Time to Change Those Tags? or Economists Catching Up, Round Two
Brad DeLong, not generally a Leading Indicator in such matters, follows Mark Thoma yesterday in looking into the abyss and seeing the outline of a train around the “light”:
Henceforth, I will call the current unpleasantness not “The Great Recession,” but rather “The Little Depression.”
This still strikes me as optimism, but I’m stil on what do you call 1873-1896 (much more similar to the current situation) when “The Great Depression” only lasted about 17 years?
(Aside: Round One of Economists Catching Up was here.)
Ken–How do economists define a depression as opposed to a recession? It seemed to me that back when Greenspan and Bush were saying there was nothing to worry about there was plenty to worry about. But, since econ is not my area, I wonder if you can help me out here. NancyO
The use of the term “recession” seems to date only back to the year 1929 when it appeared in an article in The Economist. Prior to that declines in economic activity were described as “depressions” at least as far back as 1826. Of course most depressions were denoted by the the term “panic” which actually referred to the financial crises that usually set off the depressions. The use of the term panic seems to have disappeared sometime before 1929.
Hoover, always the traditionalist, seemed to have shown a preference for the term depression whereas Roosevelt used recession more often. It seems that recession had the connotation of something that bounces back and FDR was of course the perrennial optimist.
In modern usage of course, when we think of depression, we think of the Great Depression, which appears to have received its name in 1934 when Lionel Robbins wrote a book by the same name. Thus we now by convention envisage a depression as a very severe recession. Attempts at characterizing this severity seem to have settled on either a 10% decline in output or 3 years or more of contraction. We’ve had three declines of output of 10% or more: the Panic of 1893, the Panic of 1907 and the Great Depression. And we’ve had three contractions that lasted 3 or more years: the Panic of 1873, the recession of 1882-85 and the Great Depression. Thus by this standard we’ve had five depressions. Needless to say the current recession does not qualify as a depression by this standard.
Brad DeLong mentions using unemployment as a criteria, specifically 12% unemployment of a period of double digit unemployment lasting a year or more. We only have unemployment rate estimates going as far back as 1890. By that standard both the Panic of 1893 and the Great Depression qualify. I suspect that the only other time we had double digit unemployment prior to that was the Panic of 1873 when urban unemployment was quite severe. But my guess is it did not last a year and never got much above 10%. Similarly, since the Great Depression we’ve only had double digit unemployment twice, the recession of 1982 and the current recession. And neither time did unemployment reach 12% and it didn’t stay at a double digit level for a whole year.
So by the broadest definition, we’ve had 5 depressions. What does this event seem most like? Well, it wasn’t very deep like the Panic of 1893, the Panic of 1907 or the Great Depression. And although the contraction was technically not as long as the panic of 1873 or the recession of 1882-85 it does seem that the recovery will be painfully long and slow. Thus I agree that it is very similar to the early part of the period from 1873 to 1896. Since that traditionally was called the Long Depression and the term recession has supplanted the term depression in modern parlance I suggest the following:
The Long Recession
Who knows, we may have to wait until 2030 before the economy fully recovers.
P.S. In 1978 Alfred Kahn, one of Jimmy Carter’s economic advisers, was chided by the president for scaring people by warning of a looming depression. Mr Kahn, in his next speech, simply replaced the offending word, saying “We’re in danger of having the worst banana in 45 years.” So if it makes you feel any better just call it the Big Banana.
Big strawberry here!
Thanks, Mark. Ok, so not a depression in the historical sense. This one seems to have wiped out a lot of middle class people’s home equity and other resources like 401k’s that was not the case earlier, though. So, even though we do not have double digit unemployment, it seems to me we have depressed wages, real property values, and a lack of industrial development to provide new jobs. This feels more like the dehydration discussed earlier in another post. Dismal prospect. Maybe the Big Banana Strawberry float will do ‘er. NancyO
“Brad DeLong, not generally a Leading Indicator in such matters,….”
I like Brad and I continue to read his blog. But he censors comments. People need to be aware of that. I consider myself a progressive. Anyone who censors comments simply because they have a point of view different from theirs are in my opinion not authentically progressive.
Reading various books about the period 1873 to 1897, It appears that things had gotten better by the early 1870s to the early 1880s. Railroad mileage went from 50k in 1870 to 93k in 1880 to 129k in 1890. This is a bubble if there ever was one. Eventually the railroads had to pay the piper just like the housing market this time. In 1893 most railroads went into recievership in the west at least, the UP, Santa Fe and Frisco among others. In many respects the railroad business at the time is sort of like the telecom business in the late 1990s early 2000s a business with a high fixed cost and a set of managers willing to run for a little above marginal cost.
Note that the 1893 event was a debt based panic just like the 2008 event and it took 5 years to get out of it. So history suggest it takes 5 years to get out of a debt based crisis. Of course we don’t have a recievership for homes like the railroads do. (A railroad in general can not just shut down, particularly back then when communities depended on the railroad). To give an example the Rio Grande Southern went into recievership in 1893 and struggled on till 1951.
In addition 1893 represents the triumph of the gold standard in the US as the 16 to 1 Sherman silver purchase act was repealed and the western mines shut down. Recall that in 1896 populism was strong and Bryan ran on a populist style platform featuring bringing silver back leading to inflation. (Cross of Gold speech)
So in one sense then the aftermath of 1893 shows how ineffective austerity, in that case a lesser money supply was and how it took a long time to recover.
The entire period from 1873-1896 was one big deflationist disaster (three out of five of our depressions). Hard money never benefits the working classes (i.e. you and me). Reread the Wizard of Oz. Take from it the true meaning. (Remember how grey was Kansas?) Never take the path of Gold.
“You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”
-Williams Jennings Bryant
Playing for Change….
http://www.youtube.com/watch?v=GJtq6OmD-_Y&feature=player_embedded
Join the Movement
Oops. Did I say “playing for change?”
I meant “praying for change.”
And I am. I’m counting my Rosary beads as we speak.
(But that’s just me. You do whatever.)
Beads are used by Muslims and Buddhists as well.
However hard money does benefit the merchant class, it was this class that determined the 1896 election, preferring hard money, as well as the middle class (not working class) of the time. The working and farmer class did not manage to win the election of 1896. In fact since Hamilton got in power in 1789 the us has been a generally hard money place. Note that part of the purpose of the 1st bank of the US was to curtail note issue, thus hardening the money supply. The consitituion was written by hard money types as well.
I think lowering SS and medicare from todays’ level is defaulting on those trust funds.
So, I was surprised to see this: Barry Ritzholtz links: http://www.ritholtz.com/blog/2011/06/chinese-rating-agency-says-the-us-has-already-defaulted-german-rating-agency-downgrades-u-s-debt/
Seems a Chinese (PRC side of Formosa straits) rating agency and a German one thinks the US monetary looseness is a default.
No one needs panzers anymore just let the banksters run the place into the ground then foreclose……….
Read the entire article.
And ask why France folded so quickly in June 1940.