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Monday, February 23, 2009

Are We in a Depression?

Panic seems to have taken hold in our industry. Over the last two weeks, I have received a few dozen e-mails or calls from people whom I know. They ask me point blank--"Are we in a depression rather than a recession."

Before we answer, let's step back a moment and define terms and take a long look at U.S. economic history. In one sense, recession is a fairly new term. In the 19th century and up to the Great Depression of the 1930's, financial downturns were often referred to as Panics or Depressions. The two most famous were the Panic of 1837 which lasted five years and the Long Depression which was a horrendous downturn that spanned from 1873-1896. There were mini-depressions within the Long Depression with the most painful lasting continuously from 1873-1878. The Great Depression of the 1930's was really a downturn from late 1929-1933 and a later downward spike in 1937-1938. Stocks fell 89% from 1929-1933 and were halved again in the 1937-38 crunch. By Christmas, 1933, unemployment was 25%. Some claim only ramped up production in World War II pulled us out of it.

Since then, our downturns have been fewer and milder and are always referred to by the media as "recessions'. No one wants to use the term depression as it conjures up the 1930's which were horrendous. What is a recession? The classic definition is a decline in the Gross National Product that lasts for at least two consecutive quarters. Often, we have been out of recessions by the time we identify conclusively one having taken place. Today, we know for sure that we are in one and it has not bottomed out yet.

For those who think we are headed for another Great Depression or are already there, please keep in mind the following: We now have FDIC insurance on bank deposits and unemployment insurance, two key programs that were not available in the early years of the 1930's. They will put a brake on things. Also, we were on the gold standard in the early 1930's and government by law could not print money at will. Today, governments can, and they have few qualms about doing it to reinflate the economy. This will cause inflation, perhaps serious inflation a few years down the road, but people would likely be working still.

What is a depression? While opinions vary, many economists state it is a continuous decline in economic activity, or Gross National Product (GNP), that lasts for 36 months or more. By that standard, we would still need to be shrinking until January, 2011. Others peg it to an unemployment level of 11.0% or more. We are currently at 7.6% nationally and we did reach 10.8% in the recession of 1981-1982.

How does this relate to our world of media? It is hard to say. If the present trend continues for another 15-18 months, then we would likely be in a media depression. Newspapers may already be there but, as mentioned in a post last month, that medium has structural problems regardless of the state of the economy. Spot TV and radio are in a similar but less precarious position.

So, we all need to ride this out. Both Harry Truman and Ronald Reagan have been attributed the quotation: "A recession is when your neighbor is out of work. A depression is when you are out of work." As the media and agencies downsize in the months to come, it will be hard not to be discouraged or even frightened. And, the backdrop of rapid change in the media landscape itself takes an unsettling situation and makes it worse.

But, what you need to do is keep going. Take a deep breath when you hear the latest economic news or look at your 401k statement. This is a difficult time but definitely not the worst economic challenge that our country or advertising industry has seen.

I assure you, my friends, the future has not been cancelled.

If you would like to conact Don Cole directly, you can reach him at doncolemedia@gmail.com

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