What is the difference between a recession and a depression?
There is no shared national experience of the depths and devastating human impact of the Great Depression. We feel the recession of today as being extraordinary, but how does it compare to the singular economic event of the last century? The stock market crash of marked the beginning of the Great Depression, whereas the collapse of Lehman Brothers in September was the beginning of the Great Recession we are currently experiencing.
Both periods were marked by increased unemployment, frugality, and popular unrest. The scope of the economic crisis, however, is radically different.
During the Great Depression the global market 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 the current economic crisis has maintained a steady growth rate; growth has slowed, but it has not stopped.
There are also significant differences in the levels of deficit spending, manufacturing capacity, and bank foreclosures. Comparing the Great Depression vs. Both men took strong steps toward austerity and maintaining fiscal responsibility.
The understanding of fiscal policy was simple: The great role the federal government now plays, especially in regard to Medicare, Social Security, Medicaid, and military spending relative to the insufficient tax rates we desire, is unsustainable.
However, during an economic crisis, private spending evaporates. Bruce Bartlett of Forbes states further: In the s, there were a number of economists who argued strenuously for a do-nothing policy. Economists today generally believe that it was the unprecedented deficits resulting from World War II that actually ended the Great Depression.
If nothing fills the consumer gap, deflation is inevitable, and once a country enters a deflationary period, recovery becomes all the more difficult. Unlike many of the European economies who were suffering from hyperinflation during the Great Depression, the United 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 inbut many 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 catalyst for much of our current deflationary pressure as home prices continue to decline. Neo-functionalism The first significant difference between the Great Depression and our Great Recession is that there is a significantly larger amount of neo-functionalism today than there was during the Great Depression.
Simply put, there has been a growth of technical economic institutions that have required the growth of political institutions as a result. These institutions have played a vital role in alleviating the severity of bust cycles. This has prevented the massive hyperinflation experienced in the German and Hungarian currencies that occurred during the global Great Depression.
Increased political coordination through international institutions has also increased response time and readiness to handle international economic crises.
From an American perspective, the Employment Act of has radically increased our ability to deal with crisis.
The impetus for creating such an act was to create mechanisms that could be used to immediately begin to combat an economic downfall. The economic drag on a nation and the individual devastation is defining for an age and for the individual lives of the unemployed.If you ask different economists to define the terms recession and depression, you would get at least different answers.
That said, the following discussion summarizes both terms and explains the differences between them in a way that almost all economists could agree with. Some like to draw comparisons between the Great Depression and the recessionary period following the financial crisis.
Here is an infographic from alphabetnyc.com that does just that on several key economic metrics. Compare and contrast the Great Depression and the Great Recession. A depression is characterized by abnormal increases in unemployment, restriction of Fair Use Policy; The table below highlights some of the major differences between the Great Depression and the current recession.
Great Depression vs. Great Recession Â Great Depression. Great Depression vs. 'Great Recession' Comparisons between this economic recession and the Great Depression are common, but the granddaddy of all downturns was far worse.
Great question. Unfortunately, there isn’t a standard answer, although there is a well-known joke economists like to tell regarding the difference between the two. But, let’s come back to that later. Recession. Let’s start by defining a recession.
As I mentioned, there are several commonly used definitions of a recession. Dec 16, · The difference between the Great Depression and the Great Recession is very clear.
In the current economic crisis there has been a period of GDP loss, followed by a period of slow growth as opposed to the massive decline in economic output that occurred during the Great Depression.