Monday, March 30, 2009

Brother, Can You Spare A Definition?

I really, really, really don't like it when I don't know the answer to a question. I was one of those kids who loved to raise my hand in class & answer - not quite Horschak-like, but dangerously close to Lisa Simpson territory. (I also had the same scintillating social life as these two fictional characters - whoopee.)

So, when Shari asked me Saturday night what the difference was between a recession and a depression, I was kind of stunned when I realized that the only honest answer I had was, "I know they're different & that recession is better than depression, but otherwise I don't know. We'll have to look it up."

And, to the best of my limited abilities to operate Google & other web information sources, here's an answer. OK, some answers... but they don't necessarily agree with each other.
  1. Economists don't all agree on the exact definition of a recession. (reference: This, of course, would scare me if I didn't the exact same behavior with theologians (predestination & freewill) and board gamers (open & closed holdings).
  2. The standard "newspaper" definition of a recession is 2+ quarters (6 months) where the GDP (Gross Domestic Product) declines. (BTW, the GDP is the total value of all final goods & services produced in a particular economy." (reference: Wikipedia))
  3. Dave Ramsey has recently said that "the official definition of an economic recession is an economy that has negative growth, that shrinks, for six consecutive months or more." (reference: CBS News)
  4. A depression is when that decline is 10% or more... meaning the last depression we had in the U.S. was in the 1930's.

Now, depending on what numbers you look at, we are either in a recession (majority opinion) or not (Dave Ramsey & some other naysayers) but not in a depression. (We may, however, be depressed about our financial situation - that's a different issue.) I'll just let Dave speak for himself:

"The U.S has the most robust economy in the history of man, and it's the most sophisticated it's ever been; there are lots of checks and balances and safety nets," Ramsey explained.

He pointed out that, "The market dropped the same amount (relatively) when President Nixon resigned as it did during the Great Depression, but there were so many more safety nets in place in the 1970s that the drop didn't have the same effect. The markets dropped 511 points in minutes when the markets opened after 9/11, but there still was no crash or meltdown.

"By definition we are not in a recession," Ramsey said forcefully. "We have not even had one month of recession; we've had SLOW GROWTH. The economy was growing at (an annual rate of) 3.5 percent; now, it's at 1.5 percent, which is a big impact, but it's still growth."

I'm a big fan of Dave Ramsey - but listening to the back'n'forth between the "now is the perfect time... to panic!" crowd and the "there's a pony buried under here somewhere" crowd, I'm reminded of two stories:
  1. Ye Olde Parable about the blind men & the elephant
  2. The wisdom of Homer Simpson: “Oh, people can come up with statistics to prove anything. 14% of people know that.”
I'm also reminded of one of my favorite passages from the Bible:
Though the fig tree does not bud

and there is no fruit on the vines,

though the olive crop fails

and the fields produce no food,

though there are no sheep in the pen

and no cattle in the stalls,

yet I will triumph in the LORD;

I will rejoice in the God of my salvation!

Yahweh my Lord is my strength;

He makes my feet like those of a deer

and enables me to walk on mountain heights!

(Habakkuk 3:17-19, HCSB)

1 comment:

JasonB said...

Mark with the minor prophet reference!