What is the difference between a recession and a depression?
THE word “depression” is popping up more often than at any time in the past 60 years, but what exactly does it mean? The popular rule of thumb for a recession is two consecutive quarters of falling GDP. America’s National Bureau of Economic Research has officially declared a recession based on a more rigorous analysis of a range of economic indicators. But there is no widely accepted definition of depression. So how severe does this current slump have to get before it warrants the “D” word?
A search on the internet suggests two principal criteria for distinguishing a depression from a recession: a decline in real GDP that exceeds 10%, or one that lasts more than three years. America’s Great Depression qualifies on both counts, with GDP falling by around 30% between 1929 and 1933. Output also fell by 13% during 1937 and 1938. The Great Depression was America’s deepest economic slump (excluding those related to wars), but at 43 months it was not the longest: that dubious honour goes to the one in 1873-79, which lasted 65 months.
Japan’s “lost decade” in the 1990s was not a depression, according to these criteria, because the largest peak-to-troughdecline in real GDP was only 3.4%, over the two years to March 1999. Since the second world war, only one developed economy has suffered a drop in GDP of more than 10%: Finland’s contracted by 11% during the three years to 1993, mainly thanks to the collapse of the Soviet Union, then its biggest trading partner.
Emerging economies, however, have been much more depression-prone. Among the 25 emerging economies covered each week in the back pages of The Economist, there have been no fewer than 13 instances in the past 30 years of a decline in real GDP of more than 10%. Argentina and Poland were afflicted twice. Indonesia, Malaysia and Thailand all suffered double-digit drops in output during the Asian crisis of 1997-98, and Russia’s GDP shrank by a shocking 45% between 1990 and 1998.
The left-hand chart shows The Economist’s ranking of slumps in developed and emerging economies over the past century. It excludes those during wartime (both Germany and Japan, for example, saw output plunge by 50% or more after 1944). The depressions in Germany and France in the 1930s make it into the top 12, but not that in Britain, where GDP fell by a relatively modest 6%.
Before the 1930s all economic downturns were commonly called depressions. The term “recession” was coined later to avoid stirring up nasty memories. Even before the Great Depression, downturns were typically much deeper and longer than they are today (see right-hand chart). One reason why recessions have become milder is higher government spending. In recessions governments, unlike firms, do not slash spending and jobs, so they help to stabilise the economy; and income taxes automatically fall and unemployment benefits rise, helping to support incomes. Another reason is that in the late 19th and early 20th centuries, when countries were on thegold standard, the money supply usually shrank during recessions, exacerbating the downturn. Waves of bank failures also often made things worse.
But a recent analysis by Saul Eslake, chief economist at ANZ bank, concludes that the difference between a recession and a depression is more than simply one of size or duration. The cause of the downturn also matters. A standard recession usually follows a period of tight monetary policy, but a depression is the result of a bursting asset and credit bubble, a contraction in credit, and a decline in the general price level. In the Great Depression average prices in America fell by one-quarter, and nominal GDP ended up shrinking by almost half. America’s worst recessions before the second world war were all associated with financial panics and falling prices: in both 1893-94 and 1907-08 real GDP declined by almost 10%; in 1919-21, it fell by 13%.
The economic slumps that followed the collapse of the Soviet Union and those during the Asian crisis were not really depressions, argues Mr Eslake, because inflation increased sharply. On the other hand, Japan’s experience in the late 1990s, when nominal GDP shrank for several years, may qualify. A depression, suggests Mr Eslake, does not have to be “Great” in the 1930s sense. On his definition, depressions, like recessions, can be mild or severe.
Another important implication of this distinction between a recession and a depression is that they call for different policy responses. A recession triggered by tight monetary policy can be cured by lower interest rates, but fiscal policy tends to be less effective because of the lags involved. By contrast, in a depression caused by falling asset prices, a credit crunch and deflation, conventional monetary policy is much less potent than fiscal policy.
Yes, we have no bananas
Where does that leave us today? America’s GDP may have fallen by an annualised 6% in the fourth quarter of 2008, but most economists dismiss the likelihood of a 1930s-style depression or a repeat of Japan in the 1990s, because policymakers are unlikely to repeat the mistakes of the past. In the Great Depression, the Fed let hundreds of banks fail and the money supply shrink by one-third, while the government tried to balance its budget by cutting spending and raising taxes. America’s monetary and fiscal easing this time has been more aggressive than Japan’s in the 1990s.
However, these reassurances come from many of the same economists who said that a nationwide fall in American house prices was impossible and that financial innovation had made the financial system more resilient. Hopefully, they will be right this time. But this crisis was caused by the largest asset-price and credit bubble in history—even bigger than that in Japan in the late 1980s or America in the late 1920s. Policymakers will not make the same mistakes as in the 1930s, but they may make new ones.
In 1978 Alfred Kahn, one of Jimmy Carter’s economic advisers, was chided by the president for scaring people by warning of a looming depression. Mr Kahn, in his next speech, simply replaced the offending word, saying “We’re in danger of having the worst banana in 45 years.” America’s economy once again has a distinct whiff of bananas.
