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It's Not A Great Recession

With unemployment rising, growth slowing, housing prices continuing to fall, and government dithering, it's time to retire the term "The Great Recession" as entirely inadequate and misleading.
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The New York Times and its imitators have taken to calling the economic events since 2007 "The Great Recession." Editors seem to love it. The term is a lame pun. It evokes the Great Depression, but not as deep.

But with unemployment rising, growth slowing, housing prices continuing to fall, and government dithering, it's time to retire the term as entirely inadequate and misleading.

Here are a few alternatives:

  • The Great Depression II

  • The Stealth Depression
  • The Great Stagnation
  • If you comment on this post, please suggest your own. (We seem to have trouble in this century with names. We never did manage to come up with a proper name for its first decade.)

    Why not a Great Recession? For starters, the economy is technically not in a recession once GDP growth has turned positive, which has been the case since the fall of 2009.
    So technically, this is no longer a recession at all, let alone a great one. Isn't that reassuring?

    But no serious person thinks this mess is over. GDP growth slowed again in 2011, and we could go back into negative territory next year.

    Economic growth, in fact, was positive for most years of the Great Depression once things bottomed out in 1933, but it was still very much a depression.

    What's the difference between a recession and a depression? A recession is a fairly mild, cyclical event. It either corrects itself, or is corrected by fiscal or monetary stimulus and then things return to normal. (Often, recessions are needlessly caused by the Federal Reserve over-reacting to whiffs of inflation and strangling the economy with tight money, but I digress.)

    A depression is a whole other creature. It is self-deepening. People are out of work; purchasing power falls; businesses cut back; despite low interest rates, banks are reluctant to lend; housing values fall, and the cycle intensifies. Sound familiar?

    Recessions can originate from any number of random causes. Depressions usually begin with calamitous losses in the financial sector. Sound familiar?

    A classic definition of a depression was offered by the economist Irving Fisher in 1933, as a "debt-deflation." The value of assets (say, houses) declines, while the value of debts is fixed. In a general crash, a fire-sale mentality takes over, depressing asset values still further. As asset values decline, people tighten their belts and the whole cycle deepens. Sound familiar?

    To put it in more technical economics terms, the economy gets stuck in an equilibrium well below its potential of output or employment.

    Now there are two big differences between the Depression of the 1930s and the events of this decade.

    One is that the Great Depression, at its pit, was more severe. GDP, for instance, declined by more than 60 percent between 1929 and 1933 (though it rebounded and grew smartly between 1933 and 1936). And unemployment was higher, especially in the early 1930s, peaking at 25 percent in 1933.

    On the other hand, real unemployment defined as people looking for full time jobs and not being able to find them, is not that far below Great Depression levels after 1933. It's at least 15 percent depending on how you count people who are out of the measured workforce.

    But the other difference is the more sickening one -- the difference in government policy then and now.

    After 1933, government did its best to get the economy out of the trap. Roosevelt not only offered large scale public works. The Reconstruction Finance Corporation recapitalized banks and industries. The Home Owners Loan Corporation refinanced one mortgage in five. The Federal Reserve was in the hands of a relative progressive, Marriner Eccles. And even Roosevelt was capable of serious errors such as the premature fiscal tightening of 1937, which resulted in a recession within a depression.

    Today, though Obama began on a tide of hope, both parties are mired in the delusion that the economy needs nothing so much as a dose of austerity. Fed Chairman Ben Bernanke, who was willing to recommend very strong medicine as an academic critic when the comatose patient was Japan, does little more than mouth platitudes, as he did Friday at his Jackson Hole speech. And despite the Dodd-Frank Act, there is little political appetite to rein in the deeper excesses of the financial system, which caused this collapse and will cause the next one.

    What little economic stimulus Obama is prepared to offer is relentlessly blocked by Republicans, signaling Obama to think small.

    So while today's economy is surely more like a depression than a recession, we are still seeking the right adjective.

    How about The Needless Depression?

    UPDATE: Thanks to nearly a thousand readers for suggesting several ingenious names for this depressing economy, including The Great Repression and The Great Deflation.

    Here's my own choice:


    It's a three-way pun. A financial default. A default on the potential of the economy. And, above all, a default of leadership.

    Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.

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