Tuesday, March 31, 2009

Recession and Depression

So, the other day, I was reading my AP World History textbook and the following excerpt came up: "In 1929 the normalcy of the twenties fell apart. Stocks plummeted; businesses went bankrupt; prices fell; factories closed; and workers were laid off." Um, HELLO? I don't know about you but to me, doesn't that sound awfully familiar? It's like deja-vu all over again. The rest of the section in my book went on about the Great Depression...which got me thinking...is America going into another depression?

Or more generally, what's the difference between a depression and a recession? One of my oh-so eloquent friends described the difference as so: A recession is like not being able to buy your fave Coach shoes...but a depression is like not even being able to buy Payless shoes! Yes, I have such great friends now don't I ;-).
In more technical terms? Well there are a multitude of definitions, so there isn't really a perfect right answer. Most economists state that a depression is a severe recession that is marked with high levels of unemployment, a decrease in the GDP, and a stock market crash. But then again, different people have different definitions.

An old economists joke to add some humor (or not) to your day: A recession is when your neighbor loses his/her job. A depression is when you lose your job!

Question of the Post:
Is this the start of a depression?


Works Cited
Bulliet, Richard, Pamela Crossley, Daniel Headrick, Steven Hirsch, and Lyman Johnson. The Earth and Its Peoples. 3rd ed. Boston: Houghton Mifflin Company, 2005.

2 comments:

  1. I agree with your questioning. According to Ben Bernanki, this thing will end within this year, so perhaps a recession. But if things to get any worse, I think it can be safely called a depression. It's all about words and the media. I wonder what would happen if all of sudden the media uniformly reported that all stocks rose, and the government issued bulletins to that effect. Would that actually make the economy resurge?

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  2. A recession is when you have two years of stagnation in growth. (In order to keep up with inflation and keep the economy growing and such, you need to have a net increase of about 3% in economical gain) So a recession is when you have >3%-0% growth.

    A depression is when you have more than 2 years of stagnation and even transcending that to compression of the market economy.

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