Yes, We're in a Depression

That’s the judgment of the esteemed Richard Posner, whose forthcoming book, to be published in May, is called A Failure of Capitalism: The Crisis of ’08 and the Descent Into Depression. Here are a few excerpts from the preface:

The world’s banking system collapsed last fall, was placed on life support at a cost of some trillions of dollars, and remains comatose. We may be too close to the event to grasp its enormity. A vocabulary rich only in euphemisms calls what has happened to the economy a “recession.” We are well beyond that. We are in the midst of the biggest economic crisis since the Great Depression of the 1930’s. It began as a recession — that is true — in December 2007, though it was not so gentle a downturn that it should have taken almost a year for economists to agree that a recession had begun then. (Economists have become a lagging indicator of our economic troubles.)

That last line about economists is pretty biting, and not very arguable.

Here’s a bit more on Posner’s decision to call the current crisis a depression:

The word itself is taboo in respectable circles, reflecting a kind of magical thinking: if we don’t call the economic crisis a “depression,” it can’t be one. But no one who has lived through the modest downturns in the American economy of recent decades could think them comparable to the present situation. … It is the gravity of the economic downturn, the radicalism of the government’s responses, and the pervading sense of crisis that mark what the economy is going through as a depression.

This looks to be a good and important book. We will likely post something more substantial on it later.

Jacques René Giguere

To Grant # 14: Posner is not only a constitutional scholar but also an economist (though of the Chicago school persuasion, he is not a whackjob). He came to law through the study of regulation on economic activity.
His articles in the Journal of law and economics were standard during my training et Laval University in Québec City, a school most american would label at least very liberal.

Jacques René Giguere
Professor of economics
College de Sept-ÃŽles
Sept-ÃŽles, Québec, Canada


"...because if you did, you would see that there is no evidence [yet, at any rate] of anything happening that's much worse than the early 80's."

You only reference half of the sentence I wrote. Of course you can compare them, but you can't compare them *and conclude* that the current crisis won't be worse than a previous one. This one isn't over yet.

I think this book sounds definitely like a "Doom and gloom" downer, but I'm not sure it would serve as a good contrarian indicator. I think the general population, including the financial industry, appears to be of the opinion that this downturn, large as it may be, is merely a temporary disaster and that we'll bounce right back to the roaring 2000's in a year or so. (Perhaps this is not surprising, since most of these people are trying to sell us either housing or stocks. ) The idea that the roaring 2000's themselves were a temporary blip, and that this signals the return to "normal," does not seem to be on the public radar.

After more than a decade of unabashed free-market fundamentalism, this book still appears to be fairly contrarian itself. For people who view the "invisible hand of the market" in much the same way as other superstitions, it's good to see the free market propaganda begin to crack. There are many things that free markets do well, but the idea that free markets will magically arrive at the best solution in every case is a strange abstraction that the general public has accepted without question for many years now. Hopefully, this crisis will fix that.

That being said, I do think that "The failure of capitalism" is a bit strong. Maybe "A failure of a certain type of capitalism."


Eric M. Jones

Wikipedia has a good discussion on the subject:

It interests that most definitions depend on some period of time....but I don't think time periods many years apart can be compared, that is--money moves faster now, people and information do too. Does this affect the rate of business cycles or the definitions of how long a downturn in the economy must last, in order to be called a recession or depression?

Perhaps we should name economic downturns like they name hurricanes.


"A Failure of Capitalism"? How about "The Failure of Capitalism"? In looking back over the history of this nation it seems that whenever we sink into a recession or depression the only way we pull ourselves is through war.

War doesn't seem to be working so well this time. This is the only time I can recall, in my limited study of history, that war hasn't produced a booming economy and plenty of jobs - I wonder if that's because all the profits are being skimmed off the top...

I'll be interested to read Judge Posner's book; perhaps he'll have some more constructive ideas about how capitalism could succeed.

steve long

I became familiar with Posner thanks to his textbook on Antitrust Law. He taught me a great deal about the Chicago rationalization of "the free market."

What was striking about the book as a legal textbook was how it discounted the effects of well-calculated dishonesty on markets, financial and otherwise. Posner argued that evidence of dishonesty, fraud and misrepresentation were not material in an antitrust case so long as the behavior itself was economically efficient -- in an optimized allocation of resources sort of way.

I'm surprised Posner isn't arguing that a depression is a
good thing, as it will separate the wheat from the chaff and maximize efficiency.

The powerful impact of this bubble bursting demonstrates just how important fraud and misrepresentation can be to the goal of growth in the financial marketplace -- unless of course it is properly regulated by government.

