An economic depression is a period of carried long-term economic downturn that is the result of lowered economic activity in one or more major national economies. It is often understood in economics that an economic crisis and the following recession that may be termed an economic depression are part of economic cycles where the slowdown of the economy follows economic growth and vice versa. It is a result of more severe economic problems or a downturn than a recession itself, which is a slowdown in economic activity over the course of the normal business cycle of a growing economy.
Economic depressions may also be characterized by their length or duration, showing increases in unemployment, larger increases in unemployment or even abnormally large levels of unemployment. For example, some problems in Japan in incorporating a digital economy, that such technological difficulty resulting in large unemployment rates or lack of social balance in employment among population, lesser revenues for businesses, or other economic difficulties, with having signs of financial crisis, that may also reflect on the work of banks, or may result in a banking crisis (in various ways that may be for example unauthorized transformations of banks), and further the crisis in investment and credit; that further could reflect on innovation and new businesses investments lessening or even shrinking, or buyers dry up in recession and suppliers cut back on production and investment in technology, in financial crisis that may be more country defaults or debt problems, and further in feared businesses bankruptcies, and overall business slowdown. Other bad signs of economic depression could be significantly reduced amounts of trade and commerce (especially international trade), as well as in currency markets that may be fluctuations or unexpected exchange rates with observed highly volatile currency value fluctuations (often due to relative currency devaluations). Other signs of depression are prices deflation, financial crises, stock market crash or even bank failures, or even specific behaviour of economic agents or population, that are also common or also non common elements of a depression that do not normally occur during a recession.
Definitions In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions. Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output). Another proposed definition of depression includes two general rules: a decline in real GDP exceeding 10%, or a recession lasting 2 or more years.
There are also differences in the duration of depression across definitions. Some economists refer only to the period when economic activity is declining. The more common use, however, also encompasses the time until the economic activity has returned close to normal levels.
A recession is briefly defined as a period of declining economic activity spread across the economy (according to NBER). Under the first definition, each depression will always coincide with a recession, since the difference between a depression and a recession is the severity of the fall in economic activity. In other words, each depression is always a recession, sharing the same starting and ending dates and having the same duration.
Under the second definition, depressions and recessions will always be distinct events however, having the same starting dates. This definition of depression implies that a recession and a depression will have different ending dates and thus distinct durations. Under this definition, the length of depression will always be longer than that of the recession starting the same date.
A useful example is a difference in the chronology of the Great Depression in the U.S. under the view of alternative definitions. Using the second definition of depression, most economists refer to the Great Depression, as the period between 1929 and 1941. On the other hand, using the first definition, the depression that started in August 1929 lasted until March 1933. Note that NBER, which publishes the recession (instead of depression) dates for the U.S. economy, has identified two recessions during that period. The first between August 1929 and March 1933 and the second starting in May 1937 and ending in June 1938.
Terminology Today the term "depression" is most often associated with the Great Depression of the 1930s, but the term had been in use long before then. Indeed, an early major American economic crisis, the Panic of 1819, was described by then-president James Monroe as "a depression", and the economic crisis immediately preceding the 1930s depression, the Depression of 1920–21, was referred to as a "depression" by president Calvin Coolidge.
However, in the 19th and early 20th centuries, financial crises were traditionally referred to as "panics", e.g., the 'major' Panic of 1907, and the 'minor' Panic of 1910–1911, though the 1929 crisis was more commonly called "The Crash", and the term "panic" has since fallen out of use. At the time of the Great Depression (of the 1930s), the phrase "The Great Depression" had already been used to refer to the period 1873–96 (in the United Kingdom), or more narrowly 1873–79 (in the United States), which has since been renamed the Long Depression.
Common use of the phrase "The Great Depression" for the 1930s crisis is most frequently attributed to British economist Lionel Robbins, whose 1934 book The Great Depression is credited with 'formalizing' the phrase, though US president Herbert Hoover is widely credited with having 'popularized' the term/phrase,The Glory and the Dream: A Narrative History of America, 1932–1972, William Manchester informally referring to the downturn as a "depression", with such uses as "Economic depression cannot be cured by legislative action or executive pronouncement", (December 1930, Message to Congress) and "I need not recount to you that the world is passing through a great depression" (1931).
