The dreaded D-word

Here’s Nobel prize-winning economist Paul Krugman writing in yesterday’s Guardian:

The world economy is not in depression; it probably won’t fall into depression, despite the magnitude of the current crisis (although I wish I was completely sure about that).

So do I, Paul, so do I.

Unlike recessions, depressions are rare. There is no agreed definition but the term usually describes a prolonged and severe slump in which the economy contracts by ten percent.

Or, as a friend of mine said recently, a recession is when your neighbour loses his job, a depression is when you lose your job.

There have probably only been three or four, depending on whose figures and definitions you use, since economists began collecting the data to prove that they were happening. Fans of the Kondratieff wave will tell you that we are about due for another.

The Observer’s William Keegan thinks so too.

I hope I am not being alarmist, but everything I hear ‘off the record’ from bankers is truly frightening; and industrial production around the world in recent months has either been falling at alarming rates (as in the US, Europe and Japan) or its growth has been decelerating fast, as in China.

Berkeley’s Robert Reich agrees:

Today’s employment report, showing that employers cut 533,000 jobs in November, 320,000 in October, and 403,000 in September — for a total of over 1.2 million over the last three months — begs the question of whether the meltdown we’re experiencing should be called a Depression.

We are falling off a cliff. To put these numbers into some perspective, the November losses alone are the worst in 34 years.

There are few people still alive who can remember the last depression. My mother was born during it and, while she was too young to remember what happened, she tells me the stories that her parents told her. It was extremely unpleasant. My grandfather, a skilled man, was out of work for much of it. Recessions are nasty, brutish and short but depressions are nasty, brutish and long. Most of us recover from a recession but depressions can ruin people for life.

Recent events have shown that economists have no more clue than the rest of us about what is in store for the world economy.  All the same, I hope the Paul Krugmans are right and the William Keegans and Robert Reichs are wrong.

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6 Responses to The dreaded D-word

  1. Jo says:

    Should we be making predictions? Surely to do that we have to have a fair idea what each of us will do and how each of us will react in turn?

    The better questions are what actions are available to us at this minute and which has the greatest support – for the greatest support is most likely to lead to the greatest success.

    I find myself uneasy about the adversarial style of government that we we have in UK. It seems everyone would be better off if we sat down and did some hard thinking. We need to be clear what each of us can back uncompromisingly.

    Of course, while people think we are going to get out of this by cutting back a little or borrowing from Peter to pay Paul we are unlikely to act decisively, and most importantly we will not act collectively.

  2. jameshigham says:

    Good point here – does falling off a cliff represent a depression?

  3. CherryPie says:

    I guess it depends on if the Government can turn it round…

  4. Hi Rick,
    You have some good extracts here. William Keegan worrying is a worry for us all.
    The latest US jobs stats are staggering in scale but also in scope since so many sectors across the economy have been hit so early in the cycle. Not just constructions and manufacturing but the service sector an retail.
    JKA

  5. Rick says:

    Agreed John. William Keegan is not usually one to get hysterical. If he’s worried then so am I.

  6. Wolfie says:

    The government and the press have gone to significant lengths to whitewash the evidence so I’m not surprised that members of the public are confused as to where we are heading exactly. Due to my profession I have direct access to detailed information of an economic nature and I’m convinced that a) this is far worse than any economic event in my lifetime b) UK government strategy is entirely out of its depth.

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