A standard definition of an economic depression is a significant decline in the gross domestic product (GDP). In order to understand this, one must understand the definition of a GDP.
The GDP consists of the monies spent by consumers, the investments made by private companies and the government, government spending on labor and products, and the net total of a country’s exports. These facts are totaled to determine the gross domestic product of a year. In simpler terms the GDP can be seen as an accounting of almost all the money spent on goods, services, investments, research, and labor in a country.
A depression is thought to occur when the GDP declines by 10% or more in a year’s time. Economists tend to differ over the exact percentage of decline. The Great Depression in the US and in Europe after the Stock Market crash of 1929 showed a steadily declining GDP in the subsequent years.
In the months following the crash, the GDP declined over 30%, and then was marked by a period of increase. However this increase did not equal the previous GDP of the US. So defining a depression entirely by evaluation of a decline in the GDP cannot be fully accurate.
In general, the Great Depression was marked by a significant decrease in industry and significant job loss. Earning less money meant less money for purchases of consumer goods, or for investments. Failure to invest or purchase meant companies could not rehire workers. There was a greater dependence on public assistance, and job recovery was minimal.
Though occasionally the GDP increased during the 1930s, it did not fully normalize until US involvement in WWII. This spurred industry, employed young men as soldiers, and meant that for a time, there were a greater number of jobs than there were people to fill them. Women, for the first time, became workers in industry as Rosie the Riveter figures, to fill jobs that normally would have been taken by men.
Many look at WWII as the end of the Great Depression. Today many economists fear a depression again based on examining unemployment, need for public assistance, and rising costs of goods and services that are not in keeping with salaries in most industries. This time, the greatest fear is job loss, because some manufacturing and technology industries are moving organizations overseas, where labor is less expensive.
A depression today might not be indicated by a 10% decrease in the GDP, but might instead be the result of business practices intended to be more profitable. Outsourcing is one trend that may prove especially costly to the average worker in the US, and as a result to the overall economy.
