In yesterday’s Wall Street Journal, Bob Barro points out that the stock market crash could portend another depression. I had never been able to answer students who asked me what distinguishes a depression from a recession except that it’s more serious. Barro defines a depression as a drop in real GDP or consumption per capita of 10% or more. That would do it, I think.
Barro also takes on Paul Samuelson’s quip about the stock market predicting 9 of the last 5 recessions, pointing out that the stock market portends probabilities, not certainties. Well worth reading.
READER COMMENTS
Niccolo
Mar 5 2009 at 1:54pm
Well, I don’t know what differentiates the two either, but I imagine it has something to do with the way it is perceived.
Recession = bad, but not earth shattering.
Depression = earth shattering.
I’d say, from public perception, we’re in a “depression.”
Gary Rogers
Mar 5 2009 at 1:59pm
I agree that it was a great article and appeared to be well researched with fact rather than opinion. The question that kept running through my head was how much difference high debt makes when a stock market crash hits. A country with low debt has more options to avoid a deep recession.
John Kessler
Mar 5 2009 at 2:19pm
I was always told:
A recession is when your neighbor loses their job. A depression is when you lose your job.
Randy
Mar 5 2009 at 2:28pm
I’m thinking that all the “depression” talk is really a sign of how good we have it. In the real depression, population growth ground nearly to a halt. These days, a depression is when you have to move back in with Mom and Dad, or live with a roommate.
D
Mar 5 2009 at 2:37pm
“In the real depression, population growth ground nearly to a halt. These days, a depression is when you have to move back in with Mom and Dad, or live with a roommate.”
There will be a lag in population change relative to economic factors, usually at least on the order of, oh…say…9 months. Moving in with mom and dad, as well as the general economic misery currently ravaging the country will lead to population growth slowing considerably, it’ll just take a few years before the numbers are readily available.
Alex J.
Mar 5 2009 at 2:55pm
I don’t have a source for any of this, so take it with a grain of salt.
I believe that all “recessions” before the Great Depression were called “depressions”. After the GD, I believe that the downturns we had no longer seemed worthy of the name “depression” so “recession was coined in its place.
Possibly, the increase in economic data after the GD led to the need to label fluctuations that previously were not named.
Lars
Mar 6 2009 at 2:55pm
I think Alex J. has it exactly right. “recession’ became a sort of euphemism’ since, by the 1950s, the word ‘depression just sounded too harsh.
By the way, before the Great Depression, such economic downturns were routinely referred to as ‘busts.’ ‘Depression’ was initially just a euphemism for a ‘bust.’
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