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Comparisons between the Great Recession and the Great Depression

October 15, 2023

Comparisons between the Great Recession and the Great Depression explores the experiences in the United States and the United Kingdom.

On April 17, 2009, head of the IMF Dominique Strauss-Kahn said that there was a chance that certain countries may not implement the proper policies to avoid feedback mechanisms that could eventually turn the recession into a depression. "The free-fall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today." The IMF pointed out that unlike the Great Depression, this recession was synchronized by global integration of markets. Such synchronized recessions were explained to last longer than typical economic downturns and have slower recoveries.[1]

The chief economist of the IMF, Dr. Olivier Blanchard, stated that the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time. "Long-term unemployment is alarmingly high: in the US, half the unemployed have been out of work for over six months, something we have not seen since the Great Depression." The IMF also stated that a link between rising inequality within Western economies and deflating demand may exist. The last time that the wealth gap reached such skewed extremes was in 1928-1929.[2]

In the United States Edit

 
Dow Jones Industrial Average figures for percentage lost in 1937-1943 vs 2008-2011 (based on initial 1937 and 2008 DJIA month end amount, respectively)

Although some casual comparisons between the Great Recession and the Great Depression have been made, there remain large differences between the two events.[3][4][5] Actually, if the magnitude of initial shocks was the same in both cases, the recovery from the latest one would be earlier.[6] The consensus among economists in March 2009 was that a depression was not likely to occur.[7] UCLA Anderson Forecast director Edward Leamer said on March 25, 2009 that there had not been any major predictions at that time which resembled a second Great Depression:

"We've frightened consumers to the point where they imagine there is a good prospect of a Great Depression. That certainly is not in the prospect. No reputable forecaster is producing anything like a Great Depression."[8]

Differences explicitly pointed out between the recession and the Great Depression include the facts that over the 79 years between 1929 and 2008, great changes occurred in economic philosophy and policy,[9] the stock market had not fallen as far as it did in 1932 or 1982, the 10-year price-to-earnings ratio of stocks was not as low as in the 1930s or 1980s, inflation-adjusted U.S. housing prices in March 2009 were higher than any time since 1890 (including the housing booms of the 1970s and 1980s),[10] the recession of the early 1930s lasted over three-and-a-half years,[9] and during the 1930s the supply of money (currency plus demand deposits) fell by 25% (where as in 2008 and 2009 the Fed "has taken an ultraloose credit stance").[11] Furthermore, the unemployment rate in 2008 and early 2009 and the rate at which it rose was comparable to most of the recessions occurring after World War II, and was dwarfed by the 25% unemployment rate peak of the Great Depression.[9] However, syndicated columnist and former Assistant Secretary of the Treasury Paul Craig Roberts claimed in a 2012 column that if all discouraged workers were included in U.S. unemployment statistics, the actual unemployment rate would be 22%, comparable to rates during the Great Depression.[citation needed]

Nobel Prize–winning economist Paul Krugman predicted a series of depressions in his The Return of Depression Economics (1999), based on "failures on the demand side of the economy." On January 5, 2009, he wrote that "preventing depressions isn't that easy after all" and that "the economy is still in free fall."[12] In March 2009, Krugman explained that a major difference in this situation is that the causes of this financial crisis were from the shadow banking system. "The crisis hasn't involved problems with deregulated institutions that took new risks... Instead, it involved risks taken by institutions that were never regulated in the first place."[13]

On February 22, 2009, NYU economics professor Nouriel Roubini said that the crisis was the worst since the Great Depression, and that without cooperation between political parties and foreign countries, and if poor fiscal policy decisions (such as support of zombie banks) are pursued, the situation "could become as bad as the Great Depression."[14] On April 27, 2009, Roubini expressed a more upbeat assessment by noting that "the bottom of the economy [will be seen] toward the beginning or middle of next year."[15]

On April 6, 2009 Vernon L. Smith and Steven Gjerstad offered the hypothesis "that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system. It appears that we're witnessing the second great consumer debt crash, the end of a massive consumption binge."[16]

In his final press conference as president, George W. Bush claimed that in September 2008 his chief economic advisors had said that the economic situation could at some point become worse than the Great Depression.[17]

A tent city in Sacramento, California was described as "images, hauntingly reminiscent of the iconic photos of the 1930s and the Great Depression" and "evocative Depression-era images."[18]