Some of the earliest written word we have is about government deeply involved in maintaining truth in the marketplace. It's a shame it didn't sink in enough to make an imprint on conservative free market economics. Maybe this depression will do that. But I doubt that. Conservative economics pays too well.



Watch out!

Tthe problem is, saying we're in a Depression, if we're not realloy, makes it happen; its a self-fulfilling prophesy. The smart people are saying, we need to avoid a "panic." In this case ...

That is, 1) if you tell business owners we're in a Depression, or for sure headed for one, whether we are in one or not, they "panic"; 2) they lay off workers. Then, 3) once many workers are laid off, we have high unemployment, and therefore 4) lower productivity. And 4) then, with high unemployment and fewer goods to buy, with shorages of goods... we have for sure, a Depression. Just because you paniced people into it.

So don't call it, before you really, really see it; for sure. To call it before then, is as irresponsible as a human being can be.

No doubt it's fun to sound important, and yell "fire" in a crowded theater, if you see a lighted match. However ....

Millionaire Acts

From wikipedia, depression means a long recession in an economy as in the case of the Great Depression. But are we really in the stage of depression right now?

I think that we are just on a recession right now. If this recession last for say, 3 years at least, then we may probably be in a depression.

The US government is really doing their best to avert a depression with the US Bail Out Plan. However, we just can't predict what are the long term effects of the bail out plan. Inflation may probably rise?


We have people living in tents who had a home a short time ago. Children have to come home to a tent who had a home to come to from school a short time ago. I don't agree with "experts." Our true unemployment is closer to 25% if you include the discouraged and those out of benefits. Third world countries house in tents or shanties. So we are in a depression or we are a third world country. The party goes on in Washington. Layoffs florish in other parts of the country.


Clawry #* This is not a failure of regulation or of capitalism, ir is the failure of GREED. We all got greedy and those at the top of the food chain led the way. Unfettered greed and the thought that we could all be rich by investing in the markets, while not really understanding a thing, is a big part of the problem. the value of stocks was not based on the true value of goods and services a company produced it was pure speculation.


I think the recently coined term 'Great Recession' is cute enough to stick, so the recession/depression debate will eventually fade away when the global economy starts to recover.

This debate seems especially pointless since the 'technical recession' definition of having two consecutive quarters of negative GDP change (I hate the term 'negative growth') is frequently dismissed as "simplistic" by economists, and NBER pronouncements preferred instead. NBER doesn't even toy with the idea of declaring when a depression has started or ended, or define what a depression is!

There doesn't appear to even be a simplistic definition of a "technical depression" available for us econilliterates to refer to. One definition I've seen is "A depression is a severe economic downturn that lasts several years". but that seems too vague to ever result in general agreement that we have experienced a depression rather than a recession - unless things end up worse than they were in the Great Depression.

Perhaps we should define a depression as "two consecutive years of negative GDP growth". It would agree with the data from the Great Depression:

1930 -8.6%
1931 -6.4%
1932 -13%
1933 -1.3%

and it would be fairly easy to determine if 2008 and 2009 both ended up turning in negative annual GDP changes.

But even with that definition we wouldn't know for sure until well into 2010 if we had entered a depression -- so Posner's bid to be one of the first to cry "depression" somewhat premature.



Whatever it may be, I hope it ends soon. My dad is loosing his job in 12 months. The entire company is leaving the town. Hey, my bank is closed. Yes, we are definitely in a depression.

Erika Mivens



Capitalism and greed are inextricably linked.


I couldn't agree more with Mike B's opening comments. I live in North Carolina, where manufacturing has been hit hard but where there's an incredible level of green entrepreneurship, especially in RTP and, to a lesser extent, Charlotte, which is partially numb and partially in denial over the chaos in finance. It's hard to define whether or not we're in an economic depression (maybe a mini-one), but certainly many people across social and economic sectors are depressed emotionally. Thinking sustainably helps deal with the anxiety.


Best indicator I saw was in December 2007, when a tracking poll asking people their opinion of the economy took a dramatic drop. I think I was looking at Gallup's, but I expect you'd see the same consistency regardless of pollster.

What's interesting, of course, is that this was political polling--pollsters were trying to get people's opinion of the economy, to see how it helped or hurt candidates. What they appear to have discovered is that this is a pretty good indicator of macroeconomic crisis.


"What exactly is Mr. Posner's argument regarding Economists being lagging indicators of the economy?"

