What is a “Great Recession” if not a “Depression”?
The obvious term for the economy we are all suffering through has been carefully avoided, as if the dreaded “D-word” might create a panic. Yet that term has steadily caught on, if not in the popular media. Nobel Laureate Paul Krugman has taken to using it consistently, among others. But for many people, especially working families, the hardship didn’t start in 2008 but as early as 2000.
There is no strong definition of a “Depression.” The most technical is a long recession –decline in GDP– lasting more than two years or a decline of 10 percent in GDP in one year. There is only one Depression, the Great Depression of 1929-1938. The two official “recessions” of 2001 and 2007-2009 are closely linked, and history is likely to combine them into one long “depression” – roughly the fifth such event in U.S. history. This can be shown in:
• Jobs – In 2000, 64.4 percent of the population had a job. In 2002, after the first official recession, that shrank to only 62.7 percent and never exceeded 63.1 percent (2006) in the “recovery” period afterward. What little job growth occurred after this official recession barely kept up with population growth. It was common to refer to this period as the “jobless recovery” for a good reason.
• Poverty – From 2001 to 2008 the number of people on food stamps increased from 17.3 million to 27.7 million. But even more striking are the most comprehensive figures for those living in poverty as compiled by the National Academy of Science. They found that those in poverty jumped from 12.2 percent of the population to 13.4 percent in 2002 and never went back down before spiking dramatically” to 15.8 percent in 2009.
• Gross Domestic Product – Between 2000 and 2008 the total GDP expanded by 1.8 trillion dollars in real (inflation adjusted, constant 2005 dollar) terms. Yet in that time there was an accumulated Federal debt of 2.1 trillion dollars. The contraction in 2001 was met with unusually slow growth afterward despite the deficits– showing that the private sector continued to shrink the entire time.
• Stocks – Even the stock market saw the effects, never fully surpassing the highs of 2000 until 2012.
Once these two official “recessions” are linked, it is hard to call the resulting single event anything other than a depression.
This is highlighted by the character of this depression and how it has been managed. Back in 2002, it was common to talk of the specter of deflation, not inflation. The Federal Reserve under Alan Greenspan kept interest rates low through the period – and upon his retirement Ben Bernanke was chosen to replace him, a man whose Ph.D. thesis was on the mistakes made by the Fed in the Great Depression of 1929-1938.
Our leaders certainly acted as though they understood it to be a depression and acted accordingly. The period between official recessions practically culminates with Vice President Dick Cheney’s famous declaration that “Deficits don’t matter.” Keynesian, or “pump priming” policy, clearly describes the actions taken at all levels of the U.S. government.
That is why I call this the “Managed Depression,” and how it is unique as roughly the fifth depression in U.S. history. President James Monroe first used the term depression to describe the downturn of 1819, the first such event after independence. We learned much along the way and know how to prevent the worst effects from this phase of economic and business cycles – but not all of them.
Understanding this period as one long depression, with attempts to soften the blow meeting only partial success –largely for the wealthy — also explains why the “recovery” has been so weak. A typical postwar recession is merely a pause in an overheated economy, and after that the recovery comes along as an event that needs little prodding. The previous depressions in U.S. history show that a full restructuring is necessary – you emerge with a very different economy than the one you started with.
We are absorbing the effects of a global economy and the improved information technology. For many who had good office jobs a decade ago, yesterday’s productivity gains are today’s unemployment. It takes time to create a new economy that includes those left unemployed, and such a restructuring is a process, not an event like a “recovery.”
The euphemism “Great Recession” may have prevented a panic, but it has not allowed us to be honest about the decades long struggle that working families in particular have endured. Understanding their plight as a depression not only brings clarity to the situation, but demonstrates that positive action is necessary before it will lift completely – especially for those caught in poverty and unable to find a good paying job to lift them out of it.