Monday, May 21, 2007

Definitions for an Economic Depression and Stagflation

Because a number of people seem to be so interested in having a few more terms defined, here are a few more:

Economic Depression – like an economic recession there is no agreed upon definition of an economic depression other than it is a severe recession.

The World Bank defines a depression as: A period marked by low production and sales and a high rate of business failures and unemployment.

About Economics
defines an economic depression as a period in which the real GDP growth is -10%.

The Great Depression lasting much of the 1930s in the US and Europe was the last depression in a developed economy. There have been, however, significant slumps in a number of Latin American economies in the 1980s, former Soviet Union economies of eastern Europe in the 1990s, and some have called the economic slump Japan has witnessed in the 1990s an economic depression.

A number of people believe that the probability of another depression in the US is relatively high. These people, however, do not take into account the failures of the monetary and fiscal policies of the US and other countries in the 1930s, which in fact allowed the economies to decline into a depression. Since that time a great deal of research has been completed to understand the causes of the Great Depression. Go to and enter Great Depression to see the books that have been written on the subject. Also the current Chairman of the Federal Reserve, Ben Bernanke, has a book on the subject entitled Essays on the Great Depression. I do not believe that the likelihood of another economic depression in the US is very high at this time. Although ask me 6 months from now, I may have another point of view.

Stagflation – a period of slow economic growth, relatively high unemployment, and high inflation.

The US and many other developed economies suffered from stagflation in the 1970s resulting from high oil prices.

Some believe that the US is possibly facing another period of stagflation as the economy softens and oil prices rise. Although there is a possibility of this occurring I do not believe that it is likely. A doubling or tripling of the price of oil would have to occur, which at this time would more than likely result from some type of catastrophic event and not the price hikes by the OPEC cartel as occurred in the 1970s.

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