonistic feel good society!
April 6th, 2009 at 8:04 am
The National Academy of Sciences recently announced the replacement of certain terminology in the physical sciences due to a “linguistic shift.” Some observers claim that this is actually capitulation to political forces.
Force – Efforting
Big Bang – Special Beginning
Gravity – Centering
Uranium – The Heating Element
Chain Reaction – Lively Interaction
Meltdown – Severe Lively Interaction
Nuclear Detonation – Overheating
April 6th, 2009 at 8:40 am
Using 100 year old words to describe anything in the 21st century is likely a serious error and as any politician knows all to well, the choice of words can move the world.
With a global economy at the speed of light, literally, when pressing a computer key in Petaluma can create several thousand jobs in Bangalore, it is long past time to originate a new linguistics, a more accurate lexicon to describe our economics and its parts.
The National Academy is likely right, about linguistic shift. Not politics at all, but coming up with words that actually describe what is really going on.
It is no secret that the midwest housing market is not even on the same planet as the Coastal ones. Talking about a depression in housing in Pittsburgh will get you looked at like you’re crazy. But doing it in San Diego, or Nevada, where they have to close public health facilities because of major economic
disaster in tax revenue shortfalls , albeit perpetrated thru fraudulent means, is likely an understatement.
April 6th, 2009 at 8:47 am
It is no secret that the midwest housing market is not even on the same planet as the Coastal ones. Talking about a depression in housing in Pittsburgh will get you looked at like you’re crazy. But doing it in San Diego, or Nevada, where they have to close public health facilities because of major economic
disaster in tax revenue shortfalls , albeit perpetrated thru fraudulent means, is likely an understatement.
———–
A few years ago, talking about a generalized national real estate bubble got you those same crazy looks. And if I remember correctly, there were a lot of discussions on the semantics of the word bubble.
I actually something like the word “souffle” popping up.
Just the fact that we are having the same discussions around the word depression, if a good enough sign for me.
April 6th, 2009 at 9:08 am
It is a relative measure that is not typical of a normal business cycle downturn. The normal or cyclical business cycle downturn has taken on the mantra of a recession. So a depression is a downturn NOT borne from a normal cyclical downturn. It is secular in nature and the results of it will result in a smaller baseline GDP for many years. As to when we are in one the fall in GDP, the unemployment rates, assets price decline are clearly metrics to use in relation to recessions.
April 6th, 2009 at 9:18 am
In vino veritas. When during the second drink the word “depression” becomes the centerpiece of the discussion without regard to race, religion or politics…
April 6th, 2009 at 9:31 am
A depression changes society or the social structure – a recession doesn’t.
April 6th, 2009 at 9:40 am
Itiswhatitis Says:
April 6th, 2009 at 12:41 am
“…the natural aristocracy of men is the way toward the future.”
Too bad for you, Karen
April 6th, 2009 at 9:44 am
@flipspiceland:
Not sure you realized I was being tongue-in-cheek.
I’m one of those “nothing new under the sun” types. Yes, we have fiber optic lines now, but not time travel. I learned recently that Alexander Hamilton used the term “bubble” 200 years ago. Still a perfectly good term.
A fraud at near-lightspeed is still a fraud. The Statutes of Frauds are 330+ years old. The Romans had a monetary policy and debased their currency over time to pay for wars, social welfare, and graft.
April 6th, 2009 at 10:00 am
DEPRESSION: An extended period–a decade or so–of restructuring and institutional change in an economy that’s often marked by declining or stagnant growth. During this period, unemployment tends to be higher and inflation lower than a regular, run-of-the-mill recession. Moreover, a depression usually lasts in the range of ten years, often encompassing two or three separate shorter-run business cycles. The most noted depression in the U. S. economy was the Great Depression of the 1930s.
http://www.amosweb.com/cgi-bin/awb_nav.pl
April 6th, 2009 at 10:16 am
A recesssion is the process of Creative Destruction at work. A Depression is the Destruction of the Creative process at work.
