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.