Recession is Not Depression

According to the National Bureau of Economic Research, the prestigious private research institute that is regarded as the arbiter of U.S. recessions, the United States officially entered a recession in December 2007. At least the news came after the Thanksgiving weekend. However, despite this unsurprising news, it is important to remember that a recession is not a depression. I find it somewhat disturbing that the nation has reacted so repulsively to the thought of a recession. This does not mean the end of America. A recession does not mean our economy has failed, never to return. The economy slowed down in 2001 and we are still here. The economy has been slow for the past year and even with the increased unemployment levels estimated to be going from 6.1 percent to 6.5 percent, we are still just barely outside the widely recognized range of full employment (4-6.4%). There seems to be an attitude in America that sees the word “recession” and instead reads “becoming third world nation”. That shouldn’t have to be the case. America should have economic pain tolerance higher than that. Recession are just a part of the normal business cycle, of the market going up and down, in search of equilibrium. We can look at this recession positively: the market slow down has forced companies to become a lot more responsible with their debt. Ineffective corporate leaders are being forced out. And we’re being forced to address real problems embedded in our regulatory system (although there are differences in what the problems are and what the solutions are). From this perspective a recession is a clearing mechanism that puts us on a path to even greater prosperity in the future. After the recession in 2001 the stock market set about growing to record heights, with the Dow passing 14,000 in the summer of 2007. Recession is not depression.