Comparing Our Current Economic Crisis to the Great Depression
It comes up during our everyday conversations. It is the topic of local and national news programs almost daily. Not one person has been left unaffected by it. Our current recession has been hailed as the worst economic crisis since the Great Depression.
Statistics are coming out constantly to show how this economic recession is deepening. Yet, how does this latest economic downfall compare to the Great Depression?
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Causes
It is difficult to pin down just one answer to the causes of economic crises as there is usually a multitude of factors involved. Disaster in one section of the economy can cause a ripple effect throughout. Many factors combined to bring about the Great Depression. In the 1920’s, business was growing and people were eager to get rich quickly. However, this postwar boom encouraged industries to make more products than they could sell, and World War I left many countries reeling from large debts and taxes.
One similar factor that can be seen in contributing to the Great Depression and our current economic crisis is that of credit. Before the Depression, credit was extremely easy to obtain and large numbers of people built up debt. People invested in the stock market by using profits or by borrowing and therefore, turned it into a gambling operation. People bought stocks at high prices in hopes of selling at even higher prices. Stock prices were soon beyond their real value. This economic balloon kept expanding. When it burst, stock holders rushed to sell and the stock market crashed.
Similar circumstances can be seen in the financial markets of the last few years, especially in real estate. People investing in real estate drove up the prices, and in turn, homes prices became overinflated. Lending practices of banks added to the mess, in which many people were approved for loans they would not be able to pay back. As a consequence, major financial institutions, like Fannie Mae and Citigroup have lost incredible amounts of money due to these practices. When this real estate balloon burst, every section of the economy has been hit hard since then.
Statistics
After the stock market crash in 1929, the Gross National Product of $87 billion shrank to $41 billion four years later. The number of people unemployed in 1930 numbered 7 million. By 1931, the number was 12 million. The largest numbers of unemployment came in 1932, when 15 million people were jobless. The unemployment rate in 1932 was at roughly %25, meaning that one out of every four Americans had no income on which to survive.
The most current numbers for our latest economic crisis report that more than 5 million people are unemployed. The unemployment rate is at now at 8.1 percent, according to a report released March 6, 2009. This is the highest unemployment rate since 1983. Just in January of 2009, employers cut nearly 600,000 jobs, the biggest lost since 1974. Also, the Dow Jones industrial average took a large hit just a few days ago on March 2, falling below 7,000, for the first time since 1997.
Effects
Presidential elections have proven to be explicitly affected by economic crisis. In 1932, President Herbert Hoover ran for re-election against Franklin D. Roosevelt. Roosevelt overwhelmingly won the presidency, since most Americans blamed Hoover for the Great Depression. Americans felt he had not done enough to alleviate the affects of the decline.
The economic crisis and each candidate’s response to it became the defining issue of contest between Barak Obama and John McCain in 2008. Obviously, John McCain did not learn from history as he stuck with conventional Republican wisdom stating that the fundamentals of the economy were strong and that the economy would fix itself. What started as a close race ended with a resolving win for Obama.
Hard economic downfalls have also affected and undermined political stability. The Great Depression era saw tremendous political unrest. The decade of the 1930’s saw the rise of fascism and Nazism in Europe. Dennis Blair, Obama’s intelligence chief, claimed recently that the current economic crisis could pose the greatest threat to global security. In a growing atmosphere of fear, distrust, and insecurity, it is not difficult to see why.
Conclusion
There is much debate over whether the country is heading into another Great Depression like what was seen in the 1930’s. While today’s global economic crisis has yet to reach the staggering numbers of the Great Depression, most experts predict that the recession will deepen before it gets better as companies have more layoffs over the next few months.
Sources
“Why Your Bank is Broke” by Stephen Gandel. Time. time.com/time/business/article/0,8599,1874702,00.html
“Is the Economic Crisis a Security Threat, Too?” Bruce Crumley and Tony Karon. Time. time.com/time/world/article/0,8599,1881492,00.html
The Great Depression and World War I. Gerald D. Nash. St. Martin’s Press; New York: 1979.
The Great Depression: An Eyewitness History. David F. Burg. Facts on File; New York; 1996.
Brother, Can You Spare Me a Dime? Milton Meltzer. Alfred A. Knapp; New York; 1969.
Rebecca M. is a self-proclaimed history buff who has been interested in U.S. history for over ten years. She is also the author of a history blog called My Adventures in History. This blog is found at http://myadventuresinhistory.blogspot.com/
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