The Stock Market
Looking at this graph, we see that the initial collapse if the US Dow Jones was nearly identical in 2008 and 1937. After the sudden collapse, however, the market bounced back by about 50% of what was lost. After that point, the results from 2008 and 1937 are different. The 2008 Dow Jones bounced back and stabilized with a slow increase (other slight dips and peaks from after late 2008 not shown) while that of 1937 rose back up and then crashed again.
Unemployment
Unemployment during the Great Depression was undoubtedly greater than any statistic from the 2008-2012 era. Government statistics (a moderate estimate) from the 1930's show that unemployment was at about 25%. During the 2008 recession, a very high figure would be about 20%, with most figures being much lower than that.
Gross Domestic Product (GDP)
During the Great Depression, the United States GDP dropped over the course of about a year; as did the GDP during the Great Recession. After leveling out for about 2 1/2 years, the US GDP quickly rose to levels much higher than pre-depression averages. During and after the the Great Recession, however, the GDP dipped and then rose again, but never exceeded the pre-recession averages.
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Not shown in the graph- current GDP= about the same as 2008
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While both the Great Depression and the Great Recession were detrimental to the economy, the Great Depression was more destructive for a longer time to the American workforce and middle, stock-owning class. Post-Depression, however, the economy showed faster growth rates and shot back faster than the Great Recession's economy, mainly due to the manufacturing of supplies to fuel World War II.
Great Post Andreas!
ReplyDeleteI was interested in some of the similarities of the Great Recession and the Great Depression, so I looked up some of them.
The causation of the two depressions were the same: both began with the federal government's action. The GD started because the federal government raised interest rates to halt the boom from the artificially low rates in the 1920's choking out investment, president Hoover signed Smoot-Hawley Tariff which stifled trade and damaged American exports throughout the 1930's, and finally the president signed a big tax increase which halted entrepreneurship. The GR started because in the 1990's the government began pushing home ownership, even to people with unworthy credit. Mortgage backed security gave mortgages that turned bad when the house market went down. Due to the mortgages, banks were on the verge of collapse, and the government decision to bail out corporations and banks created instability.
Both presidents, Obama and Roosevelt spent a lot of money. Roosevelt thought the money could trigger economic expansion and lead the US out of its slump. Obama carried the same reasoning out. Due to their spending, they increased the federal debt massively; Roosevelt doubled the debt in his 8 years as president.
Both president used wall street bankers and various corporations as scapegoats for the two depressions.
Source: http://fee.org/the_freeman/detail/comparing-the-great-depression-to-the-great-recession
Wonderful post, Andreas. I was wondering why the 2008 recession was not as devastating to the American economy as the Great Depression and found a great CNN article.
ReplyDeleteApparently, the main reason is that the federal government's response, spearheaded by Ben Bernanke (former head of the Federal Reserve), was much more aggressive. Bernanke had studied the Great Depression thoroughly and knew what mistakes the federal government had done. He was determined to not let those mistakes happen again. So he cut interest rates on loans made to banks, pumped money into the financial system, and had Congress approve a bailout package and a stimulus package. With all of these measures, the federal government was able to pull the country out of recession more effectively than Hoover's administration during the Great Depression. Hoover did try to help the economy, but he refused to take more aggressive measures such as fixing the currency, controlling businesses, or giving direct aid to citizens. Because of this, the country staggered along under the Great Depression until Franklin D. Roosevelt's New Deal.
Here's the CNN article on Bernanke:
http://money.cnn.com/2014/08/27/news/economy/ben-bernanke-great-depression/
Thanks Andreas for shedding light on the comparison between the depression we are climbing out of and the depression we always compare our depression to.
ReplyDeleteThroughout history we compare what we are going through now to what we went through in the past to see if we can do it again. We always compare what we are doing to what people have done to the past to get out of it. We assume that if we did things in the past we can do them again, but if people have failed in comparable situations that they are in now, people start to panic.
People look at the depression that the country went through last time and saw what was the outcome, World War II. People see what happened last time and are scared that it will happen again. World War II was caused by the rise of fascist states and how they wanted more land and power, and so went to war. The Fascist Parties gained power because people lost support for capitalistic and democratic systems and societies and saw hope in another way, ie Hitler and Mussolini. People saw the same fate in the world after the Great Recession, people losing faith in the democratic and capitalistic that had taken control of government.
Just something to keep in mind.
Interesting comparison!
ReplyDeleteOne thing I thought was really interesting in your comparison was how the Dow Jones Industrial average and GDP didn't correlate all that much. I think it shows how much the war did to drag the country out of debt, but it didn't mean the market wasn't quite flowing yet. I think it also serves to show how quickly our country was to recover domestically first. In the great depression, the GDP went up, and then the stock market followed suit. Six years ago, it was the other way around. Stocks came first.
Nice comparison. I think it is important to note that, while the 2008 recession was a hard economic time, it really wasn't as bad as many people, including Obama's administration, try to make it out to be. While the Dow Jones did crash faster in the 2008 recession, it only lost 54% of its value compared to the 89% of the Great Depression. Obama has claimed that the economy in 2008 was "in some ways... worse than what happened in the 1930s." However most economists disagree, such as Eric Rauchway, saying that Obama's claim is "certainly not true in any important way." In the end, its important to keep in mind the politics of economic comparisons, as both republicans and democrats have something to gain by spinning this one way or another.
ReplyDeleteSource: http://www.politifact.com/truth-o-meter/article/2013/sep/19/comparing-great-recession-and-great-depression/