Several days ago, my 18-year-old son asked me, “Dad, are we in a recession or a depression?” Immediately I began answering him. But I soon paused and realized I didn’t know the answer to that question. My answer was going to be that our country was in recession, but that we’re very close to being in depression. Then I wasn’t so certain about my response, so I started reading about recessions and depressions.
In reconsidering the answer, I looked at our own family’s circumstances and contrasted them to those of folks living in states like Michigan or Indiana. By my way of thinking, Michigan and Indiana and many other states are clearly in a depression, while my state, Texas, is just in a recession. Logic told me that different parts of the country could be experiencing different levels of severity of the economic downturn; therefore my thinking was that some parts of the country were in much worse shape than others. According to this line of thinking, the problem should be defined regionally rather than nationally.
Was I right? I didn’t think so, so I dug further in my old college economics textbook and online.
I knew from college economics that there was a clear definition of recession, or so I thought. I actually found several definitions of recession.
- There’s the commonly used definition of recession: A recession is simply two consecutive quarters of negative growth in the gross domestic product. That makes the calculation simple. By the common definition, we have been in recession for about 17 months, but it took six months to even know we were in a recession. Since the data only takes into account the gross domestic product and is only measured quarterly, it is hard to know when a recession starts and stops.
- Then I found a second way to measure recession, one that I had no idea existed. You certainly never hear recession defined this way on television news. The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) uses a more complex formula that incorporates unemployment trends, industrial production, real income, and wholesale-retail sales. Since our economy is cyclical, they define recession as the period between the top of the peak of economic activity and the bottom when business activity bottoms out. Once business activity picks up they label that part of the cycle as the beginning of an “expansionary period.”
- I read on to understand when a recession becomes a depression. Oddly I discovered that there were many ways to define when a recession becomes a depression. I remember my parents’ and grandparents’ talk about “The Great Depression” of 1929 – 1933.
Something I learned about the answer was that politicians avoid using the “D” word at all possible costs. I guess they don’t want to panic all the unemployed homeless people who clearly know something is wrong. I have not heard our new or last sitting president use the “D” word, but I sure hear the word bantered about on radio talk shows.