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Economic depression

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Aneconomic depressionis 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 may be related to one specific country where there is some economic crisis that has worsened but most often reflexes historically the AmericanGreat Depressionand 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 may be 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 adownturnthan therecessionitself, which is a slowdown in economic activity over the course of the normalbusiness cycleof growing economy.

Economic depressions may also be characterized by their length or duration, showing increases inunemployment,larger increases in unemployment or even abnormally large levels of unemployment (as with for example some problems in Japan in incorporating digital economy,[1]that such technological difficult 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 offinancial crisis,that may also reflect on the work of banks, or may result inbanking crisis(in various ways that may be for example unauthorized transformations of banks), and further the crisis ininvestmentand 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 countrydefaultsordebtproblems, and further in feared businessesbankruptcies,and overall business slowdown. Other bad signs of economic depression could be significantly reduced amounts oftradeandcommerce(especiallyinternational 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 currencydevaluations). Other signs of depression are pricesdeflation,financial crises,stock market crashor evenbank 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[edit]

In theUnited StatestheNational Bureau of Economic Researchdetermines contractions and expansions in the business cycle, but does not declare depressions.[2]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).[3]Another proposed definition ofdepressionincludes two general rules:[4][5]

  1. a decline in real GDP exceeding 10%, or
  2. 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.[2]

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.[6]

Terminology[edit]

Today the term "depression" is most often associated with theGreat Depressionof the 1930s, but the term had been in use long before then. Indeed, an early major American economic crisis, thePanic of 1819,was described by then-presidentJames Monroeas "a depression",[7]and the economic crisis immediately preceding the 1930s depression, theDepression of 1920–21,was referred to as a "depression" by presidentCalvin Coolidge.

However, in the 19th and early 20th centuries,financialcrises 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 theLong Depression.

Common use of the phrase "The Great Depression" for the 1930s crisis is most frequently attributed to British economistLionel Robbins,whose 1934 bookThe Great Depressionis credited with 'formalizing' the phrase,[7]though US presidentHerbert Hooveris widely credited with having 'popularized' the term/phrase,[7][8]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[edit]

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.[9]

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 theeconomic cycle– both in the United States and in mostOECDcountries – though not in all – has been more moderate since 1945.

Therehavebeen 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,[9]but this terminology is not widely used, with the episode instead being referred to by other terms, such as the "Great Recession".

Notable depressions[edit]

The General Crisis of 1640[edit]

The largest depression of all time occurred duringthe General Crisis.[citation needed]TheMing Empireof China went bankrupt and theStuart Monarchyfought acivil war on three fronts in Ireland, Scotland, and England.Thomas Hobbes,an English philosopher, created the first recorded explanation of the need for a universalSocial Contractin his 1651 bookLeviathanbased on the general misery within society during this period.

Great depression of 1837[edit]

This depression is acknowledged to be a worse depression in the United States than the later Great Depression of the 1930s.[10][better source needed]This depression ended in the United States due to theCalifornia Gold Rushand 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 theSecond Industrial Revolution(of the 1850s).[citation needed]

Panic of 1837[edit]

The Panic of 1837 was an Americanfinancial crisis,built on aspeculativereal estate market.[11]The bubble burst on 10 May 1837 inNew York City,when everybankstopped payment ingoldandsilvercoinage.The Panic was followed by a five-year depression,[11]with the failure ofbanksand record high unemployment levels.[12]

Long Depression[edit]

New York police using force to remove rioting protesters inTompkins Square Park,1874

Starting with the adoption of thegold standardin Britain and the United States, theLong Depression(1873–1896) was indeed 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.[citation needed]

Great Depression[edit]

TheGreat Depressionof the 1930s affected most national economies in the world. This depression is generally considered to have begun with theWall Street Crash of 1929,and the crisis quickly spread to other national economies.[13]Between 1929 and 1933, thegross national productof theUnited Statesdecreased by 33% while the rate ofunemploymentincreased to 25% (with industrial unemployment alone rising to approximately 35% – U.S. employment was still over 25% agricultural).[citation needed]

A long-term effect of the Great Depression was the departure of every major currency from thegold standard,although the initial impetus for this wasWorld War II(seeBretton Woods Accord).

