Recession, Depression, Collapse – What’s the difference?

We are currently enduring a recession that some have argued is a depression, and others are warning that a collapse is on the way. What is the difference among them, and what does it mean to you?

We all know what a recession is: unemployment rises as the economy contracts, various businesses retract, some go bankrupt, and usually within a year or so there is a full recovery, meaning all those lost jobs are regained.

A depression is like a permanent and worse recession. Unemployment is much higher and may become the new ‘normal,’ and many businesses go bankrupt. In the last depression, government spending in the U.S. in the form of the New Deal and massive spending for the war ended the Great Depression. It scared the pants off many people, not least the rich, because there were so many people with so little to lose that there was a serious threat of socialism.

A collapse is like a depression on steroids. Jobs are lost and businesses go bankrupt, of course. Population also declines as birth rates drop and people die younger. (Russia’s population growth rate has gone negative post-collapse and the country’s population is declining. Thanks to Redditor bigtoe416 for the correction.) A collapse is more than simply an economic setback, as often the society loses the ability to sustain itself at its current population and complexity due to the loss of one or more key resources – combined with the loss of credibility of the leadership and the dominant ideology.

This last is a key point. Rulers maintain their position by claiming the ability to be masters of the current system that is providing for all. If the system ceases to provide, then the system and the leaders are likely to be swept from power. Jared Diamond, in his book Collapse, suggests that this happened in previous collapses. To use the Mayans as an example, it is likely that those at the top claimed the power to influence the gods to bring the rains that in turn brought a bountiful harvest. When drought hit the region and the rains failed to come for several years, starving people lost their faith in the rulers and the entire civilisation collapsed.

In our case, another depression could easily mean the end of capitalism and the current crop of rulers; a collapse would certainly finish it. This was one reason governments around the world were so eager to throw money at the recent bank collapse; had a worldwide depression ensued, those at the top would now be fighting for their political, financial, and possibly actual lives.

Resources

The books below discuss collapse from various points-of-view. Diamond and Tainter studied the collapse of previous civilisations. Ruppert looks at a likely coming collapse due to the end of cheap oil. And Kunstler’s book is a novel describing a likely post-collapse United States.