This Is Not Another Great Depression

Few people in the world know more about the Great Depression than economic historian Price Fishback, which is why whenever he offers an opinion on the subject, I always listen carefully. Back in the fall, Fishback wrote two outstanding posts here at the Freakonomics blog, one on what the New Deal tells us about the likely success of the stimulus package, and another on the Home Owners Loan Corporation.

Fishback is back, with a three-part series explaining why our current economic situation is very, very different from the Great Depression. In the first of these three posts, Fishback reviews the basic macroeconomic statistics then and now. My description might make it sound dry, but it absolutely is not; this is must-read stuff. I suspect you will be stunned at how bad the Great Depression really was.

How Does the Current Crisis Compare to the Great Depression?
By Price Fishback
A Guest Post

Over the past couple of decades, every time we have experienced a slowdown in the American economy, the media mentioned the possibility that this is the next Great Depression. Maybe this is a natural response to the relative lack of downturns over the past 20 years. After experiencing a downturn once every three to seven years for nearly two centuries, the U.S. economy has been averaging a downturn about once every nine or ten years since the early 1980’s. As declines in the economy have become rarer, perhaps people have become more sensitive to them.

In the 1920’s, Soviet economist Nikolai Kondratiev argued for the existence of 40- to 60-year economic super-cycles. Since the Great Depression ended nearly 70 years ago, maybe we are overdue for the next one.

The events of the last year naturally have stimulated comparisons to the Great Depression. Two years ago, few would have ever guessed that there would be no pure major investment banks left on Wall Street. The banking industry is struggling, as many financial institutions face uncertainty about the values of their assets, particularly financial instruments related to mortgages. The U.S. and most of the rest of the world are in recession. Meanwhile, the stock market has lost roughly 40 percent of its value from the all-time peak it reached in late 2007.

How does this compare to the Great Depression? We won’t know the final outcome of this recession for a while, but I can safely say that the current situation is nowhere near as bad as the situation during the 1930’s. There may be surface similarities on some dimensions, but there are far more differences than there are similarities.

Since the start of the recession in late 2007, the monthly unemployment rate has risen from 4.9 percent to 7.6 percent in January 2009. Before thinking about the Great Depression, realize that unemployment rates have exceeded 7 percent in 139 months since World War II. This includes 32 months between 1974 and 1977, 76 months between 1980 and 1986, and 21 more between 1991 and 1993. The Great Depression was far more disastrous. One year after the stock market crash of 1929, the unemployment rate had risen from 2 percent to 10.8 percent. The next year it was 16.8 percent. Then unemployment rates rose above 20 percent for four straight years!

It does not end there. The unemployment rate exceeded 14 percent for five more years until finally dropping below 10 percent again in 1941. These rates include emergency workers, but these were people who were working for their relief payments at hourly wages that were roughly half the norm on other government projects. We treat people receiving unemployment benefits today as unemployed, and all they are required to do is seek work.

Do I sound like your grandparent talking about walking barefoot and backward several miles through the snow to go to school? There’s more. Real G.D.P. fell during the last two quarters, but real G.D.P. in the fourth quarter of 2008 was almost identical to real G.D.P. in the fourth quarter of 2007. Since World War II, there have been 28 quarters where real G.D.P. was below the same quarter in the prior year. How does this compare with the Great Depression? In 1930, Americans produced 8.6 percent fewer final goods and services than in 1929, in 1931 15 percent less, and in 1932 and 1933 roughly 26 percent less than in 1929. It is hard to conceptualize such a drop in G.D.P.

Consider this: the 1932 and 1933 figures would have been the equivalent of shutting down all production of goods and services west of the Mississippi River. Annual real G.D.P. did not reach its 1929 level again until 1936. We are experiencing pain now, but the problems of the Great Depression were several magnitudes greater.




From Americans for Democratic Action:

"Real Unemployment at 15.8%: Highest Level Since ADA Began Tracking

WASHINGTON - May 8 - The real unemployment rate released today by the Bureau of Labor Statistics is 15.8%, nearly 7 points higher than the rate officially reported.

