The Great Depression vs Today’s Economy
What happened during the Great Depression is very different from what is happening today, but there are some lessons in that history.
We’re starting to see some devastating economic indicators related to the global pandemic. More than 3 million people filed first-time unemployment claims the third week of March. On Thursday, we’ll find out how many people filed for unemployment in the fourth week, and on Friday, we’ll get the first monthly unemployment report since large parts of the economy started shutting down.
One of the big questions on your mind is probably: Just how bad things are going to get? That’s why we asked a few historians to tell us about the economic crises of the past — and in particular, the Great Depression — and what we should be keeping an eye out for today.
“It’s important to distinguish between the stock market crash in October of 1929 that everybody knows about and the stock market itself,” said Eric Hilt, an economic historian who teaches at Wellesley College. “The economy started to contract in probably summer of 1929. But it became a great depression rather than a severe recession probably starting in 1930 when a wave of bank failure started to occur,” he said.
“The Feds didn’t act as a lender of last resort to many banks,” said Kathleen Day, a professor of finance at Johns Hopkins University and author of a book on the history of financial crises in the United States. “Ten thousand banks failed, which, of course, caused another contraction of credit and contributed greatly to the depth and breadth of the depression,” she said.
“So what we’ve learned from that is that you need to be able to inject liquidity in a moment of crisis,” said Carola Frydman, professor of finance at Northwestern University. “You need to be able to bail out banks so that banks can keep on lending and restore confidence.”
If bailing out banks to keep the economy going sounds familiar, that’s because it’s what former Fed Chairman Ben Bernanke convinced Congress to do in 2008.
“One of my very first papers as a young academic argued that one of the reasons the Depression was so deep and so long was because the financial system collapsed,” Bernanke said in a 2018 interview. “I think putting capital in the banking system and making it work again, making it viable so that it can provide credit, was essential.”
Today’s financial turmoil is not the Great Depression, and it is not the Great Recession. “But there’s no doubt that there’s some economic rough water ahead,” Day said.
“If I were concerned about something like a Great Depression recurring, I might think about different warning signs that one might watch for, and one of them is policymakers choosing not to respond to the crisis,” Hilt said.
Chair Jay Powell and the Federal Reserve have taken aggressive actions in response to the COVID-19 crisis, including cutting interest rates to basically zero, buying trillions of dollars in bonds to put more money into the financial system and lowering the rates it charges banks to borrow money.
“So that warning sign is not going off. The historical pattern does not seem to be repeated in this context,” Hilt said.
As for what to watch for to help us understand what kind of crisis this is going to be, Hilt, Day and Frydman all said it’s important to watch unemployment.
“The changes in unemployment during the Great Recession were relatively short lived,” Frydman said. In the Great Depression, on the other hand, unemployment rates remained very high for about a decade. “So I think that is something [to watch] as I look forward trying to understand whether some of the shocks that we’re seeing now are going to be temporary or, or a lot more long lasting,” she said.
Hilt, Frydman and Day said other indicators to watch for include bankruptcies, the inflation rate and signs of distress in the credit markets.
From: “The Marketplace”
Books by Kathleen Day:
- Day, Kathleen. “Broken Bargain: Banks, Bailouts, and the Struggle to Tame Wall Street,” Yale University Press, January 2019
- Day, Kathleen. “S&L Hell: the people and politics behind the $1 trillion savings-and-loan crisis,” New York: W.W. Norton, 1993
Click on images to enlarge.
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Posted on May 28, 2020, in Current News, Home Front, Uncategorized and tagged 1920's, 1930's, 1940's, Covid-19, family history, Great Depression, History, Home Front, nostalgia, Pandemic, USA. Bookmark the permalink. 167 Comments.
Good job.
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Thank you.
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Very interesting article. I have also written an article about depression but in animals. I ll leave it here in case you are interested.
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Very interesting article. I can well understand how animals can get as depressed as humans. But I’m afraid here, we were discussing The Great Depression, an era of harsh economic conditions around the globe.
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My advice is to use Tags when you make a new post and visit others with similar Tags you can find on your Reader page. You can access the Reader page on the top-right hand of your website.
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Yes that how I find you
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Blogging can be a lot of work, gaining followers is not accomplished by asking people to do that. Have you gone into your Reader page and typed some Tags that would help you to locate bloggers with similar themes?
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Actually I need your help
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As I said, put in the comments. If you wish me to delete it after I read it, I will do so, and no one else need see it.
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I Like your post can I get your email I like to talk .
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As the disclaimer says on the side of each, I do not do private emails. Correspondence should be placed in the comments. The comment remains visible to only you and I until I approve it, so if there is anything you wish me to delete – simply say so.
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I just hrd about it, n read little about great depression, informative ya sad
THOSE WHO DON’T REMEMBER THE PAST CONDEMNED TO REPEAT IT.
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Exactly. Too many people today do not understand that and wish to erase history.
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Very interesting and informative
Stay safe and healthy
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Thank you for stopping in.
I hope you remain safe as well.
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🙏
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A late comment…
Personally, I feel this “shutdown” has very little in common with the Great Depression – which was extended for several more years by the decisions made by Democrat FDR.
This terrible economic shutdown is driven by hysterical Democrats and Fake News in an escalation of their madness just to take down our President. That’s all I want to say…
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Unfortunately, I have to agree. Personal agendas in politics have never benefited the citizens.
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Like the oceans, the economy is all inter-connected. And the last 3 months have seen a substantial drop in economic activity. So far the impact has been on the lower end of the food chain. However, the longer it continues, the greater the possibility of big failures, which will generate their own economic shock waves.
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Now that the unemployment situation is corrected, plus getting federal stimulus checks, people are making more now just sitting at home getting bored, or out protesting than going back to work too.
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The people in the U.S. that were rioting in the street 2 weeks ago were not in the least bit concerned about the Covid-19 pandemic. In fact, during the time that the 24/7 news was covering all of the riots, burning, and looting–they didn’t even mention the pandemic. Because of this, people said that ‘somehow’ it felt like the pandemic was suddenly gone.
However–now that the riots have basically subsided, the focus of the news is back on the pandemic and we are told that there are spikes in cases of Covid-19.
I’m not surprised.
I do wonder how and when all this is going to end. Very depressing.
There is only so much the people and the economy can take.
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This is why biological warfare is so dreaded. There can be no end to it if people don’t suck it up for this short time and avoid a long-time effect of the virus.
I completely agree about the rioters and protesters.
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A second corona pandemic wave which can be more powerful and devastating is likely to hit the world in July. Financial markets will tumble and many developed countries will go into recession which can create unemployment, bankruptcy, disturbances and conflicts.
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With the attitude of the young lately, I am thinking the second wave may be sooner than you think. My county had over 300 new cases in one day this past week!
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Europe, especially Spain, Argentina, UK seeing second wave of corona pandemic. India has become epicentre now. Middle East nations also witnessing rising cases
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It is extremely sad for the world to be going through this.
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Thank you.
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Much appreciated.
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