The Find: Hopefully the discussion is entirely academic, but when does a recession become a depression? A blog offers some possible indicators, while one prominent economist says that if you want to know what a depression looks like, look around – we’re in one now.- The Source: A post on the Brazen Careerist blog and another on the NY Times Freakonomics blog citing a new book by University of Chicago economist Richard Posner.
The Takeaway: Depression is a scary word conjuring images of soup kitchen lines and downtrodden okies in The Grapes of Wrath, but what exactly is the technical definition of a depression? There’s no hard and fast rule, but Brazen Careerist ventures some possible markers that might indicate when an economy has descended into depression:
- Three straight years of negative GDP
- 10 percent drop in GDP
- 10 percent unemployment
- A recession that doesn’t self-correct
- Economic condition that requires normal citizens to sell tangible assets to stay afloat
Certainly we haven’t reached the first two conditions yet, but unemployment is approaching ten percent and, so far, no self-correction seems forthcoming. As for tangible assets, while some people may be putting an extra handbag on eBay and an unfortunate few may be forced to sell more essential possessions, things are hardly as bad as they could be, right? So going by Brazen Careerist’s definition there’s plenty of room for optimism, but according to A Failure of Capitalism, the latest book from respected economist Posner, we all may be deluding ourselves. In the preface he writes on the term ‘depression’:
The word itself is taboo in respectable circles, reflecting a kind of magical thinking: if we don’t call the economic crisis a “depression,” it can’t be one. But no one who has lived through the modest downturns in the American economy of recent decades could think them comparable to the present situation. … It is the gravity of the economic downturn, the radicalism of the government’s responses, and the pervading sense of crisis that mark what the economy is going through as a depression.
The Question: When does a recession turn into a depression?
(Vintage image from the Great Depression by onohoku, CC 2.0)