Occurrence Due to the lack of an agreed definition and the strong negative associations, the characterization of any period as a "depression" is contentious. The term was frequently used for regional crises from the early 19th century until the 1930s, and for the more widespread crises of the 1870s and 1930s, but economic crises since 1945 have generally been referred to as "recessions", with the 1970s global crisis referred to as "stagflation", but not a depression. The only two eras commonly referred to at the current time as "depressions" are the 1870s and 1930s.
To some degree, this is simply a stylistic change, similar to the decline in the use of "panic" to refer to financial crises, but it does also reflect that the economic cycle – both in the United States and in most OECD countries – though not in all – has been more moderate since 1945.
There have been many periods of prolonged economic underperformance in particular countries/regions since 1945, detailed below, but terming these as "depressions" is controversial. The 2008–2009 economic cycle, which has comprised the most significant global crisis since the Great Depression, has at times been termed a depression, but this terminology is not widely used, with the episode instead being referred to by other terms, such as the "Great Recession".
Notable depressions
The General Crisis of 1640
Perhaps the largest depression of all time occurred during the General Crisis. The Ming Empire of China collapsed, revolutions and revolts were seen all across Europe and it's empires, and the Stuart Monarchy fought a civil war on three fronts in Ireland, Scotland, and England. Thomas Hobbes, an English philosopher, created what was at the time the most developed explanation of the need for a universal Social Contract in his 1651 book Leviathan based on the general misery within society during this period.
Recent work by Geoffrey Parker suggests these simultaneous crises occurred due to a change in climate, possibly a reduction in solar energy reaching earth and thus lower crop yields.
Great depression of 1837 This depression is acknowledged to be a worse depression in the United States than the later Great Depression of the 1930s. This depression ended in the United States due to the California gold rush and its tenfold addition to the United States' gold reserves. As with most depressions, it was followed by a thirty-year period of a booming economy in the United States, which is now called the Second Industrial Revolution (of the 1850s).
Panic of 1837
The Panic of 1837 was an American financial crisis, built on a speculative real estate market. The bubble burst on 10 May 1837 in New York City, when every bank stopped payment in gold and silver coinage. The Panic was followed by a five-year depression, with the failure of banks and record high unemployment levels.
Long Depression Starting with the adoption of the gold standard in Britain and the United States, the Long Depression (1873–1896) was longer than what is now referred to as the Great Depression, but shallower in some sectors. Many who lived through it regarded it to have been worse than the 1930s depression at times. It was known as "the Great Depression" until the 1930s.
Great Depression
The Great Depression of the 1930s affected most national economies in the world. This depression is generally considered to have begun with the Wall Street crash of 1929, and the crisis quickly spread to other national economies. Between 1929 and 1933, the gross national product of the United States decreased by 33% while the rate of unemployment increased to 25% (with industrial unemployment alone rising to approximately 35% – U.S. employment was still over 25% agricultural).
A long-term effect of the Great Depression was the departure of every major currency from the gold standard, although the initial impetus for this was World War II (see Bretton Woods Accord).
Greek depression
Beginning in 2009, Greece sank into a recession spurred by the Greek government-debt crisis that became a depression. The country saw an almost 20% drop in economic output, and unemployment soared to near 25%. Greece's high amounts of sovereign debt precipitated the crisis, and the poor performance of its economy after the introduction of severe austerity measures slowed the entire eurozone's recovery. Greece's troubles led to discussions about its departure from the eurozone.
Post-communism depression The economic crisis in the 1990s that struck former members of the Soviet Union was almost twice as intense as the Great Depression in the countries of Western Europe and the United States in the 1930s.Who Lost Russia?, The New York Times, 8 October 2000 Average standards of living registered a catastrophic fall in the early 1990s in many parts of the former Eastern Bloc, most notably in post-Soviet states. Even before Russia's financial crisis of 1998, Russia's GDP was half of what it had been in the early 1990s. Some populations are still poorer today than they were in 1989 (e.g. Ukraine, Moldova, Serbia, Central Asia, Caucasus). The collapse of the Soviet planned economy and the transition to a market economy resulted in catastrophic declines in GDP of about 45% from 1990 to 1996 and poverty in the region had increased more than tenfold.