The difference between a depression and a recession.

Answers to your questions about the news.
Oct. 1 2008 2:41 PM

You Say Depression, I Say Recession

Are we talking about the same thing?

Read more about Wall Street's ongoing crisis.

1929 crash. Click image to expand.
Customers flood a bank in 1929 as Wall Street crashed, precipitating the Great Depression

After the House rejected a $700 billion bailout of the financial sector on Monday, Lyle Gramley, a former Federal Reserve governor, warned that "we're in a recession now, and the numbers show the recession deepening." According to a USA Today/Gallup poll conducted over the weekend, one-third of adults believe the economy is in a depression. What's the difference between a recession and a depression?

Severity. One widespread definition of a recession—the one used by newspapers—is a decline in the gross domestic product for two or more consecutive quarters. The term depression, by contrast, commonly refers to a grave, prolonged recession during which the GDP declines by more than 10 percentage points.

Advertisement

Most economists, however, quibble with these lay characterizations since they don't take into account the unemployment rate or consumer confidence. The National Bureau of Economic Research, for example, defines the term recession as a "significant decline" distributed across the economy lasting more than a few months, usually visible in the numbers for GDP, employment, industrial production, and wholesale-retail sales. Understood as a natural part of the business cycle, a recession is the period between when activity has reached its peak and when it reaches its low point or "trough." There is no corresponding NBER definition of a depression, nor can economists agree on an official dividing line between a depression and a bad recession.

The last time the U.S. economy experienced a depression as measured by the 10-point standard was in the 1930s. Although the Great Depression is often studied as one long event, it actually comprised two separate downturns: The GDP declined by more than 30 percent from 1929-33, then by about 18 percent from 1937-38. At one point, a quarter of the U.S. population was unemployed. The Finnish economy tumbled into depression more recently. After the collapse of the Soviet Union, Finland lost a significant portion of its export markets. Its GDP slumped by about 11 points in the early 1990s, and unemployment reached the 20 percent mark.

Recessions are actually rather common. According to the NBER, the U.S. economy experienced an eight-month recession from March 2001 to November 2001 and another one from July 1990 until March 1991. During the early 1980s, the economy slumped twice—in the first half of 1980 and from July 1981 until November 1982.

During the 1980 presidential election season, Ronald Reagan described the economic downturn as a "depression," and Jimmy Carter attacked him for using the term inaccurately. Reagan countered with this quip: "Let it show on the record that when the American people cried out for economic help, Jimmy Carter took refuge behind a dictionary. Well, if it's a definition he wants, I'll give him one. A recession is when your neighbor loses his job. A depression is when you lose yours. And recovery is when Jimmy Carter loses his."

Got a question about today's news? Ask the Explainer.

TODAY IN SLATE

Politics

Talking White

Black people’s disdain for “proper English” and academic achievement is a myth.

Hong Kong’s Protesters Are Ridiculously Polite. That’s What Scares Beijing So Much.

The One Fact About Ebola That Should Calm You: It Spreads Slowly

Operation Backbone

How White Boy Rick, a legendary Detroit cocaine dealer, helped the FBI uncover brazen police corruption.

A Jaw-Dropping Political Ad Aimed at Young Women, Apparently

The XX Factor
Oct. 1 2014 4:05 PM Today in GOP Outreach to Women: You Broads Like Wedding Dresses, Right?
Music

How Even an Old Hipster Can Age Gracefully

On their new albums, Leonard Cohen, Robert Plant, and Loudon Wainwright III show three ways.

How Tattoo Parlors Became the Barber Shops of Hipster Neighborhoods

This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century

Moneybox
Oct. 1 2014 8:34 AM This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century To undertake a massively ambitious energy project, you don’t need the government anymore.
  News & Politics
Politics
Oct. 1 2014 7:26 PM Talking White Black people’s disdain for “proper English” and academic achievement is a myth.
  Business
Buy a Small Business
Oct. 1 2014 11:48 PM Inking the Deal Why tattoo parlors are a great small-business bet.
  Life
Outward
Oct. 1 2014 6:02 PM Facebook Relaxes Its “Real Name” Policy; Drag Queens Celebrate
  Double X
The XX Factor
Oct. 1 2014 5:11 PM Celebrity Feminist Identification Has Reached Peak Meaninglessness
  Slate Plus
Behind the Scenes
Oct. 1 2014 3:24 PM Revelry (and Business) at Mohonk Photos and highlights from Slate’s annual retreat.
  Arts
Brow Beat
Oct. 1 2014 9:39 PM Tom Cruise Dies Over and Over Again in This Edge of Tomorrow Supercut
  Technology
Future Tense
Oct. 1 2014 6:59 PM EU’s Next Digital Commissioner Thinks Keeping Nude Celeb Photos in the Cloud Is “Stupid”
  Health & Science
Science
Oct. 1 2014 4:03 PM Does the Earth Really Have a “Hum”? Yes, but probably not the one you’re thinking.
  Sports
Sports Nut
Oct. 1 2014 5:19 PM Bunt-a-Palooza! How bad was the Kansas City Royals’ bunt-all-the-time strategy in the American League wild-card game?