Greek depression[edit]

Beginning in 2009, Greece sank into a recession that, after two years,became a depression.The country saw an almost 20% drop in economic output, and unemployment soared to near 25%.[14]Greece's high amounts ofsovereign debtprecipitated the crisis, and the poor performance of its economy after the introduction of severeausteritymeasures slowed the entire eurozone's recovery.[citation needed]Greece's troubles led to discussions aboutits departure from the eurozone.

Post-communism depression[edit]

The economic crisis in the 1990s that struck former members of theSoviet Unionwas almost twice as intense as the Great Depression in the countries ofWestern Europeand the United States in the 1930s.[15][16][17]Averagestandards of livingregistered a catastrophic fall in the early 1990s in many parts of the formerEastern Bloc,most notably inpost-Soviet states.[18]Even beforeRussia's financial crisis of 1998,Russia's GDP was half of what it had been in the early 1990s.[17]Some populations are still poorer today than they were in 1989 (e.g.Ukraine,Moldova,Serbia,Central Asia,Caucasus).[citation needed]The collapse of the Soviet planned economy and thetransition to a market economyresulted in catastrophic declines in GDP of about 45% from 1990 to 1996[19]and poverty in the region had increased more than tenfold.[20]

Finnish economists refer to theFinnish economic declineduring and after thebreakup of the Soviet Union(1989–1994) as a great depression (suuri lama). However, the depression was multicausal, with its severity compounded by a coincidence of multiple sudden external shocks, including loss of Soviet trade, thesavings and loan crisisandearly 1990s recessionin the West, with the internal overheating that had been brewing throughout the 1980s. Liberalization had resulted in the so-called "casino economy". Persistent structural and monetary policy problems had not been solved, leaving the economy vulnerable to even mild external shocks. The depression had lasting effects: the Finnish markka was floated and was eventually replaced by the euro in 1999, ending decades of government control of the economy, but also high, persistent unemployment. Employment has never returned even close to the pre-crisis level.[citation needed]

Other depressions[edit]

Global[edit]

The late 1910s and early 1920s were marked by an economic depression that unraveled in particularly catastrophic circumstances:World War Iand its aftermath led to a global nosedive in commodities that ruined many developing nations, while servicemen returning from the trenches found themselves with high unemployment as businesses failed, unable to transition into a peacetime economy. Also, theSpanish flu pandemicof 1918–20brought economic activity to a standstillas even more people became incapacitated. Most developed countries had mostly recovered by 1921–22, howeverGermanysaw its economy crippled until 1923–24 because ofthe hyperinflation crisis.

The1973 oil crisis,coupled with the rising costs of maintenance ofwelfare statein most countries led to arecession between 1973 and 1975,followed by a period ofalmost minimal growth and rising inflation and unemployment.The1980–82 recessionmarked the end of the period.

Thesavings & loansand theleveraged buyoutcrises led to a severe depression in mid-to-late 1989, causing arecession in 1990–91(also fueled bythe oil price crisis), whose effects lasted as late as 1994. This downturn is more remembered for its political effects:British Prime MinisterMargaret Thatcherhad to resign in November 1990; and while his approval ratings were above 60%,U.S. PresidentGeorge H. W. Bushlost the1992 electiontoBill Clintonbecause of the domestic malady marked by the depression and increasing urban decay.

In 2005, thepersistent oil price risesandeconomic overheatingcaused by deregulation led to a gradual deterioration of the world economy with inflation and unemployment rising as growth slowed: Thehousing bubblein the U.S. burst in 2007, and the American economy slipped intoa recession.This, in turn, provoked the failure of many prominent financial institutions throughout 2008, most notablyLehman Brothers,leading to the loss of millions of jobs.

Regional[edit]

Several Latin American countries had severe downturns in the 1980s: by the Kehoe and Prescott definition of a great depression as at least one year with output 20% below trend,Argentina,Brazil,Chile,Mexico,andPeruexperienced great depressions in the 1980s, and Argentina experiencedanotherbetween 1998 and 2002. South American countries fell once again into this in the early-to-mid 2010s.

