The Wandering Economist

There has been quite a bit of controversy in the financial news lately as to whether or not the United States is headed into a Recession, or worse yet, the possibility of a Depression. While these are just technical terms for “Bad Times”, it is important to understand how they are defined and what they mean to the average person on the street. In this lesson, we will examine not only the definitions, but what it means in real terms to you and I.

The technical definition of a Recession is quite simple, “Negative growth of the Gross Domestic Product of a country for a period of 2 quarters (6 months)”. While not everyone agrees with this definition (for very good reasons) it is a generally acceptable baseline. A Depression is simple an extended Recession that enters a second full year.

The most important thing about a recession, or a depression for that matter is how it feels to you, how you are personally affected. I have lived through 2 recent recessions, those of 1987 and 2000. During the recession of 1987 I was young and in the midst of a period of time in my life where my income was growing quite well. I was still at that point where I was nowhere near the peak of my earnings potential. The so-called recession of 1987 did not impact me much at all, truth be told I was quite oblivious to it at the time. I had just changed jobs and gotten quite a nice raise. I was in a position where my expenses were not out-stripping my income and the inflation during this period was pretty mild. While the country as whole was losing power, mine personally was growing.

The recession of 2000 was quite a different story for me personally. As a business owner involved in mechanical manufacturing, the year 2000 was just another nail in the coffin to a long slow decline in manufacturing in this country. The spedd of the decline simply kicked up another notch. The decline in manufacturing in the 2000 recession was disproportionately bad compared to most other industry segments. In orther words, 2000 hurt.

The average man however may have seen some of his artificially gained wealth from the dot-com boom disappear, but was otherwise unscathed. Both of these recessions came as short term corrections that did not have a lot of physically evident inflation tied to them.

The coming recession, or perhaps even depression will. Will what you ask? Will Hurt. Will come with TONS of inflation. Will impact the average person. Will last a long time. Will evolve into a depression (unless the clouds above open up and deliver wisdom unseen in a century).

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