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In Economics, What is a Depression?

The Great Depression was marked by low employment rates.
Unemployment numbers are used when measuring economic health.
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A standard definition of an economic depression is a significant decline in the gross domestic product (GDP). In order to understand this, one must understand the definition of a GDP.

The GDP consists of the monies spent by consumers, the investments made by private companies and the government, government spending on labor and products, and the net total of a country’s exports. These facts are totaled to determine the gross domestic product of a year. In simpler terms the GDP can be seen as an accounting of almost all the money spent on goods, services, investments, research, and labor in a country.

A depression is thought to occur when the GDP declines by 10% or more in a year’s time. Economists tend to differ over the exact percentage of decline. The Great Depression in the US and in Europe after the Stock Market crash of 1929 showed a steadily declining GDP in the subsequent years.

In the months following the crash, the GDP declined over 30%, and then was marked by a period of increase. However this increase did not equal the previous GDP of the US. So defining a depression entirely by evaluation of a decline in the GDP cannot be fully accurate.

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In general, the Great Depression was marked by a significant decrease in industry and significant job loss. Earning less money meant less money for purchases of consumer goods, or for investments. Failure to invest or purchase meant companies could not rehire workers. There was a greater dependence on public assistance, and job recovery was minimal.

Though occasionally the GDP increased during the 1930s, it did not fully normalize until US involvement in WWII. This spurred industry, employed young men as soldiers, and meant that for a time, there were a greater number of jobs than there were people to fill them. Women, for the first time, became workers in industry as Rosie the Riveter figures, to fill jobs that normally would have been taken by men.

Many look at WWII as the end of the Great Depression. Today many economists fear a depression again based on examining unemployment, need for public assistance, and rising costs of goods and services that are not in keeping with salaries in most industries. This time, the greatest fear is job loss, because some manufacturing and technology industries are moving organizations overseas, where labor is less expensive.

A depression today might not be indicated by a 10% decrease in the GDP, but might instead be the result of business practices intended to be more profitable. Outsourcing is one trend that may prove especially costly to the average worker in the US, and as a result to the overall economy.

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anon58499
Post 13

I am amazed at the intelligence of some of the points in this discussion and even more frightened by those who seem to have a complete disconnect from what is truly going on.

To those who say "if everyone acted like we weren't in a recession/depression", you really need to count your blessings that you have not been affected yet. You obviously have been fortunate to have a job that has not been outsourced. But just because you are "OK" doesn't mean your neighbors are.

The reason we are not coming out of this recession is we have lost our industrial base that made us the powerful country we were. In WWII when Japan attacked us, they were far superior in military might that we were. They did not fear our military, they feared our industrial capability to build an endless supply of weapons and field troops endlessly. We had the edge because of our economy was based on goods and services.

Since the 1980's when Ronald Reagan removed tariffs on foreign goods, businesses have begun moving overseas to take advantage of cheap labor and remove the crippling greed of the labor unions, which when developed, were a necessary entity in order to protect the worker from the robber barons.

Now, our economy is completely service based, leaving it volatile and as one poster put it perfectly, we are at that "tipping point" of an economy having less income than goods are available.

It is impossible for government to not be involved in private business. We are all part of the government. We are all part of the community. Greed spawned this recession just as it did the Great Depression. As an individual, I have no power to stop Wall Street from running companies into the ground to increase profit for rich share holders and insuring CEO bonuses.

It is obvious that the argument that we should leave business alone to keep the best and brightest is invalid. Obviously, big business is rewarding bad business practices more than they are the good. I think we have all lost sight that "we" are the government.

We need to get together and stop listening to the conservatives and the liberals. I know of no one that falls completely into either of these categories. We the people, have to push for our elected officials to bring back our rights. Our right to life, liberty and the pursuit of happiness.

Health care is out of control because of greed. Oil prices are out of control because of greed. Profits and salaries for these two areas have never been higher and these are two items needed in order for we the people to have life, liberty and the pursuit of happiness.

Should they be part of the greed machine? Shouldn't they be ours by right?

anon28410
Post 12

I couldn't disagree more with advice posted by anon24436 or his analysis. We did balance the budget in the 1990s. As for his analysis of the nation of "whiners" who want free things, it's nonsense. Lots of people who now desire healthcare were promised it as part of retirement packages or are working full time to try to get it, and fewer employers are offering it or they are offering at prices that absolutely impossible to live with dignity.

