definition of Depression versus Recession; "Day of the Trefids"; Hoof & Mouth in USA 2003 ?
Q.I do not know why this movie came to my mind in the last several hours and last day or two and why the Economics definition of Depression needs to be better defined. Unlike the definition of Recession which has a quantitative defining-- 2 consecutive quarters of negative growth. So, using the movie, Day of the Trefids, can we perhaps well-define what a Depression is??
A.A recession is when you see someone get eaten by a Triffid, and a depression is when you're blind and get eaten by a Triffid. Actually, the "rule of thumb" is that a depression is a 10% or more drop (inflation adjusted) in a country or market's GDP. AS I recall, there were a number of things claimed to be contributing factors. In addition to the stock bubble (the DJIA saw a 75% decline I believe over a four year period), you had bad economic and monetary policy, and several prior economic disasters (farms were badly hit in the 20's and early 30's and a large Florida real estate crisis). Internationally, the Great Depression and the Second World War was probably the direct outcome of the Treaty of Versailles. IMHO, the hyperinflation of Germany (during 1932-1933) was deliberately intended to create severe hardship so that a pro-military government could replace the Weimar Republic. Note that many of these catastrophes were created through a buildup of bad decisions. The problem here is how severe do the catastrophes have to be to count as a depression? Ie, the US is hit by several hurricanes a year on average, but we wouldn't normally count them. A 10% decline in GDP is easy to measure though can be distorted (eg, a 1% or so overestimate in US GDP in the first two quarters of 2001 only "discovered" when the third quarter was reported). What we need to do is to analyze how the 1919 Versailles Treaty in its numbers created the Great Depression because we can then extrapolate those numbers to year 2003 and find out what sort of numbers would plunge the USA into a Depression. Another poster, I suspect Karl wrote that the definition of a Depression was 10% fall in GDP. I suspect that definition is too weak and useless because I suspect that if the Versailles treaty were analyzed that it forced Germany into a decline in GDP way exceeding that of 10%. Some economists should be able to adjust the inflation of Germany correlated with the Versailles Treaty demands and I suspect that this treaty forced much more than a 10% decline in Germany's GDP.
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