According to economist Irving Fisher, the two dominant factors in a depression are over-indebtness to start with and deflation soon after.[19] Fed policy to prevent deflation at all costs has been greatly influenced by Fisher's work.[20]

In the United Kingdom Edit

On 10 February 2009, Ed Balls, Secretary of State for Children, Schools and Families of the United Kingdom, said that "I think that this is a financial crisis more extreme and more serious than that of the 1930s and we all remember how the politics of that era were shaped by the economy."[21] On 24 January 2009, Edmund Conway, Economics Editor for The Daily Telegraph, had written that "The plight facing Britain is uncannily similar to the 1930s, since prices of many assets – from shares to house prices – are falling at record rates [in Britain], but the value of the debt against which they are held remains unchanged."[22]

References Edit

  1. ^ Evans, Ambrose (2009-04-16). . London: Telegraph.co.uk. Archived from the original on 2009-04-17. Retrieved 2010-01-21.
  2. ^ The Telegraph (UK), 2010 Sept. 14, "IMF Fears 'Social Explosion' From World Jobs Crisis: America and Europe face the worst jobs crisis since the 1930s and risk 'an explosion of social unrest' unless they tread carefully, the International Monetary Fund has warned,"
  3. ^ Bagnall, James (2009-03-16). . The Ottawa Citizen. Archived from the original on March 22, 2009. Retrieved 2009-04-10.
  4. ^ Collyns, Charles (December 2008). "The Crisis through the Lens of History". Finance and Development. 45 (4).
  5. ^ Charlemagne (March 5, 2009). "Extremist nightmares". The Economist. Retrieved 2009-03-12.
  6. ^ Baten, Jörg (2016). A History of the Global Economy. From 1500 to the Present. Cambridge University Press. p. 110. ISBN 9781107507180.
  7. ^ Isidore, Chris (2009-03-25). "The Great Recession". CNN Money. Retrieved 2009-04-10.
  8. ^ . Marketplace. American Public Media. 2009-03-25. Archived from the original on 2010-12-05. Retrieved 2009-03-26.
  9. ^ a b c Tatom, John (2 February 2009). The Superlative Recession and economic policies (PDF). MPRA Paper No. 13115.
  10. ^ Bajaj, Vikas (March 14, 2009). "Has the Economy Hit Bottom Yet?". New York Times. Retrieved 2009-03-15.
  11. ^ Hanke, Steve H. (March 16, 2009). . Forbes. Archived from the original on December 6, 2010. Retrieved December 23, 2011.
  12. ^ Krugman, Paul (2009-01-05). "Fighting Off Depression". The New York Times. Retrieved 2010-05-07.
  13. ^ . Ottawacitizen.com. Archived from the original on March 22, 2009. Retrieved 2010-01-21.
  14. ^ "Roundtable: Nationalizing the Banks - ABC News". Abcnews.go.com. Retrieved 2010-01-21.
  15. ^ 'I Am Not Dr. Doom', Washington Post.
  16. ^ Gjerstad, Steven (2009-04-06). "Steven Gjerstad and Vernon Smith Explain Why the Housing Crash Ruined the Financial System but the Dot-com Collapse Did Not - WSJ.com". Online.wsj.com. Retrieved 2010-01-21.
  17. ^ "George W. Bush Press Conference Transcript, January 12, 2009". Foxnews.com. 2009-01-12. Retrieved 2010-01-21.
  18. ^ . MSNBC. Archived from the original on 2003-12-07. Retrieved 2010-01-21.
  19. ^ "namely over-indebtness to start with and deflation following soon after" (PDF). October 1933. Retrieved 2014-10-16. {{cite journal}}: Cite journal requires |journal= (help)
  20. ^ "Indeed, some say the Fed has learnt Fisher too well". The Economist. 2009-02-12. Retrieved 2012-05-15.
  21. ^ "UK | UK Politics | Recession 'worst for 100 years'". BBC News. 2009-02-10. Retrieved 2010-01-21.
  22. ^ Conway, Edmund (2009-01-23). . Telegraph. London. Archived from the original on 2009-01-30. Retrieved 2010-01-21.

External links Edit

  • Barry Eichengreen; Kevin H O’Rourke (2010). What do the new data tell us?. A comparison between today's global financial crisis to the Great Depression.