Now for the advice about getting a gun; again, what nonsense, and the historical analysis of people being less moral? Have you studied American history. The times of the 1930s and Prohibition correspond with the rise of organized crime. There was plenty of immorality then, as there is now.

However, if you want to risk getting shot by your own weapon, then by all means get a gun. It's of course more likely that you or someone in your household will be injured by that weapon than it is that it will become a legitimate means of defense. And when we all have guns, if this is indeed a less moral time? What then? A brilliant friend of mine was shot and killed by his girlfriend who then killed herself. I spent years arguing with him about the dangers of keeping a gun in his house. I so wish he had won that argument and was still alive.

I can appreciate anons work and struggle to reach the middle class. I've gotten there too, but guess what? The middle class is disappearing and when the government takes away services for them, it gets even worse. Moreover, not everyone has the same "gusto" because of lots of different circumstances. Someone with mental illness for instance might be willing to work hard, but can't. Some with a physical illness that goes untreated could be trying darn hard but can never make it into that quickly dissipating middle class. Anon, not everyone has the strongest bootstraps in the world, and though your Horatio Alger actions are clearly laudable, I can only guess that you possess more than strength of character-- perhaps physical and mental wellness?

anon24436
Post 11

Despite the demagoguery, the US is in trouble because Americans do not understand money and live beyond our means with too much debt and no savings. Our Government is the same and gave up being responsible a long time ago. We are no longer rugged individuals who founded this country. You have whiners wanting "free" healthcare, "free" paychecks "free" everything without working for it. You want healthcare, get a job with benefits. You want a paycheck, get a career, you want a house, save up. You make choices and you live by them. Efforts to trim the fat and repay the national debt were killed by our Congress in the 1980's. Our Money is based on nothing but US military power since the 1970's. It's useless paper and is losing value against foreign currencies daily.

To prepare for the depression:

1.) Cash may be useless in a hyperinflated economy. The Bailouts and Obama's economic plan of more spending will bring hyperinflation causing your cash to loose value. Invest extra income in commodities. Foreign Gold coins are a good choice but do your research, it could go as high as $2000 per ounce. Still, have some cash on hand for short term needs. Obama may declare a bank holiday.

2.) Do your best to have multiple skills that will help you get work in vital areas that will always be hiring. Even be prepared to do physical labor. Put in extra hours, be early, stay late being productive and make yourself a valuable worker who is least likely to be let go.

3.) If you can, buy bulk food to hold you over. What's cheap now will be very expensive in a hyperinflated economy. Think Germany in the 1920's. The US Army is bringing federal troops home to prepare for food riots and unrest.

4.) Get a legal gun to protect yourself from crime, know your local laws and abide by them.

These things are different between now and the 1930's:

1.) People are less ethical and moral (think drugs and crime potentials)

2.) More people will be homeless (The next wave of bad loans will hit this year which is why the banks are hoarding the 330 Billion bailout and not lending)

3.) We live in debt as a way of life, they didn't and even had savings. Pay off all debt as soon as you can.

4.) This will be much bigger than the 1930's ever was, we owe 50 trillion dollars. To bail out the Car folks we borrowed 33 Billion from Middle Eastern Countries and we owe the rest of a 50 Trillion Dollar bill to the rest of the world including Countries hostile to us. The bailouts is daylight robbery of US citizens and won't work. Our bought and paid for Congress is helping their buddies, the people won't get a dime.

My Grandmother who grew up in a dirt shack told me about the depression. I was born poor and struggled for over 30 years to get to middle class. It was hard but I never gave up.

loophiker
Post 10

the media is in the business of making "rock stars" and then breaking them down... however with that said... don't drink the denial cool-aid... be logical and wise!

anon21594
Post 9

Dear TNT- EVERY American should have the right to a decent wage- therein lies the problem- wages have remained stagnant (a college educated person is now making LESS than the same college educated person would have earned in the 70's) while housing prices have skyrocketed- when, as you so ("dis")tastefully put it, "the poor" saw these mortgages as their only chance to share in the American Dream, they took it, all the while filled with that other American Dream- hope. Hope that they would get that promotion. Hope that their jobs would not be outsourced. Hope that salaries would rise. Then comes the decision to buy medicine for their children and themselves (since we have no healthcare system in this country as compared to other civilized countries) and food (that has also skyrocketed) in order to stay alive and suddenly that house payment doesn't seem nearly as important. And dearest TNT, these "poor" people were paying rent somewhere before they bought a home- so obviously they were able to make the monthly payment- but when that balloon payment hit along with all I just mentioned - forget about it. You see dear, no middle class or poor person can come up with the down payment it takes to get into a home of their own now. it is now nearly impossible. so when they saw these zero down payment options as their only hope- they took it. And trust me, TNT, as someone who works at Goldman Sachs you sound an awful lot like an awful managing director i heard say "well at least THOSE people got to live in a nice home for a little while". Disgusting and speaks volumes as to what is really happening in this country.

