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.

Mike B

The Great Depression raised the bar for depressions. Unless unemployment hits 25% and there a bread lines and starving people on the street I don't think many people are going to refer to this as a depression.

I still think we are better off than in the Stagflation Era in the 70's and early 80's. Back then everything sucked. Gasoline had to be rationed, political leadership was poor, Olympic games were boycotted, the military was generally ineffective and it was an all time low point for fashion and style.


The banking industry did not "require" the trillions of tax dollars we poured into it. It required allowing the weaker banks to die so the healthy banks could thrive. The white house wants to take over the banking system and they're using this manditory "bail-out" as the door. Leaves a bad taste in my mouth.
PS- Here we are touting the "D-word" again. Hate to break it to you, but we are no where near that level. Give the uber-Left wing a few more "stimulus" or "spending" bills to play with and we will be for decades to come, if that makes you feel better.

Jeremy Bartlett

Jackie --

If we had done as you suggest all of our major banks would be gone now and they would have taken down the world credit system with them, setting the stage for another great depression, not just the depression we have now. If it makes you feel better -- it was your vaunted republicans that started this bailout fever. Spending may be counter-intuitive to you, but only if you don't understand what is occurring in our economy right now -- demand fell off a cliff, and if the govt doesn't staunch at least part of that fall off, millions more people will lose jobs and we could very easily wind up in what is known as a deflationary spiral. Now, maybe you have millions stashed away in your mattress but most of us don't, and we need things like jobs to stop from starving. So give us a break.


Posner writes books with the speed others write blogposts. I love his work, but it seems like he puts too low of a weight on his own phrase "We may be too close to the event to grasp its enormity." Also, I really hope that writing is a low cost activity for him, otherwise it would be such a waste for welfare having him devote so many lines to a choice of a word...

John Dorrenbacher

I was always under the impression a recession was only when the GDP of a Nation had shown a reduction for at least two consecutive quarters. I looked this up and backed me up.

So, I went looking for GDP reports. According to the US Department of Commerce's Bureau of Economic Analysis, we were only down in the last two quarters of 2008 (-0.5 and -6.2 respectively). Before this, the last negative growth was reported in 2007's 4th quarter.

Now, I could easily be mistaken in my understanding of how all this stuff works (being only a junior at a 4-year studying econ), but I'd like to think the definition and the data don't add up to being in a "recession" at the end of 2007 as Posner claims.

The link to the table I found on the Econ Analysis was messy, but it's fairly easy to Google. Just tinker with the starting/ending years and search by quarters.


That the blog entry below this one discusses the merits of the new Kindle suggests that we're still a ways off from a depression.


John D: that's sort of the lazy-journalist definition of a recession. The NBER, which is as close to an "official" arbiter of recessions as America has, uses a different one -- and they dated the start of the recession in December, 2007. Linky: [ ].


Whether we are currently in a severe recession or mild depression (mild compared to the Great D) will be determined by economic historians in years to come; however, this mess is NOT a failure of capitalism. It is a failure of regulation. The U.S. and European banking systems are HEAVILY regulated by numerous public and private agencies. These agencies not only missed the serious problems with bank balance sheets, they encouraged the practices that lead to this fiasco. I hope that Mr. Posner has given this some consideration in his book.


This thing isn't over yet. You can't really compare current statistics, like unemployment and GDP, and compare them to peak statistics of the Great Depression to argue that the current downturn is nothing like the Great Depression. Sure, *peak* unemployment during the Great Depression may have reached 25%, but before it reached 25%, it must have passed through 9%.

I hope that one of the results of this downturn will be that people will begin to worry about the size of companies as much as they pretend to worry about the size of government. The risk that big companies pose to citizens is much larger than the benefit they provide.


I think we do progress over time so this will not come to matching the Great Depression, but it may well rise to the next worse one since then. As we became accustomed to smaller fluctuations and living closer to the edge, the relative impact will still be great. The credit crisis nature of it makes it a qualitative depression even if it doesn't match or exceed a quantitative one.

the Gooch

John D.

The wonderful thing is that they'll go back and revise those initial GDP estimates later. If you track the Federal Reserve's initial estimate of GDP growth for a quarter, the updated estimate, the reported number, and the subsequent revision, you'll find the average change from the first reported number is something like 100%.

You can't seriously hope to control something you can't we get the feckless flailing on both sides of the aisle that you see today...


Seems like some opportunistic posturing due to the fact that there is no official definition of what makes a depression. Recent recessions have been very mild and then along comes a big one... let's call it a depression!

Isn't it kind of insulting to some of the older folk who actually lived through the Depression era. It's akin to the liberal habit of calling a conservative a "Nazi" for expressing views they don't like. Both devalue the terms, making them mere expressions.


"You can't really compare current statistics, like unemployment and GDP, and compare them to peak statistics of the Great Depression"

...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.

Granted, it could get worse, and unemployment probably will, since it's a trailing indicator. But I do have the feeling that Posner's new book may serve the same purpose, on the doom & gloom side, as "Dow 36,000" did earlier on the cheerleading side; which is to serve as a contraindicator near a turning point.

Just my humble opinion, of course.


Posner's a really smart guy, but his specialty is Constitutional law, is it not? The public discourse in this country is already dumbed-down by self-appointed lay experts like Thomas Friedman and David Brooks. Do we really need (even very esteemed) judges weighing in on the economy? Of course, economists haven't done a great job recently, either, so I guess someone has to do it.


His book is called, A Failure of Capitalism? How can anyone take that seriously? What capitalism is he talking about?


That is not true. Our major banks were already auto-correcting. They didn't get too fat off the junk loans. They didn't need to gorge on the sub-prime feast. They have stable market share, longterm customers, and decades of experience. So when the market fell, they didn't. BofA and WF didn't go to the government asking for help. The goverment went to them. Please, please read more than one side. Somewhere in the middle is the truth.
*I'm not a fan of the Republican load of rhetoric. I simply think the government shouldn't be controlling the private sector.
**As for jobs, no worries. If the government succeeds in taking over the banking system, just get a job there, you'll be layoff proof. Unlike those in the private sector. Like the people in the auto industry (me) who simply had to work harder, smarter, and a step ahead to stay open these last 6 months.

Katie had an interesting post a couple of weeks ago that discussed how a depression in 2009 would be significantly different than the Great Depression. Read the article in the post as well...


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


I agree with numero 4. The irony of "We may be too close to the event to grasp its enormity" immediately struck me. An historical account of the late '08 crisis in May '09 (so about a year) is hardly an account worth reading. As others have noted, the depth and severity of this will only be known in full given time.



Judge Posner is noted as an appellate judge who regularly injects economic principles and explanations into his legal opinions.