Why This Recession Isn't A Recession
This recession - which many have declared over - isn't just your run of the mill recession. I would guess most people might agree with that assessment. But I'm not so sure they'd agree that we're in something more like a depression.
Of course, the problem with terms like "recession" and "depression" is that, frequently, people use these words without either defining what they mean or, in many cases, even knowing what they mean. Then again, even if you define your terms, you're liable to find someone who disputes the definition.
Let's try another approach. Let's talk this through and see what we come up with. Then you can decide for yourself what you think we're in the middle of right now.
First, here's an interesting fact. Before the Great Depression of the 1930's, there was no term "recession." When there was a serious economic turn-down, people called it a depression - simple as that.
So when did "recessions" start happening? Well, they didn't really start happening. What happened was this. The Great Depression was so bad, such a trauma for so many people, that the people who label such things decided that using the term "depression" wasn't really a good idea. So they started measuring downturns in such a way that, for the most part, economic downturns could be called "recessions."
Now, I'm not saying this was such a bad idea. I didn't live through the Great Depression, but I've talked to people who did - in addition to reading a fair amount about it. And I can well understand why even a hint that anything close to the Great Depression might happen again struck fear - even panic - in people's hearts.
On the other hand, this recession - the one we're in now - has been far worse than any recession we've had since the Great Depression. I don't think anyone disputes that. So is it a depression? Not so fast. What you get is people calling this the "Great Recession."
Recently, though, historian Niall Ferguson, in an interview, differed with this. In fact, he referred to what's going on as a "slight depression." So there, he used the "D" word.
I think he may be right. In fact, a recent book, This Time Is Different, presents a series of facts that push me into the "D" camp. What the authors do is tap into a wealth of economic data that economists either haven't had access to or simply don't bother with. The authors point out that the data used for comparisons typically concentrates in the years starting in 1980, whereas they have amassed data going back, in some cases, 800 years. Big difference.
One of the really striking statements the authors make is that the crisis that started in the U.S. in 2007 and continues now is unique in this sense: it is the only global financial crisis since World War II. Read that again: the only global financial crisis since World War II. No other crisis since the Second World War has encompassed the entire world. All the others have been local or regional crises.
I don't have time here to get into what they mean by "crisis," or the types of crises that typically end up in recession. I'll try to get more into this in the future.
But for now, this fact alone - that this downturn is the result of the only global financial crisis since World War II - has me thinking that we may well be in some sort of depression.
Now, I've been really careful about not using the "D" word - although I've also noted that there's no reason to adamantly claim that there's no way we're in or possibly might slip into a depression. So it's not like I'm Mr. Doom and Gloom or anything. And Niall Ferguson does call it "slight" so he's being careful with his words too.
On the other hand, he does say that it's been slight "so far." And I would have to agree with him there. We're not out of the woods yet. Ferguson says something that makes a whole lot of sense, and agrees with the authors of This Time Is Different: This will last a lot longer than a lot of people think.
So while there's no reason to weep, or panic, or run for the hills, the plain fact is we're going through something that none of us - unless you lived through the Great Depression - has ever experienced before. That's why I think it makes sense to say this recession isn't "just" a recession.
Of course, the problem with terms like "recession" and "depression" is that, frequently, people use these words without either defining what they mean or, in many cases, even knowing what they mean. Then again, even if you define your terms, you're liable to find someone who disputes the definition.
Let's try another approach. Let's talk this through and see what we come up with. Then you can decide for yourself what you think we're in the middle of right now.
First, here's an interesting fact. Before the Great Depression of the 1930's, there was no term "recession." When there was a serious economic turn-down, people called it a depression - simple as that.
So when did "recessions" start happening? Well, they didn't really start happening. What happened was this. The Great Depression was so bad, such a trauma for so many people, that the people who label such things decided that using the term "depression" wasn't really a good idea. So they started measuring downturns in such a way that, for the most part, economic downturns could be called "recessions."
Now, I'm not saying this was such a bad idea. I didn't live through the Great Depression, but I've talked to people who did - in addition to reading a fair amount about it. And I can well understand why even a hint that anything close to the Great Depression might happen again struck fear - even panic - in people's hearts.
On the other hand, this recession - the one we're in now - has been far worse than any recession we've had since the Great Depression. I don't think anyone disputes that. So is it a depression? Not so fast. What you get is people calling this the "Great Recession."
Recently, though, historian Niall Ferguson, in an interview, differed with this. In fact, he referred to what's going on as a "slight depression." So there, he used the "D" word.
I think he may be right. In fact, a recent book, This Time Is Different, presents a series of facts that push me into the "D" camp. What the authors do is tap into a wealth of economic data that economists either haven't had access to or simply don't bother with. The authors point out that the data used for comparisons typically concentrates in the years starting in 1980, whereas they have amassed data going back, in some cases, 800 years. Big difference.
One of the really striking statements the authors make is that the crisis that started in the U.S. in 2007 and continues now is unique in this sense: it is the only global financial crisis since World War II. Read that again: the only global financial crisis since World War II. No other crisis since the Second World War has encompassed the entire world. All the others have been local or regional crises.
I don't have time here to get into what they mean by "crisis," or the types of crises that typically end up in recession. I'll try to get more into this in the future.
But for now, this fact alone - that this downturn is the result of the only global financial crisis since World War II - has me thinking that we may well be in some sort of depression.
Now, I've been really careful about not using the "D" word - although I've also noted that there's no reason to adamantly claim that there's no way we're in or possibly might slip into a depression. So it's not like I'm Mr. Doom and Gloom or anything. And Niall Ferguson does call it "slight" so he's being careful with his words too.
On the other hand, he does say that it's been slight "so far." And I would have to agree with him there. We're not out of the woods yet. Ferguson says something that makes a whole lot of sense, and agrees with the authors of This Time Is Different: This will last a lot longer than a lot of people think.
So while there's no reason to weep, or panic, or run for the hills, the plain fact is we're going through something that none of us - unless you lived through the Great Depression - has ever experienced before. That's why I think it makes sense to say this recession isn't "just" a recession.
Comments