Mansour Contributes to MoneyGeek Article on Economic Depressions and Recessions

Turner College economist Fady Mansour, Director of the Butler Center for Research and Economic Development, recently contributed to an article on economic depressions and recessions written by Nathan Paulus, Head of Content Marketing at MoneyGeek. Asked by Paulus how a recession can escalate to a depression, Mansour explained, "An economic recession is defined as two consecutive quarters of declining gross domestic product (GDP). You can think of GDP as an indicator of the overall health of our economy. A quarterly GDP reading reflects the total value of all final goods and services produced in the US in a specific quarter. Given that when you buy a good or service, you create income for someone else, GDP can be seen as the total income for US residents. Therefore, a recession can be understood as a decline in aggregate income for two consecutive quarters." Mansour was also queried by Paulus about how depressions impact businesses and consumers. "A depression is characterized by high unemployment and . . . deflation. Deflation discourages consumption as people delay purchases, expecting lower prices in the future. This reduces demand for goods and services, leading to higher unemployment and further income decline. High unemployment and persistent deflation create economic insecurity, causing consumers to spend even less. [Because] wages are sticky, businesses cannot reduce wages in response to lower revenues, and fewer new orders respond by laying off workers, exacerbating the economic downturn," Mansour explained.  Lastly, Mansour was asked what advice he would give businesses in dealing with a depression. "Unfortunately, for businesses to survive, they must operate efficiently by minimizing costs, including employment, representing almost 75% of the production cost. Businesses need to reallocate resources and invest in technology to increase productivity and efficiency. For instance, they can shift workers and other factors of production to produce higher-margin, higher-demand products. Additionally, businesses can take advantage of the low interest rate that dominates the market during times of recession to issue long-term bonds or obtain low-interest loans and invest the proceeds in technology and capital to increase productivity and profitability. Banks and financial institutions usually tighten credit during recessions, making it harder for businesses to obtain credit. However, working with creditors and presenting feasible plans to survive the economic downturn can help businesses secure credit at relatively low rates," Mansour concluded.