All the Talk of a Depression Is ... Depressing

In this Thanksgiving week, a majority, perhaps, of all Americans will give thanks not only for a bountiful table but for a transition of power in which so much hope is invested.

As the new Administration translates its campaign's lofty vision of change into a new team and concrete plans, we find that the new change-makers are largely a throw back to the old centrist Clinton Administration that took its marching orders from the corporate interests funding the Democratic Leadership Conference.

Barack Obama is now calling for a major stimulus and job creation effort but outlining it and getting it done will be quite different and difficult. Creating two and a half million new jobs by 2011 is a good goal but seems far off in a country where official unemployment now stands at ten million and so many need relief now. Ditto for debt relief, a topic no one is even talking about.

In the interim, as the snows come and the season turns colder, many a family will face an uncomfortable choice: "heat or eat." This could be the worst shopping season ever. 36 Million families have or are close to maxing out their credit cards.

The Democrats have always sung "happy days are here again" but it doesn't seem to be the right song for these hard times. It's taken a full year for the punditocracy to even accept that we are in a recession. Last November, the economists at investment banks (that no longer exist in their old form) had proclaimed the recession, "the R word, " was already here. The press held off with constant references to a "possible recession" or the government is trying to "stave off a recession."

Part of the confusion can be attributed to how recessions are defined. The Oakland Tribune looked into this and concluded,

The truth is, nobody knows. The responsibility for declaring the stages of the business cycle is informally held by that most dreaded of concepts -- a committee of economists. The Business Cycle Dating Committee of the National Bureau of Economic Research uses several economic indicators, including personal income, unemployment, industrial production and sales and manufacturing volume, to determine the health of the economy. It's not true that they declare a recession if economic growth is negative for two quarters in a row. If it were that simple, we wouldn't need a committee.

If you want to know about the state of the economy in real time, you can't rely on the NBER.

If the NBER did the D.C. weather forecast, here's how it would work. The bureau would gather precipitation data from every neighborhood, then interview residents to make sure the data are accurate. After much deliberation, it would tell us whether it had rained last month.

Same with recessions: The NBER's pronouncements historically come long after recessions have begun, a whopping seven months on average. By the time the bureau announced the recession of 1991, it already had ended."

Back then, a year ago, the people who were living the financial crisis, and those that saw it coming acknowledged the slow down and freeze up of the economic order. They saw the dominos falling but were still seen as alarmists, not alarm sounders. They called the recession. Today many if these same seers are using the D word, depression.

And once again no one can agree on what that would look like either, writes Michael Panzer, author of Financial Armageddon.

There is, in fact, no agreed-upon definition of what a depression is. Economists are unanimous that the Great Depression was the worst economic downturn the industrial world has ever seen, and that we haven't had a depression since, but beyond that there is not a consensus. Recessions have an official definition from the National Bureau of Economic Research, but the bureau pointedly declines to define a depression.