Comparisons between the

Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...

and the

Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...

explores the experiences in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

and the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...

. 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 The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...

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. 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.

In the United States

Although some casual comparisons between the

and the

have been made, there remain large differences between the two events. Actually, if the magnitude of initial shocks was the same in both cases, the recovery from the latest one would be earlier. The consensus among economists in March 2009 was that a depression was not likely to occur.

UCLA Anderson The John E. Anderson Graduate School of Management, also known as the UCLA Anderson School of Management, is the graduate business school at the University of California, Los Angeles, one of eleven professional schools. The school offers MBA (ful ...

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."

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, 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), the recession of the early 1930s lasted over three-and-a-half years, 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"). 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 World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...

, and was dwarfed by the 25% unemployment rate peak of the Great Depression. 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. Nobel Prize–winning economist

Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...

predicted a series of depressions in his ''

The Return of Depression Economics ''The Return of Depression Economics and the Crisis of 2008'' is a non-fiction book by American economist and Nobel Prize winner Paul Krugman, written in response to growing socio-political discourse on the return of economic conditions similar t ...

'' (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." 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 shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that provide services similar to traditional commercial banks but outside normal banking regulations. Examples of NBFIs include hedge funds, ins ...

. "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." 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 bank A zombie bank is a financial institution that has an economic net worth less than zero but continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support. The term was first used by Edw ...

s) are pursued, the situation "could become as bad as the Great Depression." On April 27, 2009, Roubini expressed a more upbeat assessment by noting that "the bottom of the economy ill be seentoward the beginning or middle of next year." On April 6, 2009

Vernon L. Smith Vernon Lomax Smith (born January 1, 1927) is an American economist and professor of business economics and law at Chapman University. He was formerly a professor of economics at the University of Arizona, professor of economics and law at Georg ...

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." In his final press conference as president,

George W. Bush George Walker Bush (born July 6, 1946) is an American politician who served as the 43rd president of the United States from 2001 to 2009. A member of the Republican Party, Bush family, and son of the 41st president George H. W. Bush, he ...

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. A tent city in

Sacramento ) , image_map = Sacramento County California Incorporated and Unincorporated areas Sacramento Highlighted.svg , mapsize = 250x200px , map_caption = Location within Sacramento ...

California California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...

was described as "images, hauntingly reminiscent of the iconic photos of the 1930s and the Great Depression" and "evocative Depression-era images." According to economist

Irving Fisher Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, statistician, inventor, eugenicist and progressive social campaigner. He was one of the earliest American neoclassical economists, though his later work on debt def ...

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

In the United Kingdom

On 10 February 2009, Ed Balls,

Secretary of State for Children, Schools and Families The Secretary of State for Children, Schools and Families was a secretary of state in the Government of the United Kingdom, responsible for the work of the Department for Children, Schools and Families. The post was created on 28 June 2007 afte ...

of the

, 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." On 24 January 2009, Edmund Conway, Economics Editor for ''

The Daily Telegraph ''The Daily Telegraph'', known online and elsewhere as ''The Telegraph'', is a national British daily broadsheet newspaper published in London by Telegraph Media Group and distributed across the United Kingdom and internationally. It was fo ...

'', 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 n Britain but the value of the debt against which they are held remains unchanged."

References

{{reflist, 30em

External links

* 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. Great Recession and the Great Depression Great Depression Great Recession