Comparing the Great Recession of 2008 with the Great Depression

Great Recession

We all felt it. In fact, many of us are all still feeling it.

The impact of what is now called the Great Recession of 2008 still reverberates today. Home values fell off a cliff, waves of foreclosures hit the market, and the unemployment rate topped 10 percent for the first time in nearly 25 years.

2008 initiated a very bad period for the U.S. economy. How bad was it?

First, let’s define what a recession is. Officially, our economy is in a recession when the Gross Domestic Product, or GDP shrinks for two consecutive fiscal quarters. The GDP is the total market value of all goods and services produced. Unofficially however a recession can simply be described as an extended period of sluggish economic growth and a reduction in economic activities.

Tracking the GDP gives economists a measure on how the U.S. economy is performing as a whole. When GDP shrinks, or what economists call “negative growth,” the economy is moving backward, not forward. However, a one-quarter shrinkage in growth could be a statistical anomaly. It takes two consecutive quarters of negative growth (that’s six months) to convince economists what most consumers usually already know: the economy is in terrible shape.

In economic terms, a depression is a very severe recession. Technically the economy is officially in a depression when GDP declines by more than 10 percent or an economy experiencing negative growth for eight quarters compared to the two quarters of negative growth that defines a recession.

So with those established definitions in mind, how does the Great Recession compare with the Great Depression? Here are some stats gleaned from an article that appeared on CNN:

In the Great Depression, there were more than 9,000 bank failures, representing half of all banks nationwide. This is compared to 57 bank failures in the Great Recession representing 0.6 percent of all banks. Remember however those banks in the 1920s and 1930s were mostly smaller, community banks and not national mega-banks that failed in the Great Recession.

The unemployment rate in the Great Depression hit 25 percent at its height, while the unemployment rate during our most recent recession topped 10 percent very briefly before falling back to 8.50 percent.

The stock markets also took a big hit in both periods, with the Dow Jones Industrial Average losing nearly 90 percent of its value during the Great Depression. During the Great Recession, however, the Dow only lost about 50 percent of its value before recovering.

There is one other interesting comparison. As a percentage of GDP, the federal government spent less during the Great Depression, spending 1.5 percent for one year. In contrast, the federal government attempted to stimulate the economy by spending 2.5 percent of GDP for two years during the Great Recession.

While there’s little consolation for those unemployed today or who have lost their homes to foreclosure, the differences between the Great Depression and the Great Recession demonstrate that, while somewhat similar in nature, they were vastly different in degree.

As one out of four people were unemployed and half of all the banks in the United States failed, the Great Depression was definitely far worse than our recent recession.

This doesn’t decrease the severity of our recent downturn, and the nation still hasn’t fully recovered from all the consequences and effects of the crisis.

 

Comments