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Ten Major Differences Between the Great Depression and the Today's Great Recession

Ten Major Differences Between the Great Depression and the Today's Great Recession

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Published by Wade Dokken
A paper comparing 10 different measures where the Great Depression is different from Today's Great Recession.
A paper comparing 10 different measures where the Great Depression is different from Today's Great Recession.

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Categories:Types, Research, History
Published by: Wade Dokken on Dec 17, 2010
Copyright:Attribution Non-commercial

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12/17/2010

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 Image via Wikipedia  A person who was a child during theGreat Depression of the 1930swould be in his or her ninetiestoday. There is no shared national experience of the depths and devastating human impact of theGreat Depression. We feel the recession of today as being extraordinary, but how does it compareto the singular economic event of the last century?There are many relevant parallels between and lessons to be learned from the Great DepressionandGreat Recessionthat can provide a historical perspective and policy insight. The stock marketcrash of 1929 marked the beginning of the Great Depression, whereas the collapse of LehmanBrothers in September 2008 was the beginning of the Great Recession we are currently experiencing.Both periods were marked by increased unemployment, frugality, and popular unrest. The scopeof the economic crisis, however, is radically different. During the Great Depression the globalmarket did not have the institutionalized structures necessary to undermine the extent of the bust. Furthermore, the Great Depression was characterized by a severe double dip, whereas thecurrent economic crisis has maintained a steady growth rate; growth has slowed, but it has notstopped. There are also significant differences in the levels of deficit spending, manufacturingcapacity, and bank foreclosures.Perhaps of greatest importance were the public policy actions of President GeorgeBush,President Barack Obama, and Ben Bernanke, today¶sChairman of the Federal Reserve. The quick and significant actions taken by a Republican President, a Democratic President, and aRepublican-nominated Chairman of theFederal Reserve Boardhave been the difference betweenthe extent of the severity of these two economic downturns²both of them were the result of historically unsustainable levels of debt prior to the economic collapse.
 
 
Comparing the Great Depression vs. the Great Recession
1.Deficit SpendingandMonetary Policy 
 Prior to the Great Depression, the United States was under the very frugal leadership of the Warren G. Harding andCalvin Coolidgeadministrations. Both men took strong steps towardausterity and maintaining fiscal responsibility. The understanding of fiscal policy was simple: thefederal government should be run on a balanced budget. The great role the federal governmentnow plays, especially in regard to Medicare, Social Security, Medicaid, and military spendingrelative to the insufficient tax rates we desire, is unsustainable. However, during an economic
 
crisis, private spending evaporates. This is problematic because consumer spending represents70% of theUnited State¶s economy.Bruce Bartlett of Forbesstates further:In the 1930s, there were a number of economists who argued strenuously for a do-nothing policy.But as the Great Depression dragged on and collapsed in 1937²when conservatives weresuccessful in having the federal government slash the budget deficit(it fell from 5.5% of GDP in1936 to 0% in 1938) they lost credibility. Economists today generally believe that it was theunprecedented deficits resulting from World War II that actually ended the Great Depression.
 
Total US Debt
 As America spends to get out of recession the deficit increases exponentially Government spending must compensate for the private sector in order to compensate for privatespenders¶ newfound frugality. If nothing fills the consumer gap, deflation is inevitable, and once acountry enters a deflationary period, recovery becomes all the more difficult. Unlike many of theEuropean economies who were suffering from hyperinflation during the Great Depression, theUnited States was experiencing substantial deflation. Prices had to be cut and subsequently so did wages and labor.The United States is flirting with deflation today, and it experienced mild deflation in 2009, butmany believe that governmental deficit spending can counter-balance these deflationary forces.The great unknown is the continued downward spiral of housing resale values. This is the catalystfor much of our current deflationary pressure as home prices continue to decline.

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