Recession vs. Depression

President Truman once said, "When your neighbor loses his job it's a recession, when you lose your job it's a depression."

A recession is defined as a period of two or more successive quarters where there is a decline in our gross domestic product or GDP.  If you'll remember from our last class, the GDP is defind as the total of market value of all goods and services produced within a country during a period of time, such as a quarter or a year.

A depression is a long-term recession or a very severe recession.

Recession cycles are thought to be a normal part of living in a world of inexact balances between supply and demand.  What turns a usually mild and short recession or "ordinary" business cycle into a great depression is a subject of debate and concern.

If you gathered five economists together and asked them if we are in a recession vs. depression, you would most likely get five different answers.  But if you gathered five people together who had lived through The Great Depression (1929-1939), you would get five dramatic answers.

The Great Depression was the largest and most important economic depression in world history, and it is used in the 21st century on how far a modern economy could possible fall.  Originating in United States, historians most often use the stock market crash on October 29, 1929 (Black Tuesday) as the starting date of The Great Depression.

International trade declined sharply, as did personal incomes, tax revenues, prices, and profits.  The depression ended at different times in different countries, but end of the depression in the U.S. is associated with the onset of the war economy of World War II, beginning around 1939.

Want to learn more?  Pick up a copy of John Steinbeck's novel, "The Grapes of Wrath", about the desperation faced by American farmers in the 1930s or talk to your grandparents or great-grandparents.

Class dismissed.