Because Economic data that is decently-accurate takes time to produce, when economist are able to label something, such as a recession, it is often several months later. My old econ teacher used to say that "When economist realize we are in a recession, it's usually a sign that we are out it". Which would actually make it a good indicator in a backwards way.

For the free market vs regulation argument. I belive that while we never had a 100% free market, that this downturn is part of having something simular to a free market. In addition to this, the bigger the rise the steeper the fall. The reason for government regulation is that it will hopefully keep the market at a controlled and hopefully constant rise. While this may not be the best outcome in economic terms it is from the political point of view (most people are happy when market is going up). The real debate should be how regulated the markets should be.

Personally, I think the median is somewhere between the system we had (pre-"great recession") and the European (highly regulated one). The reason I believe this is that keeping the economy under control at a constant growth rate is not a easy or exact science. If this is done correctly in the real world, then there will be small gains over the constant level and small drops under it. The problem with the european system is that it is regualted so it will get very small growth, but when something goes wrong there is a huge drop. Which is a situation with very high risk and little reward.



Capitalism failed in the 30s and never came back. Since, all developed nations have mixed economies, with a much larger share of economic activity necessarily done by governments. Although this is bemoaned by the perpetually adolescent Randians and overlooked by freshwater economists (whose models, presuming full employment, never decompose that employment - even when unemployment in the U.S. is at its minimum of about 4-6 percent, only about 80 percent are employed in the private sphere - 15-17 percent are employees of federal, state or local govenment), it is simply the case.
What has failed is the last thirty years of trying to shift social insurance and much of the traditional welfare job of the state into the private sector. While the money markets, newly devised pension plans, and savings formulas that flourished beginning in the eighties did a good job of flooding the financial sector with money, and thus forced up prices - for instance, in the stock market), the price of increasing inequality and the diminishment of median wages and incomes finally has hit home, and it is destroying the household/speculation continuum. Goodby, ownership society. If, as seems likely, this lasts for a length of time that hurts millions upon millions of retirees, who will need aid from their working families, the whole Ponzi scheme will be over, and freshwater economics will return to being a cheesy group of country clubbers with amazingly autistic and selfish views. Backed up by an oddly distorted vocabulary, in which words like freedom don't mean what you think they mean.



Much of Posner's rhetoric over the semantics of calling this a "recession" or "depression" seems rather superficial. Yes, the financial outlook is quiet grim, and I'm sure much of the positive analysis that backs his assertion that this is a depression is worth looking at; but argumentation over whether or not we should call this a "recession" or "depression" is silly at best. The metaphors attached to each phrase are far too strong- the explicit discussion only serves the point that he's not after just cerebral understanding, but a rawer, more illogical shock value.

Sadly, this rhetoric is hurtful for the more pertinent questions- not whether or not this *-ession is happening or will happen (that something quite bad is happening has been fairly well beaten into the ground at that point), but how best can we deal with it as a state, a society, and as individuals?

Alarmist cries aren't always bad. Once the alarm has been pulled, though, their use is questionable.



If Richard Posner says it... you can be pretty sure the opposite is true.


I believe we are heading for a depression, but it won't be like the 30s. People are to well informed about their needs and rights today to let society's right wing trash dictate to us.

However, they must also come to realize that we cannot go back to an economy that was driven by speculators. This is the difference between the late 70s and early 80s and today. Then, the country had a strong credit position and many businesses with productive assets, ready to be fired up again. At that time, even an incompetent like Reagan and his crooked cronies, could eventually see a recovery, even with the wrong policies.

We are paying for that stupidity now, but what is worse, the cupboard is now bare. When Reagan took office it was almost full and the only thing that really had to be done then was crush the speculators and that was started under Carter . Unfortunately, this was the one thing that wasn't continued under Reagan. We must do it now.


joe.shuren, bouvet island

As well as with Judge Posner's use of "Depression" one might quibble with his use of the word "enormity." Does he mean the usage "enormousness," as in big or momentous, or the usage "enormity," outrageous, monstrous, improper, wicked? Recently there has been renewed controversy over the changing usage, but rather than insist on one or the other being proper one might just ask him to specify which he means when he uses it here.

Does it make a difference? Yes, I think it does. He says because of this "enormity" we are "too close" to tell if is a Depression. The meaning "too big" would imply we are too close physically or in time to see it all. The meaning "too wicked" would mean we are too close morally to its causes. Alan Greenspan would probably agree with the former meaning, while some of his critics would incline toward the latter. What we do about it might depend on the distinction.

I guess we have to buy and read the book to find out, or just wait until it's over and read all the books at the same time once we are not so close to the enormity of the Depression in all senses.