Depressions are what happens when Recessions start feeding off of their own fall. Looking back at the great depression the amount of knowledge did not change, the workforce did not change, the amount of natural resources did not change much, but things kept getting worse. Over the long term Recessions are useful but Depressions can cause a lot more harm than good.
PS: We are not in a depression, but a major goal should be to avoid a depression while we let this recession fix many of the problems your talking about.
The change in the depression was massive government intervention. Hoover reacted quickly with unprecedented price support programs and stimulus to preserve the status quo. FDR upped the ante, and kept doing it for many years. There was a depression because the mistakes of the 20s were not swiftly liquidated.
The policy prescription for the current crisis is to beef up food stamps and heating assistance programs so people don't starve or freeze, and then let all nonviable businesses fail as quickly as possible so they can be reconstituted as profitable companies.
That sounds like a great idea but are economy is based off of consumer spending which can just free fall.
"From 1929 to 1934, U.S. personal income plunged 44%, real output nosedived 30% and the unemployment rate soared to 25% of the American labor force." and the great depression still had 5 years left.
"By Jan 1, 1934, as many as half of all residential mortgages were delinquent" let alone all the ones that had already failed.
And it can fall far further in the next one. It's a house of cards and the bottom is far further than you might expect.
I don't understand how this is a response to anything I've said. Yes, consumer spending needs to plummet. Many thousands of retail businesses need to shut down. They are not viable. The profits in recent years were from phantom earnings: totally unsustainable and artificially credit growth, mounting consumer credit card debt and MEWs. The quicker we get the liquidation and write-downs over with the better.
We had a positive personal savings rate last month. Once you have a positive saving rate there is no long term problem with spending. (http://www.bea.gov/briefrm/saving.htm)
The general view amongst economists is that Hoover's price supports were the one thing that caused the depression. FDR implemented limited socialism, which did nothing to alleviate the depression-- there was not much he could do about it at that point --but was rather meant to keep people in homes, and clothed.
PS: We are not in a depression, but a major goal should be to avoid a depression while we let this recession fix many of the problems your talking about.