Recession or Depression - Only 1930 Really Knows

There is an old joke that goes like this:
A Recession is when your neighbor loses his job. A Depression is when you lose your job. If you are one of those that has lost your job, the joke is not very funny.

The difference between the two terms is kinda confusing because those really smart people who call themselves Economists cannot even agree which is which. All I know is that things are as tough as they have ever been for many people.

I am a lucky person, since I have not known any real Recessions or Depressions. When I was growing up, a good year was when all the stock sold at the auction. A bad year was when too many horses were up for sale and the prices were driven down. All that meant to me was that I wore last years clothes, ate more elk than beef (if hunting season was good) and neighbors helped each other out more than usual.

Things are different now. I can tell things are hard all over. People are losing their homes, jobs are vanishing and even my town in Real is scared.
I decided that before I could write an article on how to survive the Great Recession, I needed to make sure we were really in one. So I set out to discover if this hard time right now is a Recession or a Depression?

Answering that can get kinda technical, so I will not try to explain it since I really do not understand it myself. I do know that a recession has to do with Gross Domestic Products and how many quarters it declines. ( I think it is two)

The popular definition of a Recession is not really right (I do not think), for two reasons. First, it does not take into account changes in other economic areas. For example it ignores the unemployment rate and a thing called consumer confidence, which is exactly what it sounds like - how much confidence in the economy does a consumer have. If they are confident, they will buy things and vice versa. This is important because the United States is a consumer driven economy. For the record, in 1930 the United States was an Industry driven economy.

The second reason is that they measure the economy at three months at a time (or quarterly). This makes it hard to decide when a recession begins or ends.

Since we cannot really agree what a Recessions is, what about a Depression; can we figure that one out?

Before the Great Depression of the 1930s, any time the economy was struggling they called it a

Depression. Later, they made up the term Recession to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a Depression as a Recession that lasts longer and has a larger decline in business activity. Simple huh?

So, are we in a Depression right now or a Recession? I sometimes joke that the only reason it is a Recession and not a Depression is because we are not in black and white like all those photos of people standing in bread lines back in the 1930's. Being in full color as we are now takes the gloom out of it.

To figure things out, Mela and I decided to head back to 1930 using the Cosmic String method of time travel we learned last year. We have never traveled backwards, just forwards and we really had no idea on the effects we would have on the time/space continuum - if any.

Although the adventure was nothing like we expected, we did discover the difference between a Recession and a Depression.

A Depression is any economic downturn where real GDP (Gross National Product) declines by more than 10 percent. A Recession is an economic downturn that is less severe. TA DA.

By using this definition, the last Depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. Also, if we use this definition with the Great Depression of the 1930's it was really two different events. The first being an incredibly severe Depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent.

Between 1933 and 1937, things got a bit better and there was a recovery of sorts followed by another, less severe Depression between 1937 and 1938. Since then, the United States hasn’t had anything even close to a Depression since the end of World War II.

The worst Recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Other countries (such as Finland and Indonesia) have suffered Depressions more recently using this definition.

Now you know the difference between a Recession and a Depression, but the real question is "are we in a Depression or a Recession right now". Let's go find out!

Click Here to Journey to 1930 with Tory and Mela.