When does the recession become, er, a depression?


Oct 25, 2005
In the Guardian:

Fears of a million layoffs a month in corporate America

As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis.

November was the worst month in the US labour market since the oil crisis of 1974, as more than 500,000 US workers were laid off, according to official figures released on Friday.

But Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression.
And this is not confined to the USA. The FT describes a plunge in Germany's manufacturing orders. And in Sweden, the prime minister is urging shoppers to buy Swedish:

The Swedish government has called on the nation's sense of patriotism and is advising consumers to "buy Swedish" this Christmas to protect jobs.

"If you open your Christmas present and it says 'Made in China' then you haven't done much to secure Swedish jobs," Swedish prime minister Fredrik Reinfeldt said according to a report in Aftonbladet.
So when does the present slump become an outright depression?

If governments keep still and let the markets correct themselves, there will not be a Depression. Unfortunately, we've got a bunch of stupid Liberals in Congress, and soon to be in the White House, who never studied economics. I doubt they can even spell it. They are going to cause us a worldwide mess if they don't stop meddling with "Bailouts"
Your "let the free market take care of everything" is as simplistic as it is dead wrong. You're like the religious fundamentalists who believe in the literal wod of the Bible. It's simple enough but wrong. The world is more complex than you allow my friend.
If I hear one more person bleat about "liberals" I'm going to bang someone over the head with a bit of wood.
jp said:
If I hear one more person bleat about "liberals" I'm going to bang someone over the head with a bit of wood.

(American) liberal = neo-con + concern for gay rights, abortion and other such irrelevant nonsense + "I feel your pain."
Rather than getting on the subject of change (real or imagined) or "liberals" (real or only advertised as such), those interested in the topic of depressions and recessions might want to take a look at a recent interview with Paul Krugman on the occasion of the republication of his book, "The Return to Depression Economics." A word of caution first. As the interviewer points out:

"The words 'depression economics' don't necessarily mean that we are in a depression or inevitably headed toward one. A more accurate definition would be that we are witnessing economic problems reminiscent of the Great Depression, long after many economists concluded that the question of how to avoid depressions had been permanently solved. Not true, says Krugman. If we don't watch out, we could steer the current recession right into depression territory."

The full interview is here. http://www.salon.com/tech/htww/feature/2008/12/08/paul_krugman/index.html
Paul Krugman says this:

There's kind of a weird double-think involved in arguments that the slump should be allowed to follow its natural course. It's true that classical economics says that we should let market forces do their work; but classical economics also says that severe recessions can't happen. This idea that we must not intervene is based on a worldview that is refuted by the very fact that the economy is in the mess it's in.
This answers the second post on this thread. The point is we do not have self-correcting markets that magically oscillate towards some equilibrium point. The markets are a roller-coaster, with the occasional threat of derailment (like these days).

I find Krugman also not getting to the root essence of the problem (in my opinion). Better informed is the essay by Stephen Lendman here.

Postscript: The "invisible hand" of the free market can be found here in cartoon form:

To all of those who think Paul Krugman should be quoted-- he won the Nobel prize for scholarship regarding the global trade complex, which is a very specialized field of economics. He has published nothing scholarly whatsoever about financial markets, capitalism, socialism, or anything else. What he says is merely his personal opinion as a NY Times columnist. News flash -- the New York Times is going under, because the paper is a total disgrace. And might I add that Krugman's opinions are totally left-wing and he is wrong. (And yes, I am an economist and an author. I don't know one colleague who thinks Krugman has all of his marbles. He lost them when he joined the NY Times.)
Umm, I didn't bring up Krugman because I believe he offers the unvarnished truth. He has an opinion about what's happening with the economy, sure. Is anyone really claiming that they know absolutely what's happening with the economy and how to fix it? So we all have opinions. I'm an academic as well, and I don't believe in looking to any author, whether he has a Nobel or a MacArthur or whatever, as an oracle.
But, lbaron, I just can't buy your original notion of "let the markets correct themselves." We were a long, long way from having free markets before the current recession hit, and we're going to continue to be a long, long way from having free markets in the future. The government is a huge player in the economy, like it or not. And there's no such thing as a neutral course of action for the government to take. What "free markets" tends to mean, it seems to me, is let the government make certain interventions in the economy but not others. Which is fine, as long as we admit that that's what we're arguing about. But to cloak this in "free markets" rhetoric (as if appealing to a kind of natural law) seems to be pretty intellectually dishonest to me.
Dear jpm
Thank you for your cogent reply. If I had the space here, I would explain that it was the hysterical Liberals in Congress who created the sub-prime mortgage market. They acted like thugs, threatening banks to lend money to deadbeats. I kid you not. When these worthless mortgage notes were lumped together and sold and re-sold, they were worthless assets. You can not blame the capitalist system for a failure of left-wing politics.
I have just returned from BsAs, where my latest book was printed. I was aghast that the Argentine government is stealing private pensions. Goodbye Argentina, as Evita once said. God help all of us if that happens in the USA