October 15, 2023
comparisons, between, great, recession, great, depression, this, article, needs, updated, please, help, update, this, article, reflect, recent, events, newly, available, information, 2016, this, article, written, like, personal, reflection, personal, essay, ar. This article needs to be updated Please help update this article to reflect recent events or newly available information May 2016 This article is written like a personal reflection personal essay or argumentative essay that states a Wikipedia editor s personal feelings or presents an original argument about a topic Please help improve it by rewriting it in an encyclopedic style June 2020 Learn how and when to remove this template message Comparisons between the Great Recession and the Great Depression explores the experiences in the United States and the United Kingdom On April 17 2009 head of the IMF Dominique Strauss Kahn said that there was a chance that certain countries may not implement the proper policies to avoid feedback mechanisms that could eventually turn the recession into a depression The free fall in the global economy may be starting to abate with a recovery emerging in 2010 but this depends crucially on the right policies being adopted today The IMF pointed out that unlike the Great Depression this recession was synchronized by global integration of markets Such synchronized recessions were explained to last longer than typical economic downturns and have slower recoveries 1 The chief economist of the IMF Dr Olivier Blanchard stated that the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time Long term unemployment is alarmingly high in the US half the unemployed have been out of work for over six months something we have not seen since the Great Depression The IMF also stated that a link between rising inequality within Western economies and deflating demand may exist The last time that the wealth gap reached such skewed extremes was in 1928 1929 2 Contents 1 In the United States 2 In the United Kingdom 3 References 4 External linksIn the United States Edit nbsp Dow Jones Industrial Average figures for percentage lost in 1937 1943 vs 2008 2011 based on initial 1937 and 2008 DJIA month end amount respectively Although some casual comparisons between the Great Recession and the Great Depression have been made there remain large differences between the two events 3 4 5 Actually if the magnitude of initial shocks was the same in both cases the recovery from the latest one would be earlier 6 The consensus among economists in March 2009 was that a depression was not likely to occur 7 UCLA Anderson Forecast director Edward Leamer said on March 25 2009 that there had not been any major predictions at that time which resembled a second Great Depression We ve frightened consumers to the point where they imagine there is a good prospect of a Great Depression That certainly is not in the prospect No reputable forecaster is producing anything like a Great Depression 8 Differences explicitly pointed out between the recession and the Great Depression include the facts that over the 79 years between 1929 and 2008 great changes occurred in economic philosophy and policy 9 the stock market had not fallen as far as it did in 1932 or 1982 the 10 year price to earnings ratio of stocks was not as low as in the 1930s or 1980s inflation adjusted U S housing prices in March 2009 were higher than any time since 1890 including the housing booms of the 1970s and 1980s 10 the recession of the early 1930s lasted over three and a half years 9 and during the 1930s the supply of money currency plus demand deposits fell by 25 where as in 2008 and 2009 the Fed has taken an ultraloose credit stance 11 Furthermore the unemployment rate in 2008 and early 2009 and the rate at which it rose was comparable to most of the recessions occurring after World War II and was dwarfed by the 25 unemployment rate peak of the Great Depression 9 However syndicated columnist and former Assistant Secretary of the Treasury Paul Craig Roberts claimed in a 2012 column that if all discouraged workers were included in U S unemployment statistics the actual unemployment rate would be 22 comparable to rates during the Great Depression citation needed Nobel Prize winning economist Paul Krugman predicted a series of depressions in his The Return of Depression Economics 1999 based on failures on the demand side of the economy On January 5 2009 he wrote that preventing depressions isn t that easy after all and that the economy is still in free fall 12 In March 2009 Krugman explained that a major difference in this situation is that the causes of this financial crisis were from the shadow banking system The crisis hasn t involved problems with deregulated institutions that took new risks Instead it involved risks taken by institutions that were never regulated in the first place 13 On February 22 2009 NYU economics professor Nouriel Roubini said that the crisis was the worst since the Great Depression and that without cooperation between political parties and foreign countries and if poor fiscal policy decisions such as