A Comparison of Great Depression and Current Economic Crisis

A Comparison of Great Depression and Current Economic Crisis

Introduction

The parallels between the Great Depression of the 1930s and our current Great Recession have been widely remarked upon. Paul Krugman has compared the fall in US industrial production from its mid-1929 and late-2007 peaks, showing that it has been milder this time. On this basis he refers to the current situation, with characteristic black humour, as only “half a Great Depression.” The “Four Bad Bears” graph comparing the Dow in 1929-30 and S&P 500 in 2008-9 has similarly had wide circulation (Short 2009). It shows the US stock market since late 2007 falling just about as fast as in 1929-301.

Discussion

As the economy becomes worse and worse, many predict that unemployment will continue to rise, stocks will continue to fall, and more and more people will lose their homes. Even President Obama has made this comparison stating, "We are going through the worst economic crisis since the Great Depression." When someone with as much power as Obama puts concepts such as that into our heads, we are going to worry and expect the worst.

Although we are seeing similarities in today's economy and the Great Depression, which started in 1929, several say we will not come close to a life as harsh as those endured almost eighty years ago. As consumers are spending less, companies are reacting by laying off employees as they deem necessary. As our nation's unemployment rate has increased, we have managed to at least stay in the single digits2. During the Great Depression the rate rose to 25% and stayed above 20% for four years. This would take several years to occur again, and in that time we will most likely be seeing a better economy. Obama's $787 billion economic stimulus plan is intended to help this situation and create millions of jobs. This alone should decrease the unemployment rate in the upcoming months.

Banks are in a much greater standing than they were back in the 1930's. Thousands of banks shut down during the Great Depression whereas only a handful have shut their doors this year. Depositor's assets have much more protection these days as well. The FDIC has increased the amount of insurance it places on each depositor at each institution from $100,000 to $250,000. Although this is a temporary change, it will cause people to have more confidence in their banks because if for some reason banks collapse, their money is still safe. The government in this era will step in and offer help to banks on the verge of failing. In October, Congress approved $700 billion to bail out our nation's banks. During the Great Depression, if your bank collapsed your savings were completely gone. This has tremendously changed for the better.

2008 was one of the worst years for stocks as the S&P 500 fell more than 40%. Stocks are down and it is a very high risk for some to be investing money they will soon need ...