When a Recession Turns Into a Depression

The idea that we may soon be or are already experiencing a depression is foreign to many people.  When I hear the word “depression” I think of the Great Depression that hit the US back in the 1930’s.  Of course other countries have had even worse depressions over the past few hundred years but since I’m a US citizen, our depression was the one that got taught to me in school.  But with all this talk about a recession I often wonder, when does a recession turn into a depression?  The unemployment numbers are pointing towards a depression rather than a recession.

Back in the height (or depths) of the Great Depression, the unemployment rate was around 25%.  Since then Presidents like Reagan, Bush Sr., and Clinton have all changed the guidelines for how we officially measure the unemployment rate to better reflect an optimistic tone.  Things like underemployed people and those not actively looking for a job that may be unemployed or even underemployed are not even counted anymore in the unemployment statistics.  So as of right now, with US unemployment somewhere near 10% officially, I am certain that the real number, if it were counted in the same way as it was back during the Great Depression, is closer to 15%-20%. 

This figure may not really seem like much, especially when you think that even 20% only represents about 1 in 5 people not having a job, but factor in that many American are either elderly, retired, disabled, or too young to be a part of the workforce, and you’ve got some really dismal numbers.  The true unemployment rate is even higher in states like Michigan, where the auto industry collapse has really hit home.  Michigan’s official unemployment rate has been consistently a couple percentage points higher than the rest of the nation for the last few years.

So the idea or argument that we are now experiencing another true depression is not that abstract after all.  If the unemployment figures are more accurately recalculated it’s easy to see how someone could arrive at this conclusion.  The numbers are likely to get worse before they get better, considering that other countries around the world are now really feeling the full shock of this global economic crisis and are seeing their unemployment numbers rise.  Just recently Japan reported that its unemployment rate has been steadily growing while its economy has been shrinking.  This is also the case inside the US, where numbers could once again hover into the 20% or higher range in the very near future.

It’s scary to think about but I really think we are in another depression.  Whether or not it will match or even surpass the Great Depression in the amount of unemployed workers is another question, but measuring a depression using unemployment numbers alone is next to impossible.  There are so many other factors as well that can be used to gauge whether or not this is a true depression.  The unemployment numbers alone are noteworthy.