There is no single, widely accepted definition for an Economic Depression. The most common call is a deep recession, a GDP loss of about 10% or unemployment above 15%. Some will tell you that it’s a long recession, 6 quarters or more of loss. I’ve argued that it’s nothing more than the unusual event of a sudden and dramatic drop in money supply, an event that has now happened about 5 times in the history of the USofA (1812, 1857, 1893, 1929, and 2008). A few people insist that there is only one Depression, The Depression, starting around 1929.
What if we’re all wrong? What if the best definition of all has little to do with money or other numbers in a table, but with people – what they do and how it all connects together?
The simple fact is that despite dramatic changes in the way people are organized, Depressions have occurred roughly every couple of generations since ancient times. We’ve kept good records since we relied heavily on agriculture, and moving to an economy with a heavy reliance on industry didn’t change much. We seem to have the same problem when the driving force of our lives is the financial sector.
This rough regularity has led me to suspect that these cycles are caused by something more fundamental – how humans organize things, set up the rules of an economy, and find their place in it. A Depression might be caused by nothing more than our success becoming excess.
Civilization, as we know it, is based on Division of Labor. People are simply more efficient if they do just one thing and do it well. An assembly line may be the ultimate expression of this idea, but the process started when hunter/gatherer/warriors became just plain farmers of brewers or builders. Information on what’s needed is critical to making it run, overall, in the same efficiency each person finds as a small part of the larger machine. That’s where the problem comes in, at least as far as Adam Smith could see in Book V.178 of Wealth of Nations:
The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. … His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.
In short, people who focus carefully on one thing lose track of the big picture. Since economic success comes from specialization, the greatest possible economic success comes at the expense of the ability to be genuinely informed and involved in the decision-making that we all accept is critical to being a free people. A well-run economy is something that is inherently inflexible, which is to say optimized for a particular place and time. As things change, the most efficient possible machine is the most likely to suddenly become the last thing you want – but it keeps on keepin’ on because no one knows any better.
Consider this article on the changes in a University education away from a broad Liberal Arts focus, published in Time magazine:
Colleges all over the country are now redefining themselves in ingenious ways to meet the new circumstances. Their problem in essence is to defend humanities and arts from the space-age trend toward scientific specialization—”the new barbarism,” as Columbia College’s Dean David B. Truman calls it. Says he: “The specialist who is trained but uneducated, technically skilled but culturally incompetent, is a menace.”
The term “space-age” gives this away as having been written 1963, and this was a hot debate at the time. The students whose education was questioned here are now 45 years on and retiring; our world is the one that they built. By at least one account of the trends that they were a part of, a kind of horrible ending was inevitable. It may even be caused by a search for efficiency and industrial success that focused on acquiring skills rather than wisdom.
We know for a fact that the end result of every Depression is that nearly everything is restructured, starting with what people do for a living and eventually including where and how they live. Less obvious is the strong possibility that the lack of this restructuring may be the cause of Depressions as people seek out the maximum economic efficiency. This ossifies into a rigid structure of class and profession where people are what they do; when they should do something else, they either can’t hear or have a strong interest in ignoring the message.
I said before that if this can be solved with money, the Feds are on it. However, money itself isn’t anything more than our belief and trust. If the money fails, something else has gone horribly wrong in the way people are organized in this thing called an “economy”. It may be a structure that ultimately fails at the root of what makes a free market so powerful; critical information may not be available to those who make decisions because of excessive specialization.
The best definition of the problem is probably the same as the solution. The problem isn’t likely to be solved by a bailout, but by a change in a basic definition of who we are. That may sound hard, but it’s exactly as hard as we insist that it is – and no harder.