The D Word

TW: Lets get this on the table, a depression. We need to get comfortable with it. Depressions are not the end of the world just very big bumps in the road. Reich is one of the first to go there in direct terms. Most media including bloggers are tipping toeing around it. One can safely assume it will turn into a trend now. The reason Reich and many others are getting jumpy is that the underlying numbers are far worse than the headline 6.7% unemployment and 500K jobs lost in November. More accurate unemployment reflecting under-employeds and non-job seeking but likely interested unemployeds would be 11% or 12%. Furthermore, the downward revisions on the Sept/Oct jobless were very high.

I was wondering the other day what is classified as a depression. I was somewhat surprised to find little on the topic. It appears to be one of those things that has taken on the mantle of a proper noun, something so bad as to avoid its utterance in proper company.

Recession and depression are two terms to describe economic contraction with the latter being worse obviously. But how much? Per the source attached below, a depression represents an economic contraction (as measured by GDP) of greater than 10%. The good news is that we are definitely not in that territory (yet). I believe we are down a net of 1% or so through Q3. The problem is that the big drop has occurred from late September on. I have seen estimates of a 3%-5% annualized drop in Q4 with expected significant contraction to continue well into next year. But those estimates are evolving rapidly and recently in only one direction.

I was also interested to read that prior to the Great Depression of my grandparents' generation that what we call recessions today were historically referred to as depressions as well. Post the Great Depression the nomenclature evolved to create a softer term for less drastic contractions, but previously all contractions were called depressions. Another point to recall is that the Great Depression truly earned its moniker. The Great Depression was really two depressions, a 33% contraction in the late '29 to early '33 period and another bonus contraction of 18% from mid '37 to mid '38.

Just as all recessions are not created equally not all depressions are either. So this one should it evolve into a depression will be different as well, but depression economics are different than normal times so beware those proposing laissez-faire policies. Stay tuned for more policy discussion. My fundamental point is that in these times one should get one's terms straight in order to confront reality whilst averting hyperbole.
http://robertreich.blogspot.com/2008/12/shall-we-call-it-depression-now.html
http://economics.about.com/cs/businesscycles/a/depressions_2.htm