Depression in a League of Its Own

November 10, 2008

It has become cliche to proclaim that the current economic downturn will be the most severe since the Great Depression.  To further solidify the link between these two episodes, analysts underscore that each was triggered by a a banking crisis and associated with an outsized decline in share prices but — unlike more recent recessions — unrelated to either excessive inventories or to high core inflation and tight Fed policy. The global dimension of both downturns is noted, too.

Such truths do not tell the whole story. The depression saw U.S. real GDP plunge around 30%, ten times more than the two worst postwar recessions. In duration, the depression lasted more than two and a half times longer than any postwar recession. During the depression, industrial production fell more than 40% in the United States, Canada, and Germany, between 30% and 40% in France, Italy, and the Benelux, some 16% in Britain, and by a relatively small 8.5% in Japan. U.S. joblessness climbed as high as 25% in the depression compared to peaks in the past four recessions of 9.0%, 10.8%, 7.8%, and 6.3%. The current U.S. unemployment rate is 6.5%. Because the worst postwar recession more closely resembled the mildest postwar recession than the Great Depression, comparisons of the present crisis to the 1930’s overstate the economy’s present weakness. The uniqueness of today’s predicament is that nuclear weapons and global warming pose other channels for destroying civilization, and the finances of many governments are on unsustainable long-term trajectories. While the economy will command top attention in the weeks ahead, world leaders do not have the luxury of setting every other issue aside while attempting to fix the global recession.



One Response to “Depression in a League of Its Own”

  1. Gotta love a sense of perspective…it really does seem that if the panic and fear disappeared, we would all be more circumspect, having only the facts in front of us — and so we (read: our policymakers and business leaders) would act more rationally and deliberately in the face of uncertainty. Or maybe, all things considered, that is what is exactly what is happening now? Perhaps I don’t see this because it being obscured by noise from the MSM and insta-pundits.

    Interesting post. And grounding.