What's the difference between a recession and a depression?

[marshallandcartersmo]

With some overseas markets tinkering close to the toliet also, the Today show was saying this morning a recession is almost a given. Last week the Today show was talking about a possible depression.

what's the difference?

 

[luvmylittleboy2003]

I would like to know also...I asked this one time and someone told me a recession is when your neighbor loses his job and a depression is when you lose yours .

 

[marshallandcartersmo]

I would like to know also...I asked this one time and someone told me a recession is when your neighbor loses his job and a depression is when you lose yours .

 

[kelleigh1]

This is what I found when I did a search to compare the two.

Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

 

[marshallandcartersmo]

This is what I found when I did a search to compare the two.

Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

 

[ChloroFiend]

Bingo. It's just a severity/duration thing.

 

[RadioNate]

Isn't a recession 2 consecutive quarters of negative growth? So the economy would decline for 6 months straight.

I thought a depression was classified when the economy looses a certain precent of it's value after 6 months of declining. So basically a depression is a really long recession.

My dad, who is an economics professor, thinks this will be like the early 80's. High inflation 10% + and 10%+ unemployment.

 

[ntsammy5]

I don't know if there is a definition for a depression, but the great depression was several years long, saw annual double digit declines in GDP and had unemployment in the 25-30% range at its peak.

A recession is defined as two consecutive quarters with a decline in GDP. Assuming 3Q08 was a decline we won't be in a recession officially until year-end. If 3Q was not a decline, then the recession can't hit officially until 1Q09. Depressing!

 

[Geoff_M]

Nate, that used to be the case, but nowadays the definitions seem to be based on public perception. If enough people think we're in a recession, then we are... regardless of what the economic numbers may or may not say.

 

[Quiksilvr]

Nate, that used to be the case, but nowadays the definitions seem to be based on public perception. If enough people think we're in a recession, then we are... regardless of what the economic numbers may or may not say.

I agree with this. If you ask a guy who lost his job and can't find another one if the economy is in a recession he's going to readily say yes irrespective of whether the Treasury department says we're in a recession. At my firm if you ask people whether we're in a recession they'll laugh and get back to work. If, however, enough people believe that we're in a recession (including companies and their executives) then they will cut back in a number of ways and we will likely end up in an official recession.

I think that the main distinction between the Great Depression and any other economic crisis is its length and the extremely high percentage of unemployment. At the time there was unprecedented government intervention and spending to get people back to work. This time there is unprecedented financial action to keep the markets from failing completely. Now we have the good fortune of hindsight; the Treasury people know that they have to prevent another Great Depression and they have more tools at their disposal with which to accomplish that. Will it work? Who knows? I'm not an economist. But, it's better than sitting back and allowing all of the banks to fail and the market to destroy itself. All of the free-market capitalists who rail against assisting Wall Street need to understand that a possible result of failing to act is another Great Depression. That's great for people who have lots of money and can ride it out (or become even richer) but awful for everyone else. Even though it galls me to do so, I'm willing to sacrifice a little capitalism to prevent that.