Tuesday, February 11, 2014

Recession or Depression

Even though economic difficulties continue, supporters of President Obama insist that the Great Recession is over. The problem is, technically they are correct. A recession has a technical definition of consecutive quarters of negative GDP growth. A single quarter of miniscule GDP growth and the recession is considered to be over, so that even if there is negative GDP growth in the quarter after that it is not the same recession anymore.

Of course one could access Shadowstats to argue that there have been continued quarters of negative GDP growth but that only leads to an argument over which set of numbers is more accurate with most conservatives and all liberals trusting government numbers. The real problem is that even though the definition of "depression" isn't as firmly settled as is the definition of "recession", it is clear that the two are not the same.

This is important when discussing the dismal economic situation with supporters of whoever is in office, of whatever party. Supporters of whoever is in office will argue that the recession is over, and that the recession ended during the term of their own person in office. Even though technically the recession ended a long time ago.

The best way to illustrate to supporters of the current administration is with a concept from trigonometry, a simple Sine wave.

Sine Wave photo SineWave.jpg

There are four distinct parts to the wave that can be used when discussing economics. The first is when the value and the slope are both positive, the second is when the value is positive and the slope is negative, the third is when the value and the slope are both negative, and the fourth is when the value is negative and the slope is positive.

Recession would then be when the slope is negative, and growth would be when the slope is positive. Prosperity would be when the value is positive and depression would be when the value is negative.

Understanding it from this point of view can explain why the Great Recession (as it is commonly known) can actually be over, while the negative effects of the Great Recession aren't over, that the United States is still in Great Depression II. It still won't convince any supporter of a current administration, but it might be enough to educate the neutral observer and make the supporter seem foolish in denying reality.

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