Whats the difference between a recession and a depression?
Hebert Hoover used the word “depression” instead of “panic” to describe the events of his administration. Since then, there’s been a battle to define what’s a recession and what’s a depression. Most seem to define a depression as a 10% drop in GDP. The Economist says that it’s “a decline in real GDP that exceeds 10%, or one that lasts more than three years.” America’s Great Depression qualifies on both counts, with GDP falling by around 30% between 1929 and 1933. Output also fell by 13% during 1937 and 1938. The Great Depression was America’s deepest economic slump (excluding those related to wars), but at 43 months it was not the longest: that dubious honour goes to the one in 1873-79, which lasted 65 months. Japan’s “lost decade” in the 1990s was not a depression, according to these criteria, because the largest peak-to-trough decline in real GDP was only 3.4%, over the two years to March 1999. Since the second world war, only one developed economy has suffered a drop in GDP of more
Recession: The Newspaper Definition The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected. Recession: The BCDC Definition The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales.
Rebecca Smith Manchester, Conn. Let’s start with what we know: A depression is worse than a recession. We’ve had plenty of recessions since World War II, but no depressions since the Great Depression of the 1930s. In defining recessions, most economists defer to the National Bureau of Economic Research. That group’s definition is subjective, relying on declines in income, employment and other factors. That’s one reason others prefer a more concrete definition: two consecutive quarters of declines in gross domestic product, the value of all goods and services produced within the U.S. Depressions are even harder to pin down. Some say it takes three years of unemployment above 10 percent and economic output declining by 10 percent. Others say it’s a recession made persistent by structural problems with the economy. A third group argues that it’s all about terminology: Officials started using “recession” in the late 1930s to avoid triggering memories of darker days earlier that decade. In
Severity. One widespread definition of a recession—the one used by newspapers—is a decline in the gross domestic product for two or more consecutive quarters. The term depression, by contrast, commonly refers to a grave, prolonged recession during which the GDP declines by more than 10 percentage points.
Although the word can strike fear in the hearts of white collar and blue collar workers alike, recession in and of itself isn’t a bad thing. Still, it can have massive and far-reaching consequences. Unemployment goes up as businesses find their customers less willing to part with money. When there’s less money to go around, consumers spend less. As profitability declines, so, too does the value of companies’ stocks. Recessions are like ouroboros — the snakes that eat their own tails, forming a never-ending circle.
