crisis. The Great Depression, on the other hand, occurred in the United States between 1929 and 1930, and began with a sharp drop in stock indices (Black Tuesday)
- The Great Depression was significantly worse and had a lot longer lasting impact than the Great Recession in terms of length and depth. The Great Recession lasted roughly 19 months, during which time the US economy shrank by 4%. The Great Depression, on the other hand, lasted nearly a decade and caused a 30% contraction in the US economy.
- One of the elements that resulted in two drastically different outcomes was the Fed’s response to both incidents. The Fed’s action in 1929 hampered economic activity in the United States, whereas in 2008, the Fed offered monetary stimulus to help the economy recover.
- The Fed learned from its failures during the Great Depression, which helped them cope considerably better with the repercussions of the Great Recession.
What was the difference between the Great Depression and the Great Recession?
The primary distinction between the Great Recession and the Great Depression is the length of time and severity of the events. The US housing bubble burst in 2007-2009, resulting in the Great Recession. The Great Depression occurred between 1929 and 1939, when stock prices plummeted dramatically.
Was the Great Depression worse than the financial crisis of 2008?
We were hit by the worst financial shock in history ten years ago, far worse than the Great Depression. Indeed, during the 1930s, “only” a third of U.S. banks failed, although former Federal Reserve chairman Ben S. Bernanke declared bankruptcy in 2008.
Was the Great Depression the worst economic downturn ever?
This was the twentieth century’s worst financial and economic tragedy. Many people feel that the 1929 Wall Street crisis precipitated the Great Depression, which was then exacerbated by the US government’s poor economic decisions. The Great Depression lasted nearly ten years and resulted in significant income losses, record unemployment rates, and decreased output, particularly in industrialized countries. At the height of the crisis in 1933, the unemployment rate in the United States was about 25%.
What’s worse than a downturn?
A recession is a negative trend in the business cycle marked by a reduction in production and employment. As a result of this downward trend in household income and spending, many businesses and people are deferring big investments or purchases.
A depression is a strong downswing in the business cycle (much more severe than a downward trend) marked by severely reduced industrial production, widespread unemployment, a considerable decline or suspension of construction growth, and significant cutbacks in international commerce and capital movements. Aside from the severity and impacts of each, another distinction between a recession and a depression is that recessions can be geographically confined (limited to a single country), but depressions (such as the Great Depression of the 1930s) can occur throughout numerous countries.
Now that the differences between a recession and a depression have been established, we can all return to our old habits of cracking awful jokes and blaming them on individuals who most likely never said them.
What’s the difference between a depression and a recession?
Depression vs. Anxiety A recession is a natural element of the business cycle that occurs when the economy declines for two consecutive quarters. A depression, on the other hand, is a prolonged decline in economic activity that lasts years rather than months.
Which year was the worse, 2008 or 1929?
To be fair, nothing happened in the years following 2008 that compared to the four-year period following 1929, when nonfarm unemployment in the United States reached 28 percent and joblessness in Germany reached 33 percent. The numbers on output tell a similar story. National income per capita was down 28% four years after the business cycle peak of 1929, and it did not return to 1929 levels for another decade. In comparison, after the financial crisis of 2008, per capita income decreased by only 5% and returned to pre-crisis levels in just six years.
As a result, the Great Recession was not a rerun of the Great Depression. And there’s a reason for that: activist, expansionary fiscal and monetary policies worked. However, the reaction to monetary stimulation after 2008 was not as positive as Milton Friedman had predicted. He blamed the Fed’s lack of responsiveness for most of the Great Depression in his classic essay with Anna Schwartz. On the other hand, there’s no denying that fiscal stimulus helped a lot. The monetary and fiscal stimulus effort was far, much better than nothing, even if it was carried out on a small scale.
When Eichengreen and O’Rourke compared the Great Recession to the Great Depression three years later, the Great Recession looked a lot better.
The Hoover administration and the Federal Reserve have been brutally criticized for their actions and inactions during the Great Depression (1929-33) that Friedman coined, and it’s a leap to believe that revisionist historians will ever reach a different conclusion. Policymakers in the 2000s, on the other hand, will be praised for their actions from October 2008 until the recovery was well established and the perverse shift to austerity began.
Early in the recovery, left-center economists (including me) warned that prematurely reducing stimulus in the name of deficit reduction or inflation control would carry significant dangers. Nonetheless, there was universal agreement that the global economy needed to unwind debt, both public and private.
Why was debt management made a priority? One shows the victory of ideology over empirical evidence. There would be no debt problem in the near future. Households, firms, and Asian governments with excess liquid assets continued to lend money to European and North American governments at ultra-low interest rates. This should have made the Chicken Littles think twice: when the financial markets tell you that dollars, euros, and yen are in short supply, the rational reaction is to print more of them, not less.
To put it another way, owners of liquid assets were concerned enough about losing money in private investments (and so sanguine about inflation) that they were willing to accept very low (often negative) yields on US Treasury bills. Conservative talking heads (who sounded frighteningly like the ignorant bankers of the 1930s) informed anybody who would listen that cutting government spending would somehow speed up the recovery for reasons that were unclear. None of them could cite historical examples of fiscal contraction leading to increased production in an economy functioning considerably below capacity and with no inflation to speak of most likely because there aren’t any.
Which year was worse, 1929 or 2008?
The price level decreased by 22% and real GDP plummeted by 31% during the Great Depression, which lasted from 1929 to 1933. The price level climbed slowly during the 2008-2009 recession, and real GDP fell by less than 4%. For a variety of factors, the 2008-2009 recession was substantially milder than the Great Depression:
- Bank failures, a 25% reduction in the quantity of money, and Fed inaction culminated in a collapse of aggregate demand during the Great Depression. The sluggish adjustment of money pay rates and the price level resulted in massive drops in real GDP and employment.
- During the 2008 financial crisis, the Federal Reserve bailed out struggling financial institutions and quadrupled the monetary base, causing the money supply to rise. The expanding supply of money, when combined with greater government spending, restricted the fall in aggregate demand, resulting in lower decreases in employment and real GDP. (21)
The 20082009 Recession
Real GDP peaked at $15 trillion in 2008, with a price level of 99. Real GDP had declined to $14.3 trillion in the second quarter of 2009, while the price level had climbed to 100. In 2009, a recessionary void formed. The financial crisis, which began in 2007 and worsened in 2008, reduced the supply of loanable funds, resulting in a drop in investment. Construction investment, in particular, has plummeted. As a result of the worldwide economic downturn, demand for U.S. exports fell, and this component of aggregate demand fell as well. A huge injection of spending by the US government helped to soften the decline in aggregate demand, but it did not stop it from falling.
The supply of aggregates has also dropped. A decline in aggregate supply was caused by two causes in 2007: a spike in oil costs and a rise in the money wage rate. (21)
Was it a depression or a recession in 2008?
- The Great Recession was a period of economic slump that lasted from 2007 to 2009, following the bursting of the housing bubble in the United States and the worldwide financial crisis.
- The Great Recession was the worst economic downturn in the United States since the 1930s’ Great Depression.
- Federal authorities unleashed unprecedented fiscal, monetary, and regulatory policy in reaction to the Great Recession, which some, but not all, credit with the ensuing recovery.
Who is responsible for the 2008 Great Recession?
The Lenders are the main perpetrators. The mortgage originators and lenders bear the brunt of the blame. That’s because they’re the ones that started the difficulties in the first place. After all, it was the lenders who made loans to persons with bad credit and a high chance of default. 7 This is why it happened.