April 6th, 2009 at 10:49 am
At it’s simplest, a depression is a long running, deflationary event that coincides with a severe economic contraction.
April 6th, 2009 at 10:57 am
Might take a look at the Kondratieff Wave (see: http://www.thelongwaveanalyst.ca/cycle.html ) Also know as the K- & Long-Wave, it is event driven rather than time dependent. It is very simple, yet predictive of outcome. Would be useful to plot events leading up to and during the other depressions of 1837, 1873, & 1929.
April 6th, 2009 at 11:53 am
Barry, I found this at http://barrypopik.com/index.php/new_york_city/entry/great_depression/.
It purports to have the Oxford English Dictionary entry for economic depression, citing the following sources of usage. Note that Herbert Hoover appears to have referenced “great depressions” of 1908 and 1921. It seems possible that “depression” originally simply meant a period of “trough” (as opposed to “peak”) in terms of demand for particular goods or industry output. IMO, the usage suggests a high level of excess capacity — possibly bubble formation.
So it follows that “Great” just meant particularly deep or long — with macro impact. I think you should go with linguistic usage instead of the pseudo-mathematical definitions that have been floated after the fact.
(Oxford English Dictionary)
depression
A lowering in quality, vigour, or amount; the state of being lowered or reduced in force, activity, intensity, etc. In mod. use esp. of trade; spec. the Depression, the financial and industrial ‘slump’ of 1929 and subsequent years. Also attrib.
1793 VANSITTART Refl. Peace 57 The depression of the public funds..began long before the war.
1826 Ann. Reg. 1 A continuance of that depression in manufactures and commerce.
1837 WHITTOCK Bk. Trades (1842) 392 The consequence has been a general depression in price for all but the best work.
1845 STODDART in Encycl. Metrop. I. 64/1 There is not in actions, as there is in qualities, a simple scale of elevation and depression.
1886 (title), Third Report of the Royal Commission appointed to inquire into the Depression of Trade and Industry.
1934 A. HUXLEY Beyond Mexique Bay 233 Since the depression, books on Mexico have been almost as numerous..as books on Russia.
1935 ‘J. GUTHRIE’ Little Country xiii. 212 ‘I thought you had a baby.’ ‘No, darling,’ said Carol. ‘None of us are having them now. It’s the depression.’
1935 Punch 19 June 719/1 All the wireless sets in Little Wobbly are pre-depression models.
1957 M. SHARP Eye of Love iii. 39 It was the Depression that had finished him off.
1 March 1930, New York (NY) Times, “Encourages Poland; Dewey Finds Bank Deposits Higher, Sees End of Depression,” pg. 6:
WARSAW, Feb. 28.—Charles S. Dewey arrived in Warsaw from a visit to the United States last night in the midst of great depression in trade and industry and was besieged by newspaper men this morning for his views on the situation.
2 May 1930, New York (NY) Times “Text of the President’s Speech” (Herbert Hoover before the U.S. Chamber of Commerce), pg. 1:
The result has been the placing of contracts of this character to the value of about $500,000,000 during the first four months of 1930, or nearly three times the amount brought into being in the corresponding four months of the last great depression of eight years ago.
1 July 1930, New York (NY) Times, “President Praises Governors for Aid in Promoting Work; In Speech by Radio to Conference He Stresses Need for Continued Effort,” pg. 22:
“In the great depressions of 1908 and 1921 we witnessed such a decrease in public works.”
15 December 1930, Fresno (CA) Bee, pg. 8B, col. 6:
We note in the Public Thinks columns of The Bee on Tuesday, December 9th, that different writers tell of the great depression and troubles of our country.
2 January 1931, Marion (OH) Star, “Foreign Government Rule Has Tempestuous Year” by H. C. Montee (International News Service), pg. 8, col. 4:
NEW YORK, Jan. 2—The year 1930, in addition to being remembered as the year of the great financial-economic depression, will stand out in history as the year of the great depression in the prestige of government all over the world.
