"Depression" is more than a serious economic downturn. What distinguishes a depression from a harsh recession is paralyzing fear—fear of the unknown so great that it causes consumers, businesses, and investors to retreat and panic. They save up cash and desperately cut spending. They sell stocks and other assets. A shattering loss of confidence inspires behavior that overwhelms the normal self-correcting mechanisms that usually prevent a recession from becoming deep and prolonged: a depression.
Comparing 1929 with 2007-09, Christina Romer, the head of President Obama’s Council of Economic Advisers, finds the initial blow to confidence far greater now than then. True, stock prices fell a third from September to December 1929, but fewer Americans then owned stocks. Moreover, home prices barely dropped. From December 1928 to December 1929, total household wealth declined only 3%. By contrast, the loss in household wealth between December 2007 and December 2008 was 17%. Both stocks and homes, more widely held, dropped more. Thus traumatized (受到创伤), the economy might have gone into a free fall ending in depression. Indeed, it did go into free fall. Shoppers refrained from buying cars, appliances, and other big-ticket items. Spending on such "durables" dropped at a 12% annual rate in 2008’s third quarter, a 20% rate in the fourth. And businesses shelved investment projects.
That these huge declines didn’t lead to depression mainly reflects, as Romer argues, countermeasures taken by the government. Private markets for goods, services, labor, and securities do mostly self-correct, but panic feeds on itself and disarms these stabilizing tendencies. In this situation, only government can protect the economy as a whole, because most individuals and companies are involved in the self-defeating behavior of self-protection.
Government’s failure to perform this role in the early 1930s transformed recession into depression. Scholars will debate which interventions this time--the Federal Reserve’s support of a failing credit system, guarantees of bank debt, Obama’s "stimulus" plan and bank "stress test"—counted most in preventing a recurrence. Regardless, all these complex measures had the same psychological purpose: to reassure people that the free fall would stop and, thereby, curb the fear that would perpetuate (是持久) a free fall.
All this improved confidence. But the consumer sentiment index remains weak, and all the rebound has occurred in Americans’ evaluation of future economic conditions, not the present. Unemployment (9.8%) is abysmal (糟透的), the recovery’s strength unclear. Here, too, there is an echo from the 1930s. Despite bottoming out in 1933, the Depression didn’t end until World War II. Some government policies aided recovery; some hindered it. The good news today is that the bad news is not worse. What does the author think of today’s economic situation