What's the difference between a recession and a depression?

[Kalhoun]

Looking for the factual economic point at which we cross over, as well as the perceivable difference people have between the two. Thanks.

[Exapno_Mapcase]

The only Depression was the Great Depression. Everything else, officially and otherwise, is a recession. Depression is an informal nickname. We’re not going to get anywhere near Great Depression levels of anything this time so the line won’t be crossed.

[Kalhoun]

That didn’t answer my question. What is the point at which the economy moves from a recession to a depression?

[XT]

Here:

There is an old joke among economists that states:

A recession is when your neighbor loses his job.

A depression is when you lose your job.

The difference between the two terms is not very well understood for one simple reason: There is not a universally agreed upon definition. If you ask 100 different economists to define the terms recession and depression, you would get at least 100 different answers. I will try to summarize both terms and explain the differences between them in a way that almost all economists could agree with.

Recession: The Newspaper Definition
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.

This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.

Recession: The BCDC Definition
The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.

Depression
Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

Hope that helps.

-XT

[Philster]

If we are still talking about this economic down turn in two years, we are in a depression.

[Kalhoun]

@xtisme

Here:

Hope that helps.

-XT

Yes, thank you. It helped a lot.

[KlondikeGeoff]

As the posts indicate, it will be pretty difficult, if possible at all, to define a point where one ends and the other begins. It is a bit subjective.

I grew up diring the Great Depression. It lasted from about 1929 to sometime in 1940 or so when the defense industry began to build up and jobs began to be plentiful again. The unimployment rate was about 25 percent. We’ve never been close to that since.

I’ve lived through numerous recessions and none were ever even close to what it was like during the Great Depression, believe me.

[Duckster]

The OP’s request assumes a viable capitalist economic system where there is periodic periods of growth and recession, with a severe (undefined) recession being a depression.

Perhaps we need to take a few steps back and look at the bigger picture. Is our current economic system still viable? Is this economic crisis a recession (potential depression) within a still functioning and viable economic model, or are we experience a fundamental fracturing of the entire process, with a potential to spill over into political and societal spectrums as well?

[sweeteviljesus]

Is our current economic system viable compared to what?

Rob