Chart 1 shows the annual growth or contraction in the economy. The gray bars represent recessions identified by the NBER. The two most severe contractions in output excluding the post-World War II adjustment from to occurred during the Great Depression of the s.
The differences are telling:. During the major contraction phase of the Depression, between and , real output in the United States fell nearly 30 percent.
During the same period, according to retrospective studies, the unemployment rate rose from about 3 percent to nearly 25 percent, and many of those lucky enough to have a job were able to work only part-time. For comparison, between and , in what was perhaps the most severe U. Other features of the decline included a sharp deflation—prices fell at a rate of nearly 10 percent per year during the early s—as well as a plummeting stock market, widespread bank failures, and a rash of defaults and bankruptcies by businesses and households.
The economy improved after Franklin D. Roosevelt's inauguration in March , but unemployment remained in the double digits for the rest of the decade, full recovery arriving only with the advent of World War II. Moreover, as I will discuss later, the Depression was international in scope, affecting most countries around the world not only the United States.
While you can see from the above discussion that recessions and depressions are serious business, some economists have been known to suggest that there is another more casual way to explain the difference between a recession and a depression recall that I began this answer with a promise of a joke :. Ask Dr. May Bernanke, Ben S. March 2, Greenwald, Douglas, Editor in Chief.
Rogoff: No, no. It takes years. In fact, post-World War II, it takes four and a half years, on average, just to get back to where you started with per capita income. And unemployment can drag out for even longer than that. Vigeland: So what is it that makes this a contraction? Rogoff: Well, the defining characteristic of a great contraction is the huge overhang of debt. The way maybe you have, instead of a flu, a bad flu. This is like a pneumonia. You have had a few programs that have tried to address the foreclosure problem.
What will work? And beyond housing, what else needs to happen? We had this incredible ebullience, this huge build-up in credit that led to this panic. So I think one of the big question marks that nobody knows the answer to is how far will Americans go? How far will consumers go in building up their balance sheets? A black swan is a metaphor for something that is extremely rare compare the expression rare bird.
In market-speak, a black swan is a rare and unpredictable event that can have disastrous consequences for the economy. The coronavirus pandemic has been popularly referred to as a black swan , as the outbreak froze large parts of the economy around the world to contain the spread of the virus and caused—according to many experts—a recession. Compared to a recession , a depression is much more severe and sustained.
A depression is a period during which business, employment, and stock-market values decline severely or remain at a very low level of activity. Production, employment, consumption, trade, investment, income, spending—all of these aspects of the economy are reduced sharply and widely, often across the entire globe.
A recession can be global in scale, but it can also restrict the economies of smaller regions or just even individual countries. Nor does the NERB offer a definition of a depression. But, some conventional indicators of a depression may include:. In economic contexts, the word depression probably brings to mind one depression in particular: the Great Depression.
This was the economic crisis and period of low business activity in the US and other countries, roughly beginning with the stock-market crash in October and continuing through most of the s. By that measure, many economists say Finland underwent a depression in the early s after the breakup of the Soviet Union.
Here are some more figures to drive home the difference in scale and frequency between recession and depression. And, according to the International Monetary Fund IMF , 21 advanced economies around the world experienced recessions between — In contrast, we generally only refer to one depression —the Great Depression.
The word recession is commonly used in the context of economics. But the word, of course, has other uses. You might also encounter the word recession in various ceremonies, such as religious services, weddings, and graduations. A recession , here, is a withdrawing procession. Yes, recession and procession share a root. During a ceremonial recession, a special song, called recessional , is often played to mark the celebratory end of an event.
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