Is it time to start talking about a depression?

The Jarrow march that saw saw 200 unemployed men walk from Jarrow, Tyne and Wear, to London in 1936 There is no definition of what makes a depression

We now know that the UK economy contracted by 0.3% at the end of last year. This followed Olympics-flattered figures in the previous three months, when there was a bit of growth.

It continues the pattern of recent years, and every time there are two quarters of contraction in a row, we get excited about a recession, and then when there is growth again we get excited about the recovery.

Yet the UK economy is still considerably smaller than it was when the crisis started in 2008.

The influential National Institute for Economic and Social Research says we have been in a depression since then, and will not emerge until the economy reaches its 2008 level.

'Sideways slide'

And yet the word depression has rarely been mentioned and some economists have gone to great lengths to avoid using it.

"I've been trying to use a different word," says Randall Kroszener, professor of economics at University of Chicago, who used to sit on the committee that sets US interest rates.

"I came up with the term 'sideways slide', which characterises where lots of economies are - not boom and bust, just sliding along, surviving."

Randall Kroszener, professor of economics at University of Chicago Randall Kroszener prefers to use the phrase "sideways slide" rather than depression

Prof Kroszener says the key difference between a long recession and a depression is whether there are falling prices, or deflation.

The trouble is, while the definition of a recession as two consecutive quarters of negative growth is widely accepted, there is no popular definition of a depression, which means there is nowhere to go once recessions stop being relevant.

"The economy is either in high growth or in low growth, and we're on low growth," says Andrew Scott, professor of economics at London Business School.

"We're on a low trend so who cares about whether we're in recession or not?"

'Less pessimism'

David Sproul, chief executive of Deloitte UK, says he is seeing the mood improving among his client businesses.

"We're seeing much less pessimism around, but not yet optimism," he says.

"We're in an environment of uncertainty, which is very sentiment driven."

But he adds that many businesses are still concentrating on cost control to grow profits, which suggests a lack of confidence.

So although some may be talking about the possibility of the economy going into a triple-dip recession, that will ignore the fact that the economy has been basically flat for about two-and-a-half years.

The answer may not be to call it a depression, but something is needed to get the narrative beyond the obsession with tiny bits of growth or contraction every three months.

The experts quoted in this article were all attending the World Economic Forum in Davos, Switzerland.


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  • rate this

    Comment number 84.

    What does the government expect when wages are so low, the costs of public transport to get to/from work the highest in the world, the costs of rents going through the roof, cost of living rises which bare no relation to "official" inflation rates.
    Interest rates so low keep housing high and people's savings earning very little so less money "earned".
    There might be jobs but mostly very low wages

  • rate this

    Comment number 79.

    Does it really make that much difference to your average person whether the economy goes up by 0.1% or down by 0.1% in a given quarter?

    No doubt the politicians will make mileage of it either way, to make the figures support their particular message. Unfortunately however, the complex range of factors influencing economic performance are usually overlooked in favour of a trite soundbite.

  • rate this

    Comment number 15.

    Doesn't matter what you call it - we won't see a "recovery" to 2007 levels any time soon because those figures were inflated by mountains of debt and there's still too much debt in the world economy. It has to get worse before it gets better.

  • rate this

    Comment number 3.

    The problem is not one of terminology, it is one of understanding the causes of the problem.

    Do we have any faith that those in power can stop the boom bust cycle we seem to constantly experience? No.

    We are at the mercy of those who head corporations who use the capitalist system to greedily acquire more and more whilst treating their employees as 'units' to be paid as little as possible.


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