The real rate includes marginally attached workers which the BLS reports "are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule."

Since April 2008, 6 million people have lost their job. ADA's Real Rate of Unemployment represents a staggering 23 million people who are unemployed or underemployed.

The increase of another 563,000 jobless claims for April 2009 was the smallest rise in 6 months, providing some evidence that government stimulus is working but underscoring the urgent need to put more government dollars to work motivating the private sector to begin hiring laid-off workers. "


Evan Rowe

Exactly. The Great Depression was where in 1929? In 1930 the house didn't even change parties (lack of popular unease with the status quo??) FDR doesn't even get the New Deal policies until the middle of 1933.

There are plenty of freakonomics multivariate reasons for why this may be the big one. But clearly part of it will boil down to the length of the downturn in terms of time.


ah ha ha. "Yet" .....there's always one.


Probably right. Maybe. Today we have Social Security, $250,000 deposit insurance (when Bonnie and Clyde robbed a bank in the depression, the government wasn't watching your back), Medicare, and unemployment insurance to soften the blow. But, at the same time, the bankers were wiped out in that Darwinian world, too, not practically rewarded for their almost criminal behavior to survive and prosper and profit from the deflated assets they helped create.

I think our big worry is the impending Great Hyperinflation of the 21st century. Buy Tips.

Dimitri Maex

Glad to hear that because I heard that according to Kondratieff we are entering a winter of severe depression that can last up to 20 years ... .

I recently put this post on my blog about the correlation between the length of skirts and the recession. I wonder whether you are familiar with the theories of Prof Helmut Gaus and if so, what you think of them :


What's with the "yet" comment? That one word symbolizes the doom and gloom attitude of politicos and media types trying to push a specific agenda right now. Sure, if you are one of the affected - it's not all that good. But the situation is hardly worthy of comparing to the Great Depression.

Oh yeah, back to your comment. "Yet" you say? I haven't been hit by a bus or crashed in a plane....."yet", but in the meantime I am going to focus on the positive things that are happening and not wait around for something that could possibly happen. Focus on what you can control right now instead of screaming "the sky is falling!", and work to protect your future - in private.


This is great stuff! Kudos to the Freako folks for bringing back Fishback. I wish there were more short, balanced, empirically-driven accounts like this is the blogosphere right now.

Amity Schlaes (rightly) gets the back of the hand without even a mention of her name, but so do the knee-jerk millenarian lefties assuming that (finally, finally!) the capitalists have gotten our comeuppance and the last crisis of capitalism/birth of socialism is upon us. Calling spades is not a team sport.

But more importantly, what one gets from this post that has been difficult to find of late is a huge and entirely necessary dose of perspective. Like throwing water on a dog too frenzied with a squirrel in a tree to hear his master, Fishback reminds us to keep our cool. Crisis is a relative term.


It's too much to hope that our leaders would be straightforward with the public. The Obama Administration has a lot of incentive to spin this downturn as close to the Great Depression. They can (a) blame Bush for the downside, (b) claim that they are heroic saviors whose whose "wise" policies are responsible for the turn around and (c) "not let the crisis go to waste" when they can further other areas of their broad political agenda.

Othar Hugh Manati

Excellent point, Rey.

There are currently six different official metrics for unemployment. Until there is a confirmed apples-to-apples comparison between the currently used numbers and the numbers used in the '30s, comparing unemployment rates between the two eras in worthless.

That said, I don't think this downturn (yet) compares to the Great Depression, either. I just don't think the "unemployment rate" is a very useful metric due to being redefined over time.


I feel SO much better knowing this now that my wife lost her job, my one sister in law took a 15% paycut, my other sister in law faces the imminent threat of a layoff, and my brother is unemployed. Meanwhile, my family health care plan from work (albeit a very nice plan) costs me about $650/month excluding all the nickel and dime co-pays. Okay, maybe I'm not a hobo riding the rails from town to town with a sack and the end of a stick looking for odd jobs, but I can tell you that--whatever this is--it ain't good!


