Definition and Characteristics of Economic Depression
– Economic depression is a long-term economic downturn resulting from lowered economic activity in one or more national economies.
– It is often associated with the American Great Depression and similar economic crises in various countries.
– Economic depressions are part of economic cycles where economic crisis and recession follow periods of economic growth.
– They are characterized by more severe economic problems and downturns than recessions.
– Economic depressions may be characterized by their length, increases in unemployment, financial crises, stock market crashes, and reduced trade and commerce.
Terminology and Occurrence
– The term ‘depression’ is most commonly associated with the Great Depression of the 1930s.
– However, it had been used to describe earlier economic crises, such as the Panic of 1819 and the Depression of 1920-21.
– In the 19th and early 20th centuries, financial crises were often referred to as panics.
– The phrase ‘The Great Depression’ for the 1930s crisis was popularized by British economist Lionel Robbins and US president Herbert Hoover.
– The term ‘panic’ has fallen out of use in describing economic crises.
– The characterization of any period as a depression is contentious due to the lack of an agreed definition and negative associations.
– The term ‘depression’ was frequently used for regional crises until the 1930s and for the more widespread crises of the 1870s and 1930s.
– Economic crises since 1945 have generally been referred to as recessions, with the 1970s global crisis called stagflation.
– The only two eras commonly referred to as depressions are the 1870s and 1930s.
– The economic cycle has been more moderate since 1945 in most OECD countries.
Economic Depression vs. Recession
– A recession is a period of declining economic activity spread across the economy.
– Each depression is always a recession, but not every recession is a depression.
– A depression is characterized by a substantial and sustained shortfall in the ability to purchase goods relative to potential output.
– Depressions may have a decline in real GDP exceeding 10% or a recession lasting 2 or more years.
– Depressions and recessions may have different starting and ending dates, with depressions generally lasting longer.
Examples of Economic Depressions
– The Great Depression of the 1930s is a well-known example of an economic depression.
– The Long Depression of the late 19th century (1870s-1890s) is another example.
– Other countries have also experienced economic depressions, such as Japan’s difficulties in incorporating the digital economy leading to high unemployment rates.
– Economic depressions can be characterized by financial crises, stock market crashes, bank failures, and reduced trade.
– The 2008-2009 economic cycle, often referred to as the Great Recession, had some characteristics of a depression but is generally classified as a recession.
Notable Depressions
– The General Crisis of 1640: The largest depression of all time occurred during the General Crisis, with the Ming Empire of China going bankrupt and the Stuart Monarchy fighting a civil war on three fronts in Ireland, Scotland, and England.
– 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, and it ended due to the California Gold Rush and the Second Industrial Revolution.
– Post-communism depression: The economic crisis in the 1990s in former Soviet Union countries was almost twice as intense as the Great Depression in Western Europe and the United States in the 1930s. Average standards of living registered a catastrophic fall, and some populations are still poorer today than they were in 1989.
– Other depressions: Various global and regional economic depressions have occurred throughout history, such as the late 1910s and early 1920s depression due to World War I and the Spanish flu pandemic, the 1973 oil crisis and rising costs of the welfare state, and the 2008 financial crisis. Latin American countries and Sub-Saharan Africa have also experienced severe downturns. Source: https://en.wikipedia.org/wiki/Economic_depression
The examples and perspective in this article deal primarily with the English-speaking world and do not represent a worldwide view of the subject. (October 2012) |
An economic depression is a period of carried long-term economic downturn that is the result of lowered economic activity in one major or more national economies. Economic depression maybe related to one specific country where there is some economic crisis that has worsened but most often reflexes historically the American Great Depression and similar economic status that may be recognized as existing at some country, several countries or even in many countries. It is often understood in economics that economic crisis and the following recession that maybe named economic depression are part of economic cycles where the slowdown of the economy follows the economic growth and vice versa. It is a result of more severe economic problems or a downturn than the recession itself, which is a slowdown in economic activity over the course of the normal business cycle of growing economy.
Economic depressions maybe also characterized by their length or duration, and maybe showing increases in unemployment, larger increases in unemployment or even abnormally large levels of unemployment (as with for example some problems in Japan in incorporating digital economy, that such technological difficulties may be resulting in very large unemployment rates or lack of good 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 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 maybe 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.
