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Straight from the Specialists

Is “depressing” depression better than “economic boom”?

By Deepak Yohannan
August 29, 2011

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Every once in a while, I come across the term — depression. Well, I have heard of recession, contraction, subtraction — so what exactly is “depression”? It is very depressing to say the least. But if you still insist, these are some of the facts.

The Great Depression was an economic state in the U.S. in the 1930s. Some of the stats:

– It started in 1930 and ended after nearly a decade

– It was a period when the economic output (as measured by GDP) was falling year after year

– The U.S. equity index (Dow Jones Industrial Average) fell by 89 pct in the period from the peak to the trough. You heard me right — $100 of equity investments became $11.

– The unemployment rate in the U.S. shot up to 25 pct. This was the percentage of people who were looking for a job but not getting one. This excludes people typically less than 20 or greater than 60. That’s a really high number, right? 1 in 4 people between 20 and 60 were without a job.

I can add some more “depressing” stats, but let’s just keep it to these for the time being. I am sure these stats itself are reason enough for alluding to this period as the Great Depression.

In simple logical terms, what happens in a Depression? Everybody delays spending thinking that a particular item is going to cost less the following day. That in turn increases tension in the minds of the seller, and he reduces the price further. That in turn means the manufacturer produces less, lays off more people and the cycle continues. Meanwhile, prices and output all keep hurtling downwards. A scary thought no doubt.

And why are we talking about it now? Because there are some concerns, given the implosion of the developed economies in Europe and the U.S., the world might be staring at the Great Depression Part II.

No doubt this is a scary situation, but what is the alternative? The current “economic boom”, right? Where economies are growing, rather have been growing at an astronomically high rate. Where jobs and wealth is created for all of us which makes us all economically better. But what about some of the “non-economic” barometers?

We are not really bothered about how much we earn and whether that is enough for our needs. We are bothered more about whether we earn more than Mr Pandey next door. (Sorry Mr Pandey if you are really my neighbour, no offence intended)

We have very conveniently converted all our greed into needs. How can I not have an iPhone? Mr Steve Jobs has created such a unique machine; we have to have it, right?

So much so, even elite academic institutions are all focusing on “relative grading”. What is that? As long as I can ensure that all the other 49 students in my class are getting 15 pct while I get 20 pct, I am the best. This means — I have as much incentive to get high marks, as I have to ensure that I keep the knowledge to myself so that others don’t beat me.

So looking at it from the point of view of the survival and well-being of the entire human race, which is actually better? Depression — which potentially teaches us to unite and fight, or the current economic boom which teaches us to differentiate to give us a false sense of being a bigger success?

Aristotle had once said: Men choose, one of two things — success or happiness. Maybe post-depression (if it were to arrive) we would be happier rather than being “economically successful” but “mental wrecks”.

(Write to the author at deepak@myinsuranceclub.com)

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