The stock crash in 1929 followed by the ‘Great Depression’ was in no doubt the largest economic crisis that the world experienced. The length and depth of the crisis and aftermath suffering were undisputedly legendary. As such, when the 2007/2008 global crisis struck, many rushed to proclaim that the world was on a similar scale experiencing yet another depression in another term the great recession’. But really is it not an overblown rhetoric’s when we attempt to equate the hard times of the great depression to that of the great recession? Conceivably, on the surface comparisons seem obvious; periods of great exuberance and wealth followed by a crash in the exchange markets as well as subsequent economic suffering, millions out of jobs, thousands losing their jobs, thousands going hungry….
Nonetheless, the parallels between the great recession and great recession are rather close that it may seem. I don’t mean in the sense of crash in stock markets or Keynesian economic explanations rather let’s look at it from a multiple perspectives.
Which of the two had massive impact; conceivably there are differences in opinions. It is widely believed that Great Depression was the defining feature of the crisis however the truth is multifaceted and much more complex.
President Obama often remarked that the great recession was far much worse than the great depression. Was it really? There are many arguments for the causes of both recessions and while it is difficult to exactly pin down exact causalities. A general consensus is that both crises were partly caused by actions of the federal government as well as financial institutions. The Great Depression was caused by actions of the Federal Reserve which had raised interest rates after keeping them low for a relatively long period of time. This was part of the effort to stop the resulting boom. Just like the Great Depression, the Great Recession ensued after periods of booms in the economy. However, most agree that the Great Recession was sparked by mortgage collapse in the United States as well as the failure of financial institutions.
Essentially it is important to note that failure in financial institutions affected the economy by reducing quality of credit intermediation as well as financial services. In the Great Depression, the federal reserves did not help much since much of its policies were based on increasing credit line base. However just like the Great Depression you realize that the causes of the crises were not from sole events but from numerous factors. The common consensus among economists is that the Great Depression ensued for over ten years and its economic impact was massively striking. The GNP massively fell and the social impacts were more devastating. Since, at least 25% of the labor force was unemployed. Moreover, the Great Depression embraced all sectors of the economy, financial, social, political, industrial and agricultural. It had catastrophic consequences that were in some ways similar to those of the Great Recession.
Although both crises began in the US, you realize that the global effects spanned the rest of the world. Of course, there are quite some other few differences, although the great recession seemed much worse it is in no way comparable to the Great Depression. In fact, there are more signs that postulate that it may not at all be as worse as the Great Depression was. This can be explained by responsive policies to the aftermath. Unlike the Great Depression, the Great Recession has witnessed a shift from capitalistic systems of industrialization to financial capitalization. Government policies are also currently based on Keynesian interventions unlike the Laissez-faire attitude in the Great Depression. It appears that lessons from the Great Depression may ultimately stop the severity of the Great Recession but only time could tell how effective they will be.