Rey - if you are going to do unemployment comparisons, it makes no sense to throw out apples to oranges comparisons in the methodology. I would argue that the "real unemployment rate" for the Great Depression era would probably also be higher as a result of the above methodology. It's unfair, and somewhat unresponsible, to throw out numbers to an undereducated public that won't understand the difference. All they'll see is "unemployment at 15.8%". Oh my god..."the sky is falling"!


To agree with commenter #2, the BLS methods for charting unemployment have changed more than once. If I remember correctly, a large change was made in the 90's and that reduced the official rate. If you used comparable methods, the unemployment rate now is quite a bit higher than reported - and is especially worse for men, who even in the official stats are at 9.4% (and this means more families without their primary breadwinner).

So things are worse than they may look but not as bad as the GD. But then, one would expect a huge difference given the massive cultural and structural economic changes since pre-WWII. The US was then still about 1/4 farm employment and it's now less than a tenth, so declining commodity prices killed more jobs. The US also had more of a large employer industrial structure with less diversity - if only due to progress of technology - so falloff in an industry would again kill many jobs very fast.



I can't help but note that Mr. Fishback quotes statistics that end with the fourth quarter of 2008, leaving out the most precipitous drops. Surely, in this age of instant information and analysis, he could have carried us through one more quarter--except that it would have considerably weakened his arguments. No, this isn't another Great Depression (YET--as Poster 1 reminds us), but it's no walk in the park, either.


Once upon a time women didn't work. Only men worked and competed for jobs. Once upon a time few people had college degrees and people expected to work on farms or in factories, part of the greater machinery that produced tangible products. Now a greater percentage of society has not only bachelors degrees but MBAs and JDs and PhDs and everyone expects to be able to work with their brains not their hands or expects to make money from some idea for a process or service manifest on the Internet. I don't need someone who is a specialist of a different time and place telling me how to feel about what's happening right here and right now. I need someone who is a specialist in modern capitalism giving me perspective on the current situation. Someone who can make serious adjustments to the data based on changes in the labor force, changes in the working population, changes in lifestyle. Thanks.

James Cessna

The terms are always debatable: economic downturn, panic, depression, recession, etc. For millions of Americans we are having the worst economy they have ever encountered, and at enormous cost.

It is a another Great Depression for millions. If we finish H1 with the same miserable indicators, we will have created the worst economic downturn since the 1930s. It's a depression, just not as bad as the Great Depression, so far.


So the numbers that they come out with today are "higher" because they include people that the statistics in the '30s didn't. Unfortunately, we can't report the underemployed from back then because no one measured it. Can anyone really think that everyone with a job in the depression was employed "full-time." Highly unlikely. The underemployed are reported today to make things seem worse than they really are. Why? To justify government jobs. Where will the spirit of America end up if people are too "discouraged" to seek work? Get out and and find! Take up a new craft or trade. The landscape is changing so open your mind. If you think you can or think you can't you're right.


So unemployment rose 8.8% in nominal terms over the course of the year during the great depression. In the 6 months since the market crash, unemployment has risen from 6.1% to 8.9% (about 3%, or 6% annualized). If we extrapolate the current trend to the end of the year, then the unemployment rate will be virtually identical to that of the great depression one year out.

Just saying...individual data points are pretty easy to spin...


The media has driven this fever pitch

The media has gotten every major story wrong:

-Real Estate
-last 5 elections form Dole to Palin wins
-Wall St.
-Ponzi (Barrons, WSJ w/ erroneous stories)

The moral is

-Bad news sells

-Good news makes news irrelevant

Mike K

How was the unemployment rate calculated for the 1930's and 1940's? Is it calculated that same way now? I am expecting that it is not. So why not calculate it the same way and then print the comparisons. Otherwise the comparisons by the noted Depression expert don't seem to mean much, and in fact are misleading. Ditto with the GDP.

I'd be curious - how much of GDP went to interest payments to banks back then as opposed to now.