Depression Fears Begin to Take Hold


Since the recession first started in December, 2007, it has often been referred to by economists and politicians as the greatest economic crisis this country has faced since the Great Depression. Yet, as menacing as this description may be, few ever dared to use D-word to describe the current economic crisis, at least until now.

Last month, Paul Krugman, a Nobel-prize winning economist and regular columnist at the New York Times, declared in an article that we are now in the midst of a depression. “We are now, I fear, in the early stages of a third depression,” he wrote. “It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.”

To support this astounding claim, Krugman cited as evidence our continued period of high unemployment and concerns that we may soon suffer from deflation. These fears are not new. In fact, we ran down a list of these and other concerns in a recent piece about signs that we may soon face a double dip recession. However, Krugman’s bold statements paired with more dismal job numbers may soon create a new narrative centered around the fear of another depression.

CNBC reported yesterday that stock markets around the world are showing signs of a “rapid collapse” that is very similar to the one that led up to the Great Depression. Similarly, the Telegraph UK recently argued that the U.S. economy is beginning to “feel like 1932,” a reference to the depression. The Telegraph pointed out that the incredible deficits which state governments are running up as well as the newest jobs report which showed that our labor force has shrunk by the largest amount all year.

Economists generally rely on a few key markers to determine where the recession ends a depression begins. And by most of these markers, we are still in the clear. At the peak of the Great Depression, one of every four people was unemployed and the stock market had lost 90% of its value, both of which are far worse than the situation we face right now. Then there is what may be the most important signifier, our Gross Domestic Product. As CNN Money noted last year in a piece about why a depression is unlikely, most economists estimated that our GDP would decline by about 3.4% during the course of the recession. That’s certainly not great, but it’s nothing compared to the 26.5% freefall that the GDP suffered during the Great Depression. (The GDP has been growing rather than shrinking throughout the year so far, but some argue it’s not growing as fast as it has in previous recoveries.)

However, to be fair, Krugman never claimed that we would enter into a period as terrible as the Great Depression. Instead, he pointed to the lesser known depression of 1873, which began when the railroad and real estate industries went bust. This crisis has come to be known as the long depression, as it lasted for six years and its effects on the economy were felt for decades after. During this crisis, unemployment hit 14% and real estate prices plummeted. That situation is still significantly worse than what we face right now, but the raw numbers and root causes do feel a little too close to this downturn for comfort.

According to Gregg Greenberg, a reporter at, it’s important to be cautious when comparing our current economic situation with crises from the past. “The stock market dipped in 1931. That’s fine, but where was China in 1931? Were they making low cost goods then? Everything is different now. Every cycle is different,” Greenberg said. Still, Greenberg does understand the depression fears and says that the key factors to keep an eye on right now are unemployment and the debt crisis abroad, two very serious threats. But what you shouldn’t do is listen to economists.

“If you give me one economist who says we’re in a recession, I can give you five who say we’re in for a boom,” he said. Greenberg warns that the rampant speculation about our economy could end up being the thing that does it in.  “If you keep talking about depression, then people don’t want to spend money because they think they won’t have jobs.  It could create a self-fulfilling prophecy if people buy into it.”

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