Are We in the Middle of Another Great Depression?

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Are We In A Depression?

The Royal Family was lampooned in this 1935 cartoon during the height of the Great Depression in Great Britain. Image courtesy of the National Archives UK

The question is impossible to answer, due to the notion of paradoxical logic.

Until we are out of it, we don’t know we are in it.

However, the price tag for Keynesian stimulus has been estimated at $2.5 trillion since the beginning of the Great Recession.

Subtracting the printed money from increases in GDP over the three years it was primarily deployed changes a reported $500 billion overall increase into a nearly 10% decrease, as GDP would be adjusted from $14 trillion in 2007 to $12.7 trillion at the end of 2010.

Furthermore, after reaching an annualized 3% growth rate in the fourth quarter of 2012, the economy has slowed to an anemic 1.7% growth rate during the second quarter of 2012. Meanwhile, the fiscal cliff teeters on the 2013 horizon, threatening to eliminate $1.6 trillion in potential discretionary spending from the coffers of companies and consumers.

Would we have experienced a depression without the intervention? Very possibly. The bigger question is whether avoiding one was worth the cost, especially considering the fact that they are not as rare as we are perhaps led to believe. Regardless, we are nowhere near yet out of the woods. A resumption of negative GDP growth in 2013 for more than a short period of time could cause this long period of economic malaise to be reclassified. It could just be characterized as a double-dip recession, much like what the U.S. experienced in the early 1980’s. On the other hand, if combined with the woes over the past five years, and deemed sufficiently long and destructive to fit the narrative: a depression.

2013 and Beyond

Clarence Darrow once said, “History repeats itself, and that’s one of the things that’s wrong with history.” Modern fiscal and monetary policy has attempted to defeat that axiom, certainly with some short-term success. Recessions over the past 30 years have been few and far between, and despite a 140 year history of depressions averaging every 25 years, the United States has not experienced one since the Great Depression ended in 1941.

And yet, the Keynesian toolbox primarily utilized to combat cyclical economic malaise has had a nasty, choking side effect: the exploding national debt. Today, we stand on the brink of an economic triple-witching hour, with the economy flagging, the debt soaring, and the politicians unable or unwilling to work together to solve our myriad problems.

Meanwhile, the looming shadow of another downturn gathers, and depending upon the outcome, this one may finally force the politicians to face something they’ve been desperate to avoid at all costs. Let’s just say the outcome could be very depressing for all of us.

Resources

Econ Review. U.S. Unemployment Rate Hits 25%. (2012). Accessed September 23, 2012.

Marquette University. Life During the Great Depression(2012). Accessed September 23, 2012.

Berg-Andersson, R. Dates of U.S. Presidential Election “Events”: 1789 to the present(2012). The Green Papers. Accessed September 23, 2012.

Stathis, M. America’s Second Great Depression. (2011). Press T.V. Accessed September 23, 2012.

Parker, E. We’d forgotten what a depression looks like. (2011). Las Vegas Sun.  Accessed September 23, 2012.

Root, W. A. Why we are on the brink of the greatest Depression of all time. (2012). Fox News. Accessed September 23, 2012.

Center on Budget and Policy Priorities. Chart Book: The Legacy of the Great Recession(2012). Accessed September 23, 2012.

San Jose State University Department of Economics. The Great Depression of the 1930s and its Origins(2012). Accessed September 23, 2012.

San Jose State University Department of Economics. Economic Depressions of the United States (2012). Accessed September 23, 2012.

Presidential Debt. U.S. National Debt and Interest Expense by Presidential Term, Percentage of GDP. (2012). Sky Machines. Accessed September 23, 2012.

U.S. National Debt Clock. Debt Clock. (2012). Accessed September 23, 2012.

Trading Economics. U.S. GDP Growth Rate. (2012). Accessed September 23, 2012.

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