Most economists are no longer debating whether there will be a recession in 2008. Now, they're arguing over when the recession started -- was it last November, or December? -- and how bad it's likely to get. While they bicker, however, a far more terrifying economic specter from the distant past has sent a chill through the infosphere.
"We have not seen a nationwide decline in housing like this since the Great Depression," said the CEO of Wells Fargo late last year. "It is now clear that the U.S. and global financial markets are experiencing their worst financial crisis since the Great Depression," wrote economist Nouriel Roubini last week.
The Great Depression?
For the majority of Americans alive today, the Great Depression has an almost mythic luster. We may not remember it -- if you were 18 during the crash of 1929, you're 97 now -- but we cannot escape its foundational legacy. At the very least, we know that back then was when times were really bad, because that's the standard by which historians, economists and journalists always measure every other potentially bad time. Conservative and liberal economists are still arguing over what caused it and whether Franklin Roosevelt's New Deal fixed the mess or prolonged the pain, but there's no arguing with the historical record: The Great Depression happened, scarring the lives of millions of Americans and fundamentally changing the course of politics in the United States.
So when you hear the phrase "since the Great Depression," you know it's time to tighten your belt, and maybe put off splurging on that next vacation. But what about taking it to the next level? What is required to move past "since" and smack into the much scarier "as bad as" category? As in -- the current economic crisis is as bad as the Great Depression. Or, bluntly put, how will we know when and if our current recession has morphed into a full-fledged depression?
Let's concede right off that the question is still speculative. The U.S. economy is not even technically in recession yet, either by the standard definition of two consecutive quarters of negative GDP growth, or as "officially" declared by the National Bureau of Economic Research. If we define a "depression" as a decline in GDP of 10 percent, then the U.S. is nowhere close.
In 1933, 24 percent of the workforce was unemployed. In February 2008, according to the Bureau of Labor Statistics, the U.S. unemployment rate was 4.8 percent (though there are reasons to believe that number significantly underestimates the true picture). Between 1929 and 1933, U.S. GDP growth declined by around 30 percent, the stock market lost almost 90 percent of its value, and a whopping 40 percent of the nation's banks failed. In the fourth quarter of 2007, GDP growth registered an 0.6 gain. While stocks are down over the last year and a half, there's still no consensus about whether we're living through a "correction" or a full-scale bear market. And even though scores of mortgage lenders have declared bankruptcy in the last year, both the real banking system and the so-called shadow banking system of generally unregulated investment banks and hedge funds are still afloat, thanks in large part to Federal Reserve chairman Ben Bernanke's dogged determination to ensure that if economic disaster does strike, it won't be because the Fed failed to pump enough liquidity into the system (an error that conservative economists are convinced helped cause the first Great Depression).
So we're not there yet. And maybe we'll never get there. Who knows -- maybe those economic stimulus checks due to arrive in another month or so will sufficiently juice the economy so that the great housing bust and credit crunch of 2007-08 suddenly fade away like a bad dream.
But we could get there. In fact, it would be all too easy. All we have to do is ignore what the markets and other economic indicators are telling us right now and continue down the disastrous path we've been merrily skipping along for the last 25 or so years. Want to see "The Great Depression: The Sequel"? Here's a handy three-step do-it-yourself action plan.
1. Continue to ignore growing income inequality and govern the United States for the benefit of the rich at the expense of the many.
2. Continue to whittle away at the safety nets that exist to cushion Americans from economic ill winds.
3. Continue to weaken government oversight of Wall Street.
Or, in other words, combine Treasury Secretary Hank Paulson's toothless regulatory "overhaul" (which, absurdly, would actually result in less government oversight of the financial markets than currently exists), with Sen. John McCain's pledge to continue the economic policies of George W. Bush (read his lips: make the tax cuts permanent). Presto: A severe recession gets the opportunity it has long been waiting for and heads south for parts unknown for almost a century.