Estos 19 usuarios dan las gracias a Fraga II por su mensaje:
However, these reassurances come from many of the same economists who said that a nationwide fall in American house prices was impossible and that financial innovation had made the financial system more resilient
EjpertOwned. Como dijeron otros foreros en el hilo del 2006, sobre un ejtudio del Deutsche Bank, según el ejperto en 2008 España igualaría a Alemania en nivel de vida. Un médico si diagnostica mal ya se puede preparar que se le caerá el pelo, no obstante los ejpertos tienen vía libre para inclusive lanzar predicciones a más de década y media vista, fallar estrepitosamente, posiblemente arruinando a más de un incauto, y seguir como si nada.
Japón puede contraerse un 12,1% en el tercer trimestre, según Barclays
Los analistas de la entidad británica consideran que la economía de Japón probablemente se contraerá a un ritmo anual del 12,1% este trimestre, lo que supone la caída más abrupta desde 1974, en momentos en que las exportaciones se desploman.
"En los últimos tres meses que terminan en diciembre, el Producto Interno Bruto (PIB) caerá a casi tres veces el ritmo de 4,1% que se había pronosticado", ha señalado Kyohei Morita, economista especializado en Japón de Barclays en Tokio.
"Dadas la velocidad y la duración del retroceso, esta recesión podría ser la más grave de la era de posguerra", dijo Morita. "Consideramos que el crecimiento negativo continuará por quinto trimestre consecutivo hasta el período abril-junio de 2009", añadió.
Por mucho que se repita, no se va a poder probar ciertos mantras:
Even before the Great Depression, downturns were typically much deeper and longer than they are today (see right-hand chart). One reason why recessions have become milder is higher government spending.
El caso japonés muestra, de manera impresionante, la falsedad de esta afirmacion. Es más, en cuando la recesion llega a alargarse en el tiempo, la politica del gasto público tiene efectos prociclicos. Porque al parecer, la economia no es tan simple, como inyectar gasoil a aire comprimida al 5% de su volumen normal, causa necesariamente una explosion espontanea...
Y luego, las deudas hay que pagarlas.
(Para quien lo interesa, el conforero Sylar tiene por allí un magnifico post sobre la politica economica japonesa en las últimas decadas.)
Si Japón va por esas, ¿cuánto caeremos nosotros?. Me viene a la mente una de las últimas tertutlias de Onda Cero Cataluña, en la cual Gonzalo Bernardos hizo gala de su chuleria con el invitado de aquella tertulia, José Poal (haré un hilo sobre el tema porque tela....), ya desde un principio Bernarzos tildó de catastrofista la previsión de FUNCAS. Os pongo una transcripción de la primera intervención de José Poal sobre las previsiones de FUNCAS:
Se quedan cortas. A ver, yo creo que tenemos que tener en cuenta la dimención de esta crisis, y en todo caso compararla con otras crisis. Por ejemplo, se ha dicho mucho que iba a ser muy parecida a la del 74-80 etcétera. Bueno, el 74-80, el PIB en sa época bajó un 11%, y en, por ejemplo Rusia, después de Gorbachov dos años más, bajó un 37%, y en 1929-32 bajó un 41%. La característica de la crisis en España, es que no han habido muchos activos tóxicos, por lo tanto la banca no ha tenido de entrada ese problema de un agujero por depreciación de activos que no existían, sino que el problema ha sido que la economía se ha parado... Entonces claro, con disminuciones de venta de los minoristas de un 25/30%, y con lo que llevamos ahora, y teniendo en cuenta que, si no se manipulan las estadísticas, yo creo que este año ya decreceremos entre un 0,5 y un 1% este año
Acto seguido Bernardos se escandalizó, "imposible, sería la primera vez que pasa en un país desarrollado", "cuanto más negativa es la cosa (catastrofistas) es mejor".
Última edición por AnotherBrickInTheWall; 31-dic-2008 a las 14:11
Fifty years ago, after 13 years of post-war growth, the U.S. economy hit its first economic downturn since the Depression. In April, 1958, Life Magazine dispatched a team of writers and photographers to cover the story. Here is what they learned.
Fueled by a drop in unfulfilled orders for durable goods and a declining demand for commodities and other raw materials, the recession of 1958 forced over five million people — nearly 7% of the labor force — out of work. In the photo above, Illinois residents line up at an unemployment office in Chicago
As the nation grew anxious, Congressmen used a recess to return to their districts to sound out their constituents on their concerns. Life photographer Walter Sanders traveled with Representative Edwin H. May, Jr. as he met with farmers in Connecticut.
The Life team found that many merchants tried to take matters into their own hands. A Hampton, Iowa banker named Dana Bramwell distributed $1,100 in bonuses (represented by the clutch of $1 bills he holds in this photo) to his employees, with the stipulation that they spend it on nonessential items.
A Maytag dealer, in Fort Wayne, Illinois, tempted customers with gifts and a band in an effort to overcome their fears about buying a new appliance.