Depression (economics)
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- For criticism see Criticism of Depression_(economics)
In economics, a depression is a sustained, long downturn in one or more economies. It is more severe than a recession, which is seen as a normal downturn in the business cycle.
Considered a rare but extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation or hyperinflation are also common elements of a depression.
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Definition
There is no widely agreed definition for a depression, even though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.[1]
A proposed definition for depression is a sustained recessionary period in which the population is forced to dispose of tangible assets to fund every day living, as was seen in the US and in Germany in the 1930s.
Characteristics
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).[2]
Notable depressions
Great Depression
The most famous depression is the Great Depression that affected most of the economies in the world throughout the 1930s. It is commonly said to have begun in the Wall Street Crash of 1929, and the crisis quickly spread to most national economies.[3] High deflation caused a further deepening of the depression.[4]
The increase in military production in World War II helped to effect a full recovery to pre-depression economic growth. A long-term effect of the Great Depression is the departure of every major currency from the Gold Standard.[5]
Long Depression
The Long Depression, known at the time as the "Great Depression", lasted from about 1873 to 1896. It affected much of the world and was contemporary with the Second Industrial Revolution.
Panic of 1837
The Panic of 1837 was an American financial crisis, built on a speculative fever. The bubble burst on May 10, 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.
See also
References
External links and further reading
- "Dire Forecast for Global Economy and Trade" article by Mark Landler in The New York Times December 9, 2008
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