Is It A “Depression”?
A friend in an Internet mail group I participate in posted an article in which an IMF economist is quoted as calling the current economic crisis a “depression”. This is news because that is a word that bourgeois economists have been avoiding like the plague! My friend has been arguing for some months now that we are in the early stages of a depression, and that it is time we faced up to that fact. In my own contribution below, I pretty much agree with him! —Scott H.
Saturday, February 7, 2009
Hi ------ and everybody,
I understand your frustration at the prevailing reluctance to use the big “D” word! Here’s the way I look at it:
1) Just what is a depression anyway? We have to be clear on that before we can say whether or not we’re in one!
2) The National Bureau of Economic Research, which is nearly universally acknowledged by American bourgeois economists as the arbiters for what recessions are and when they begin and end, stated recently that they do not have any formal definition for a ‘depression’. However, the way the bourgeoisie generally uses the term, a depression is something closely comparable to the Great Depression of the 1930s. Bourgeois writers frequently say things along the lines that a depression must last for a longer period than a recession, must involve much greater unemployment (the figure of “around 25%” is often mentioned), much greater declines in production, much more severe financial crisis and turmoil than in recessions, probably significant deflation, and so forth.
3) But as we know, bourgeois economic and other social categories are not very scientific. (Cf. their terms like “middle class”, for example, which if it is given any firm definition at all is only an arbitrary one, such as “families making between $15,000/year and $300,000/year”. They reject the scientific definitions of classes in terms of the relationship of groups of people to the means of production.)
4) So what should we try to give as a scientific definition of a “depression” versus a smaller-scale overproduction crisis (which these days is called a “recession”)? Of course Marx himself didn’t draw such a distinction, but I see no reason why we cannot extend Marx and do so ourselves. (Marx called the low points of all overproduction crises, big or small, “depressions”.)
I think a scientific definition of a “depression” vs. “recession” should be based on whether or not all the basic contradictions involved in an overproduction crisis come to a head or not. As I outline in my work in progress, “An Introduction to Capitalist Economic Crisis”, part of which is already posted (at: http://www.massline.org/PolitEcon/crises/index.htm), I view recessions in the imperialist era as “short-circuited” overproduction crises, where only the surface contradictions come to a head. This explains why they have been so comparatively mild (compared to Great Depression of the 1930s for example). But as time goes on in any long economic cycle it becomes harder and harder for the managers of the capitalist economy to interrupt these crises (through massive Keynesian deficits and the like) and keep them at the level of a recession rather than developing into an all-out depression.
5) So on either the vague bourgeois definition, or on my proposed definition of ‘depression’ (based on all the major economic contradictions coming to a head), can we yet say that the current crisis is a “depression”? I think that on both definitions, there are very good reasons indeed to believe that we are in the early stages of a new depression, but that it is still not absolutely certain if it is appropriate to call the crisis a depression at this point.
6) In the case of the vaguer, bourgeois definition, we are at least not yet fully into a depression, since—for example—the (official) unemployment rate is “only” 7.6% now. (Even the real unemployment rate is only roughly twice that level, which is still well below 25%.) On the other hand, employment has been dropping every month for well over a year already, and has really picked up speed these last few months. The rate of job losses is now up to almost 600,000 jobs per month! Moreover, it is virtually certain that job losses will continue for many more months, and probably at comparably high rates. The pace of job losses is probably even still increasing. This means that it is virtually certain that even the official unemployment rate will at least reach double digits. And that means that the real unemployment rate is almost certain to at least reach in the neighborhood of 15% to 20%. The length of this crisis is now only 2 months short of the length of the longest recession since the 1930s, GDP is still rapidly dropping, trade is declining, the financial crisis still continues, and so forth, and everybody already recognizes that this is the worst economic crisis since the Great Depression of the 1930s. But, beyond that, I think we can also say that this current crisis is definitely on track to be at least somewhat comparable to that past Depression (since in fact it is already being compared to it).
In addition to this, I would now say there is about a 90% chance that this current crisis will quite soon develop into a full scale depression (in the bourgeois sense) and that it will be referred to as such historically, even by the bourgeoisie.
One of the hoaky tricks used by those trying to keep people’s psychology positive is to compare the present situation with 1933. Clearly 1933 was in fact qualitatively worse than the present in a great many respects. But 1933 was also qualitatively worse than 1929! Depressions take time to develop! And obviously the current crisis is still developing (worsening) whether or not it finally reaches a situation as bad as the 1930s.
7) On my definition of ‘depression’ (“all the major economic contradictions coming to a head”), the situation is actually pretty similar. So far not all the contradictions have come to a head! But a major unwinding is clearly in progress, and I think the chances of all these contradictions coming to a head in the next couple years are probably now around 75%. (I would say that the chances of them all coming to a head sometime during the next decade is close to 100%!)
The big unknown at the moment is the international situation, and especially whether countries like China, Japan and Great Britain will continue to buy U.S. government securities. If they do, then there is still a chance that really massive Keynesian deficits (bigger even than the $2 trillion on track for this year) might bring the situation under some sort of partial control. In that case we will be in and out of serious recessions for several years. But if the Chinese, Japanese, et al., decide that it is a hopeless cause to keep propping up American capitalism, then Keynesianism will no longer work. At that point there will be both a qualitative worsening of the situation into what can only be called depression, and also really serious inflation. (Though probably not approaching the absurdities of the hyperinflation in Zimbabwe at the present time.)
The big issue is whether the palliative moves (attempts to resurrect the consumer credit market and expand Keynesian deficits) can continue working, and for how long. I claim that both are at least very near the end of their ropes, but that there might possibly be one or two late gasps from the system before the final denouement.
8) From the historical standpoint, it is quite likely that this coming new depression will be dated from 2008, even if it turns out that the real, full depression conditions don’t actually develop for several more years, and even if there is a slight improvement or even an end to the current recession for a few quarters. Clearly the unraveling that will certainly lead eventually to an all-out depression is already in progress. (Though, from my own point of view, it has long been in progress—at a much lower level—since the early 1970s.)
For this reason, I think you, or anybody else, who now starts to openly call the current crisis a “depression” or “the early stages of a depression” will be eventually “confirmed by history”. But it is possible (though increasingly unlikely) that there will be a short period of a few years where it will temporarily appear that you were wrong or being an alarmist. It is a question of how much one chooses to stick one’s neck out!
Personally, I don’t mind sticking my neck out! So for that reason, I think that from now on I will call the current economic crisis, “the developing new depression”.
Once we are deeply into the new depression, we will pretty much stay in it for decades (with some secondary ups and downs). This is another whole aspect of the situation that the bourgeoisie cannot possibly understand. When I hear people say “the current crisis is the worst since the Great Depression” I always chuckle these days—because that is putting way too positive of a spin on it! This current crisis will actually be developing into by far the worst economic crisis in all of capitalist history. It is not certain that capitalism will even be able to survive it. Unfortunately it is also not certain that humanity will be able to survive it. The people are in for some very bad times, long-term economic disaster for them, intensified environmental deterioration, and with even the possibilities of true fascism and world war eventually, as capitalism tries even drastic means to get of its biggest mess ever!
On all these happy thoughts, I think I will go get a beer and a ham sandwich! (While I can still afford them!)
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