One of President Harry Truman’s famous economics quotes is: “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”
Economists have a pretty good idea of what a recession is, but we’re a little less hazy about what makes a “depression.”
The so-called “Great Depression” was really a deep recession, but it was called a depression when unemployment grew to about 25 percent.
So what makes a depression? Is it high unemployment rates? That means Spain and Greece are in a depression. Spain has had unemployment more than 17 percent since 2010 – four years.
What if you have less than a high school diploma or are black? Unemployment for blacks was more than 15 percent for 30 months. Similar rates are found for Native Americans.
Maybe you quantify it by examining median income. Across all income groups, inflation-adjusted income peaked in 1999 – almost 15 years ago.
If real income grew at the rate of potential real GDP, nothing spectacular, 0.6 percent per year, median incomes would be about 9 percent higher today than in 1999. Instead, the current median income is actually minus 4 percent compared with the rate in 1999.
That’s kind of depressing.
Unfortunately, I don’t see an end to this pattern. When this recession hit, I warned of a “Japanese-style recession” where economic growth is anemic and too low inflation rates threaten a recovery.
And so here we are. Sure, unemployment is down, new jobs are being “created,” and the United States is outperforming our European counterparts, but should we cheer?
Frequently avoided questions about current job creation: Where are they, what types of jobs, and how many, are being created? According to the Labor Department, the separation and hire rates are essentially the same, so that the long-run employment situation, remains largely unchanged.
Secondly, many jobs expanding in numbers are relatively low-value added, lower-paying or are part-time. And how many people have left the workforce altogether? Too many.
A pernicious effect of recent economic trends: Americans are increasingly divided into two strata – the rich and the poor. It is one of the very things the Founding Fathers sought to escape.
As discussed above, inflation-adjusted incomes have fallen steadily since 1999, but this is more heavily weighted toward the poorest 20 percent. Between 1999 and 2012, incomes for the poor have fallen an average of 3.8 percent annually while the richest 20 percent in the country have seen their incomes fall 0.35 percent.
But the richest have a cushion of wealth to augment their earned labor income. Globally, the richest 1 percent own about 45 percent of the world’s assets.
And this doesn’t help the economy as a whole. A slate of recent research has demonstrated the rising income inequality undermines economic performance.
We have to face a slog ahead.
But take heart, another great Truman quote is: “Give me a one-handed economist! All my economists say, ‘On the one hand ... on the other.’”
sonora_t@fortlewis.edu. Robert “Tino” Sonora is an associate professor of economics at Fort Lewis College and director of the Office of Business and Economic Research at FLC.