April 6th, 2009 at 1:32 pm
danm,
w/this: “It sure looks like we dropped the word depression from our collective vocabulary at the exact same time we became a hedonistic feel good society!”
to you point, it got in the way of diazepam sales efforts..
http://www.amazon.com/Pills-Go-Go-Investigation-Marketing-Consumption/dp/0922915539
Transor,
nice research~
~~
and, to ekw590′s point, I’m Long ‘Cycles’..find them to be, both, useful & fascinating.
April 6th, 2009 at 2:03 pm
Anybody with a NYT home subscription can look at the actual papers referenced above online at http://timesmachine.nytimes.com/browser
I don’t, although if the NYT shuts down the Globe I might have to…
April 6th, 2009 at 2:10 pm
In our hedonistic feel good society, realism/pessimism has often been diagnosed as depression.
We will know what This was (A Rich Man’s Panic/Recession/Depression), only when it is over.
April 6th, 2009 at 3:46 pm
A recession represents the tail end of a business cycle, while a depression should be something longer lasting: I would suggest that we will be in depression IF the real GDP high of the next business cycle is lower than the 2007/8 GDP high OR the real GDP low of the next business cycle is lower than the present cycle’s low point.
This sort of definition implies we will not have confirmation of a US depression before 2012, though we could establish that we are not in one earler if we see a new GDP high. It also means that other countries such as BRICS may be in a cyclical recession while the US is in depression (and vice versa of course).
April 6th, 2009 at 7:12 pm
I don’t think there _was_ the notion we have now of a business cycle circa, say, 1930. Yes there was Schumpeter’s (and others’), Juglar cycle etc. But my understanding is that these were more academic constructs and hadn’t yet entered into the common language of the political economy.
I understand depression or Depression as a negative feedback loop between debt and deflation (which is, I think pretty much how Irving Fisher understood it). This doesn’t, as it were, go to zero. It reaches a new, _lower_, metastable equilibrium. Lower in particular, in terms of output and employment (another way of saying GDP goes down and unemployment goes up). Because this is another equilibrium of a sort, it can stay there for some time (i.e measured in years). I heard it claimed that the panics or whatever of 1873 and 1897 constituted one very long (14+ yrs) period of a lower equilibrium. Sort of counter-intuitive if you consider this the heyday of the Gilded Age. (or not).
That [dD]epression is launched by some huge spike in debt is why it’s (largely) a phenomenon of modern (say 19th century) capitalism. Prior to fractional banking and its precursors, presumably national or multi-national debt couldn’t reach the limits (hate it – but tipping point) where the modern phenomenon is able to set in.
April 6th, 2009 at 7:29 pm
A depression is when things get so bad people start looking for alternatives to capitalism. We’re not there…yet.
April 6th, 2009 at 8:41 pm
If you use the indicators from the Last Great Depression many would argue that we are already in a Depression.
http://georgewashington2.blogspot.com/2009/02/are-we-experiencing-depression-level.html
April 6th, 2009 at 9:54 pm
QOTD: “The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements.” —Jesse Livermore
our old friend has much to teach us..
To give you a brief taste of where we will go, here are some comments from Jesse Livermore himself:
“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.”
“…the fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions.”
“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
“There are times when money can be made investing and speculating in stocks, but money cannot consistently be made trading every day or every week during the year. Only the foolhardy will try it. It just is not in the cards and cannot be done.”
“The point is not so much to buy as cheap as possible or go short at top price, but to buy or sell at the right time.”
http://www.jesse-livermore.com/
“Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” —Jesse Livermore
http://www.zealllc.com/2003/jesse01.htm
April 7th, 2009 at 3:00 pm
Krugman has some good links that seems to apply:
Worldwide (not just a region),
http://www.voxeu.org/index.php?q=node/3421
and
income inequality,
http://krugman.blogs.nytimes.com/2009/04/07/the-financial-factor/
Depression is worldwide, and income inequality is so great that instead of a recovery taking ~one year
it takes ~ten years.