support of zombie banks are pursued the situation could become as bad as the Great Depression 14 On April 27 2009 Roubini expressed a more upbeat assessment by noting that the bottom of the economy will be seen toward the beginning or middle of next year 15 On April 6 2009 Vernon L Smith and Steven Gjerstad offered the hypothesis that a financial crisis that originates in consumer debt especially consumer debt concentrated at the low end of the wealth and income distribution can be transmitted quickly and forcefully into the financial system It appears that we re witnessing the second great consumer debt crash the end of a massive consumption binge 16 In his final press conference as president George W Bush claimed that in September 2008 his chief economic advisors had said that the economic situation could at some point become worse than the Great Depression 17 A tent city in Sacramento California was described as images hauntingly reminiscent of the iconic photos of the 1930s and the Great Depression and evocative Depression era images 18 According to economist Irving Fisher the two dominant factors in a depression are over indebtness to start with and deflation soon after 19 Fed policy to prevent deflation at all costs has been greatly influenced by Fisher s work 20 In the United Kingdom EditOn 10 February 2009 Ed Balls Secretary of State for Children Schools and Families of the United Kingdom said that I think that this is a financial crisis more extreme and more serious than that of the 1930s and we all remember how the politics of that era were shaped by the economy 21 On 24 January 2009 Edmund Conway Economics Editor for The Daily Telegraph had written that The plight facing Britain is uncannily similar to the 1930s since prices of many assets from shares to house prices are falling at record rates in Britain but the value of the debt against which they are held remains unchanged 22 References Edit Evans Ambrose 2009 04 16 IMF warns over parallels to Great Depression London Telegraph co uk Archived from the original on 2009 04 17 Retrieved 2010 01 21 The Telegraph UK 2010 Sept 14 IMF Fears Social Explosion From World Jobs Crisis America and Europe face the worst jobs crisis since the 1930s and risk an explosion of social unrest unless they tread carefully the International Monetary Fund has warned 1 Bagnall James 2009 03 16 Not the Great Depression The Ottawa Citizen Archived from the original on March 22 2009 Retrieved 2009 04 10 Collyns Charles December 2008 The Crisis through the Lens of History Finance and Development 45 4 Charlemagne March 5 2009 Extremist nightmares The Economist Retrieved 2009 03 12 Baten Jorg 2016 A History of the Global Economy From 1500 to the Present Cambridge University Press p 110 ISBN 9781107507180 Isidore Chris 2009 03 25 The Great Recession CNN Money Retrieved 2009 04 10 The difficulty with economic forecasting Marketplace American Public Media 2009 03 25 Archived from the original on 2010 12 05 Retrieved 2009 03 26 a b c Tatom John 2 February 2009 The Superlative Recession and economic policies PDF MPRA Paper No 13115 Bajaj Vikas March 14 2009 Has the Economy Hit Bottom Yet New York Times Retrieved 2009 03 15 Hanke Steve H March 16 2009 Unconventional Wisdom Forbes Archived from the original on December 6 2010 Retrieved December 23 2011 Krugman Paul 2009 01 05 Fighting Off Depression The New York Times Retrieved 2010 05 07 Not the Great Depression Ottawacitizen com Archived from the original on March 22 2009 Retrieved 2010 01 21 Roundtable Nationalizing the Banks ABC News Abcnews go com Retrieved 2010 01 21 I Am Not Dr Doom Washington Post Gjerstad Steven 2009 04 06 Steven Gjerstad and Vernon Smith Explain Why the Housing Crash Ruined the Financial System but the Dot com Collapse Did Not WSJ com Online wsj com Retrieved 2010 01 21 George W Bush Press Conference Transcript January 12 2009 Foxnews com 2009 01 12 Retrieved 2010 01 21 NBC Nightly News with Brian Williams News and videos from the evening broadcast NBC Nightly News with Brian Williams News and videos from the evening broadcast msnbc com MSNBC Archived from the original on 2003 12 07 Retrieved 2010 01 21 namely over indebtness to start with and deflation following soon after PDF October 1933 Retrieved 2014 10 16 a href Template Cite journal html title Template Cite journal cite journal a Cite journal requires journal help Indeed some say the Fed has learnt Fisher too well The Economist 2009 02 12 Retrieved 2012 05 15 UK UK Politics Recession worst for 100 years BBC News 2009 02 10 Retrieved 2010 01 21 Conway Edmund 2009 01 23 Britain on the brink of an economic depression say experts Telegraph London Archived from the original on 2009 01 30 Retrieved 2010 01 21 External links EditBarry Eichengreen Kevin H O Rourke 2010 What do the new data tell us A comparison between today s global financial crisis to the Great Depression Retrieved from https en wikipedia org w index php title Comparisons between the Great Recession and the Great Depression amp oldid 1095595639, wikipedia, wiki, book, books, library,

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