This definition also includes the economic performance ofNew Zealandfrom 1974 to 1992 andSwitzerlandfrom 1973 to the present, although this designation for Switzerland has been controversial.[21][22]

From 1980 to 2000,Sub-Saharan Africabroadly suffered a fall in absolute income levels.[23]

See also[edit]

References[edit]

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  2. ^ab"The NBER's Business Cycle Dating Procedure: Frequently Asked Questions".Nber.org.Archivedfrom the original on 8 October 2012.Retrieved7 September2012.
  3. ^"Private Tutor".Infoplease.Archivedfrom the original on 13 September 2012.Retrieved7 September2012.
  4. ^"Diagnosing depression".The Economist.30 December 2008.Archivedfrom the original on 15 February 2009.
  5. ^"Home Improvement Tips and Techniques | Business Cycles".Archived fromthe originalon 2 February 2009.Retrieved15 April2009.
  6. ^"US Business Cycle Expansions and Contractions".National Bureau of Economic Research.Archivedfrom the original on 19 February 2009.Retrieved1 October2008.
  7. ^abc"When Did the Great Depression Receive Its Name? (And Who Named It?)".hnn.us.Archivedfrom the original on 1 September 2013.Retrieved9 May2018.
  8. ^The Glory and the Dream: A Narrative History of America, 1932–1972,William Manchester
  9. ^abKrugman, Paul(27 June 2010),"The Third Depression",The New York Times,archivedfrom the original on 11 April 2012
  10. ^Rezneck, Samuel (1 July 1935). "The Social History of an American Depression, 1837–1843".The American Historical Review.40(4): 662–687.doi:10.2307/1842418.JSTOR1842418.
  11. ^ab"Panic of 1837 (1837–1842) – History of Economic Recessions".Politonomist. 2 January 2009. Archived fromthe originalon 6 April 2009.Retrieved7 September2012.
  12. ^Timberlake, Richard H. Jr. (1997)."Panic of 1837".In Glasner, David; Cooley, Thomas F. (eds.).Business cycles and depressions: an encyclopedia.New York: Garland Publishing. pp. 514–516.ISBN978-0-8240-0944-1.
  13. ^"About the Great Depression".English.uiuc.edu.Archivedfrom the original on 20 December 2008.Retrieved7 September2012.
  14. ^"Greece sinks deeper into depression in third quarter".Reuters.14 November 2012.Archivedfrom the original on 14 November 2012.Retrieved14 November2012.
  15. ^"What Can Transition Economies Learn from the First Ten Years? A New World Bank Report in Transition Newsletter".Worldbank.org. Archived fromthe originalon 9 June 2013.
  16. ^"Kalikova & Associates – Law Firm"(in Russian). K-a.kg.Archivedfrom the original on 7 September 2012.Retrieved7 September2012.
  17. ^abWho Lost Russia?,The New York Times,8 October 2000
  18. ^"Child poverty soars in eastern Europe".BBC News.11 October 2000.Archivedfrom the original on 18 July 2004.
  19. ^"Poverty, crime and migration are acute issues as Eastern European cities continue to grow"(A report by UN-Habitat). 11 January 2005.Archivedfrom the original on 2 January 2010.
  20. ^"Study Finds Poverty Deepening in Former Communist Countries",The New York Times,12 October 2000,archivedfrom the original on 5 February 2017
  21. ^Abrahamsen, Y.; Aeppli, R.; Atukeren, E.; Graff, M.; Müller, C.; Schips, B. (2005). "The Swiss disease: Facts and artifacts. A reply to Kehoe and Prescott".Review of Economic Dynamics.8(3): 749–758.doi:10.1016/j.red.2004.06.003.hdl:10419/50866.
  22. ^Kehoe, T. J.; Ruhl, K. J. (2005). "Is Switzerland in a Great Depression?".Review of Economic Dynamics.8(3): 759–775.doi:10.1016/j.red.2005.03.003.
  23. ^Chang, Ha-Joon(4 September 2002)."Kicking Away the Ladder".Post-Autistic Economics Review.No. 15. article 3.Archivedfrom the original on 17 December 2015.Retrieved8 October2008.

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