J. T. Young : The Current Recession versus the Great Depression

The economy's mild second quarter contraction has many proclaiming the recession over. Now is therefore a good time to survey the current recession so frequently compared to the Depression. It's natural to ask: how do these economic heavyweights measure up?

When prizefighters step into the ring – a tale of the tape – a comparison of their primary physical attributes is revealing. A comparison of the economic and fiscal attributes is equally illustrative here.

Variable

Great Depression

Current Recession

GDP

4 straight years of negative growth

4 straight quarters of negative growth

Unemployment Rate

24.9%

9.7%

DJIA Change

89% contraction

53.8% contraction

Bank Failures

Over 4,000

120

Federal Spending

12% of GDP in 1941

26.1% in 2009 Continued...

1 2

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About The Author

J.T. Young was Communications Director in Office of Management and Budget (2003-2004) and Deputy Assistant for Tax and Budget Policy at the Department of Treasury (2001-2003) in the Bush Administration.

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The Current Recession versus the Great Depression

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Jack Location: SC

Reply # 1
Date: Sep 14, 2009 - 11:03 PM EST

Where's the rest of the article?

Again, the right half of the article is obsured. AOL is totally inept.

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None Location: CO

Reply # 2
Date: Sep 14, 2009 - 6:31 PM EST

These Comparisons are Largely Invalid

These comparisons are nice talking points, but are largely meaningless.

As to point 1, we're still early in the game, so don't hold your breath.

As to point 2, I don't believe the Feds maintained separate U6 and U3 rates of unemployment. The U6 rate is now approaching 20%, and many economists are predicting it will top out around 25%.

As to point 3, equities did not lose 89% of their value in one fell swoop during the depression. Instead, there was a W-shaped decline, with the second downward leg being much deeper than the first. The last time I saw a chart comparing equity indexes from the great depression to the current recession they look eerily similar. We'll see if we have a second downdraft.

As to point 4, the Federal Reserve has far more power today to prevent bank failures by relaxing reserve requirements or by simply declining to foreclose on insolvent banks. Nevertheless, the banks are still insolvent. This is an apples-to-oranges comparison.

The remaining points illustrate that the Federal Government is much larger today, as a percentage of GDP, than in the 1930s. We already knew this.

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