tnt
Post 8

great article defining a depression but as someone who is too young to have lived during the Great Depression and no one alive to ask, what could we expect in "real life" terms? Will prices go up as with inflation or will they fall since no one is buying? I imagine cash is the best way to keep investments in a period like this but I would be open to opinion.

Also, my spin on what caused and what could cure the current situation.

Cause was govt. regulation that forced lenders to loan in the areas they were smart enough to stay out of. They were accused of discrimination against the poor - well the poor shouldn't have mortgages. Anyway, the lenders figured out how to comply and sold these risky mortgages. This opened the flood gates, then pretitors stepped in and we know the rest of the story. Now, penilize those who broke the law not who made a profit no matter how obscene - that is the free market at work. Let's keep it working and let Wall Street sink. The strong will survive and we will recovery. My thoughts.

anon19152
Post 7

The $700B bailout may seem like we're bailing out the banks. However, our entire economy revolves around our banks. Many lost money on risky mortgages, that's true. However, due to the anxiety in our society, many people are pulling their cash. No cash means banks can't loan money. If they can't loan money, or have to call due or close credit lines, businesses can't borrow in order to fund or expand their operations. If businesses can't operate, they have to close doors or cut jobs. It's a downward spiral that is all dependent on a healthy banking industry. The bailout is necessary as a stop-gap at a minimum, without it a depression is almost guaranteed. At least with it, we have a chance. It's people's lack of understanding and poor *attitude* towards the bailout that are having lingering negative affects on the stock market.

anon19045
Post 6

I agree with the Author(s) of this article/definition of a depression. And I think, the problem is not the greed of *evil* corporations but the ineptitude of our government. We (American's) have slept while our representatives in government have made back door and not so back door deals to send jobs overseas. There is a tipping point where there isn't enough money flowing into the economy as a matter of personal income to sustain it. A tipping point. In my opinion we are at that tipping point.

In my opinion we were in trouble when the government started reducing spending on science and education programs. It is this research which helped spawn the greatest period of economic growth in the worlds history not just our own. Even if the government recognizes this, it is too late, it will take many months/years for the economy to stabilize and real positive growth to resume.

Hopefully I'm wrong on this but it seems to me that the gov. hasn't even begun to address the core issues affecting the economy only the symptoms.

anon18824
Post 5

if acting like everything is ok will make the price of gas and food go down, I'm all for giving it a try.

anon18588
Post 4

When you can't afford housing, gasoline, the costs of a loaf of bread-you're starving on a steady job-this is due to greed, giving large corporations all the power they need without govt. control, and scaring people off from the stock market because stupid media hype. There is no sense in calling our economy a depression-we just need to clean the out deadheads in Washington and hire some intelligent folks to run our country.

anon18448
Post 3

I would be cautious of this attitude of "pretend it does not exist and it will go away". We are now expected to pay $700B in bailouts to criminal banking empires. How can you pretend that there is not a economic failure when unemployment is at an all time high, markets are crashing and gas is $4 or 5 a gallon. We are overspent and out of gas in foreign policy and cannot afford another day in the Middle East. But...we keep writing checks. The attitude to me would seem to make you feel that if you ignore a brain tumor it will just go away. Economic fears do contribute to mass panic. But it should cause us to take corrective action, not evasive action. We need to prosecute the guilty and take America back from the corporate greedy. Who will pay for our overinflated industry? The way I see it...this opens us up for some outside buyers. Do not pretend there is not a problem…go after the scum bags that caused it. Lets hold them accountable…instead of giving the the nations check book!

anon18149
Post 2

I totally agree with BreadCrumbs, if it wasn't for Media Hype and scare mongering, people would spend and everything would just roll on forward

breadcrumbs51
Post 1

The interesting thing about recessions and depressions is that if everyone just acted like we weren't in a recession/depression, we would be much better off. Once people start acting on their economic fears, it gets really bad.

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