More than 500,000 people
are losing their jobs every month. Companies are failing left and right. Thousands
of homeowners are facing foreclosure every day. A reasonable person might ask:
Are we in a Depression?
Government officials say
no. Aides to Prime Minister Gordon Brown of Britain quickly backpedaled after
he suggested that fiscal stimulus was needed to pull the world out of a
“depression.” The aides called it an unfortunate slip of the tongue. When the
International Monetary Fund’s boss, Dominique Strauss-Kahn, suggested that the
rich world was already in the Big D, Lawrence Summers, president Obama’s chief
economic adviser, retorted: “We’re really in a very different situation than
that.”
Janet Yellen, president of
the Federal Reserve Bank of San
Francisco, made the round trip to the edge of the
precipice and back: “We have the same type of dynamics taking place that do
happen in a depression,” she said. “But this is not a depression.”
Officials are frightened,
of course. A deep economic slump is one of those places where, in F.D.R.’s
parlance, fear itself can be fairly scary. Telling people that they already
have tipped into depression would probably scare them a lot, making it much
more difficult to dig us out of the mess.
Fortunately, the D-word
itself provides an easy way out. Unlike recessions, which are precisely
determined as a function of unemployment, growth and other such things by the
National Bureau of Economic Research, depressions have no clear-cut
contemporary definition. Depression is a historical rather than an economic
term.
Regular recessions used to
be known as depressions. Among the most famous was the so-called long
depression between 1873 and 1896, which was known as the Great Depression until
the meltdown of the 1930s snatched the moniker. To avoid reminding people of
economic collapse, 25 percent unemployment and soup kitchens, the D-word was
retired from everyday use and replaced with recession.
Some economists have set
personal rules of thumb since then. Alan Greenspan said a depression required
15 percent unemployment for three to nine months or 12 percent unemployment for
nine months or more. Alfred Kahn, the Cornell economist who was President Jimmy
Carter’s inflation czar in the 1970s, set the bar at more than 10 percent
unemployment plus two consecutive quarters of economic contraction. In 1980,
President Ronald Reagan said: “A recession is when your neighbor loses his job.
A depression is when you lose yours. And recovery is when Jimmy Carter loses
his.”
When we eventually emerge
from our economic morass, historically minded linguists may go back to the
drawing board. We might want to number the Great Depressions, as we do our
World Wars. We might need some new scary words.
Ultimately, it won’t
matter. In 1978, President Carter chided Mr. Kahn for warning in speeches that
the country risked “deep, deep depression” if inflation continued to soar. So
Mr. Kahn replaced the term with “banana.” Everybody knew what he was talking
about.