Are We Headed for a Depression, or Are We Just Depressed?

Is the U.S. economy headed for another Great Depression?

A variety of publications and pundits have been speculating since May that we might be standing at the edge of an economic abyss reminiscent of 1929.

Here’s a short sampling of their journalistic angst:

However, not everyone is so clear. As a counterbalance here, I will add that the Harvard Business Review didn’t buy this idea about a depression, which it outlined in “The U.S. is Not Headed Toward a New Great Depression” in its May 2020 issue.

The economic picture in mid-August – while mixed – does not offer a strong argument in support of a depression redux. U.S. gross domestic product declined at an annual rate of 32.9% in the second quarter, but the situation seems to have gradually improved since then.

Unemployment in July stood at 10.2%  – down from the scary heights of 14.7% in April, which was largely the result of a nationwide lockdown.

The Federal Reserve Bank of Atlanta keeps track of economic growth through its GDPNow tracker, which is not an official forecast but instead a real-time estimate based on current data. Through Aug. 7, the model was indicating that U.S. gross domestic product would grow at a seasonally adjusted annual rate of 20.5% in the third quarter.

That brighter outlook reflects the economic rebound that began in June when a number of states began reopening their economies by relaxing social distancing requirements.

But will that modest rebound last? A surge in coronavirus cases in June and July forced hard-hit states, including Texas, Arizona and California, to re-impose restrictions on certain businesses.

There is growing concern that the nascent economic rebound has begun to falter. The $600 weekly unemployment subsidy from the federal government expired on July 31; Republicans and Democrats in Congress have been unable to agree on another comprehensive relief package. Initial jobless claims have gradually declined since peaking in May, but states and municipalities that have been hurt by lower tax revenue may be forced to begin laying off public employees if they don’t receive aid from Washington.

The driving factor behind the economy’s ups and down is, of course, the Covid-19 pandemic. There were over 5 million reported cases in the U.S. through August 14, although the rolling seven-day national average has declined for the last several weeks. Few economists believe the economy will fully recover until an effective vaccine has been widely distributed.

To this non-economist, it seems we could be in for a recession even worse than the Great Recession more than a decade ago (would we call this one the Greater Recession?), but not necessarily another Great Depression. At least not yet.

In May, I interviewed former Federal Reserve Vice Chairman Alan Blinder, who now teaches economics at Princeton University. The problem with trying to predict a depression, according to Blinder, is the lack of an agreed-upon definition.

He thinks a depression would be “something like an economy that is in decline for at least a year and a half, probably two, and then climbs out of the hole relatively slowly. That is a worst case scenario for what’s going on now. I don’t believe that will happen, but the more important codicil to the sentence is, I don’t know what’s going to happen.”

I think one reason for this growing obsession with the idea of an oncoming depression is that the Great Depression left a deep emotional scar on the American psyche that remains fresh 90 years later.

We’ve all seen the grainy black and white photos of desperate people – including Dorothea Lange’s iconic shot of Florence Owens Thompson, known as “Migrant Mother.” But there are so many others: bread lines, soup kitchens and empty stares.

On Oct. 19, 1987 – what would become known as Black Monday – the Dow Jones Industrial Average dropped 22.6% and the Nasdaq market essentially froze. I was writing for a financial magazine in New York at the time and the following day, all the writers and editors met for a regularly scheduled story conference. This was the biggest market collapse since the crash of 1929, which we all recognized was the harbinger of the Great Depression. We sat around the table, slack-jawed and numb.

There was a lot of black humor, but it had an edge. Everyone was a little unsettled.

Five months into the pandemic, I think we’re all depressed – which partly explains our morbid fascination with the idea of another Great Depression. I’m not saying it’s going to happen, but the thought of it is so frightening that we can’t get it out of our heads.

Let me end this on a (hopefully) funny note. When I searched “Are we in a depression?” I found a long list of articles including, at the very end, this one: “The 10 Worst Foods for Depression.”

So here’s my advice. Lay off the potato chips and have an apple instead. And maybe an apple a day will keep another Depression away.


Jack Milligan


Jack Milligan is editor-at-large of Bank Director magazine, a position to which he brings over 40 years of experience in financial journalism organizations. Mr. Milligan directs Bank Director’s editorial coverage and leads its director training efforts. He has a master’s degree in Journalism from The Ohio State University.