• Recession Doesn’t Have to Equal Depression

  Filed under Economy
  May 5

  It is virtually impossible these days to escape hearing about the current economic recession. In fact, if you aren’t hearing about it on a daily basis, I worry about you a little bit. Sometimes these news results get oppressive and make us dismal in our view of the future. So where is the balance between painful awareness and blissful ignorance? How do we keep the recession from resulting in depression?

  First of all, we should understand the difference between the two terms. An old joke among economists runs, “Recession is when your neighbor loses his job. Depression is when you lose your job.” While in jest, this statement is true on many levels; it’s hard to feel the reality of our economic situation until it hits you personally.

  A widely accepted definition of the term recession comes from a 1975 article in the New York Times. This article defined a recession as two consecutive quarters where GDP declines. There are various definitions, which take into account broader issues like business profitability and employment rates, but this one has tended to stick over the years. 

  So when does a recession become a depression? Some have suggested that to constitute a depression, the GDP must drop by more than ten percent. What’s interesting is that up until the Great Depression of the 1930′s, every economic recession was referred to as a depression. So in essence, the term ‘depression’ serves to differentiate that period of severe, long term economic crisis from the smaller scale recessions our country has experienced since then.

  On an individual level, we should do our best to prevent the economic situation result in personal depression. This does not mean we ignore it altogether, rather that we move forward with logical expectations and optimism. Looking back, we see that although the Great Depression seemed endless, eventually the country once again entered prosperity. We should use this time of recession to evaluate what really is important to us, to look at our priorities and determine if they are where they should be.

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