The old witticism goes that a recession is when your mate is out of work and a depression is when you are.
Economists have a chronic failure to agree when it comes to the difference between a depression and a recession. Journalists like to define a recession as a fall in the GDP in two consecutive quarters, although most economists would regard this as simplistic.
Until the Great Depression between the two world wars, economists described any downturn as a depression. In the aftermath of the Great Depression, they began to describe smaller negative blips as a recession to distinguish them from that catastrophe.
Technically, most economists now agree that the end of a recession is marked by a rise in the GDP. By that definition, the UK is recovering with a rise of 0.5 per cent in the third quarter. It’s a very weak rise, however, and there’s nothing to rule out another sudden downturn. In fact, given the stagnation in the housing market and the virtual crash of the construction industry, it’s difficult to imagine that not happening.
Even the chancellor, George Osborne, has admitted that the risks of further recession are considerable. His worse case scenario is that the slow implosion of the euro will continue, taking the Eurozone into recession and dragging the UK down with it.
The Bank of England has warned of the risk of a second trough of recession and should that happen it’s likely that the recovery will be even slower and more difficult than this time around.
So could we be on the brink of a second Great Depression? Could the global economy even survive the mass poverty of the 1930s, with middle class families living in shanty towns and queuing at soup kitchens?
The Institute for Public Policy Research has warned that the economy cannot return to the levels seen three years ago for at least another five years.
The drop in the UK’s GDP at present stands at 7.1%. This is still 2.9% short of the 10% generally seen as the hallmark of a depression. You might like, however, to take this definition with a grain of salt in the face of the drop of only 8% which preceded the 1930s crash.
Economic commentator Martin Wolf is in no doubt on the subject, saying that the country is passing through what will be its longest and most damaging depression in more than a century. Compared to early downturns, says Wolf, this one is notable for the frightening weakness of the recovery phase.
With the bleak prospects for the near future outlined by most pundits, it doesn’t seem to matter much whether this is a recession or a depression. What is clear is that the days of conspicuous consumption are numbered, that the retail and construction industries are probably changed forever and that for industries and individuals who can’t adapt to new conditions, the future – whether or not it’s a depression – is certainly going to be depressing.