Comparison of the 2008 Great Recession and 1930s Depression

Title: Analysis of the differences and similarity between the depression of the 1930s and the “great recession” which began in 2008

The Great Recession is a term that represents the sharp decline in economic activity during the late 2000s, which is generally considered the largest downturn since the Great Depression.

The term “Great Recession” is a play on the term “Great Depression.” The latter occurred during the 1930s and featured gross domestic product (GDP) decline in excess of 10% and an unemployment rate that at one point reached 25%. While no explicit criteria exists to differentiate a depression from just a bad recession, there is near-consensus among economists that the late-2000s downturn, during which the U.S. GDP declined by 0.3% in 2008 and 2.8% in 2009, and unemployment briefly touched 10%, did not reach depression status. However, the event being unquestionably the worst economic downturn in the intervening years, the term accurately conveyed its severity by invoking such a well-known economic calamity.

Course code: ECN 210 -011

Instructor:Ã‚Â Dr. M. Jolly

Student’s name: Xikai Xu

Student number: 500636272

The depression of the 1930s and the “great recession” which began in 2008 were caused by economic crises, which means the economy of multiple countries or the economy of the world kept shrinking within a period of time.Ã‚Â Above all, although they took place in different years, the effects that both economic crises had were that they both caused a significant economic downturn. However, before economic crises come, the price of stock remarkably increases and the economy system shows a prosperous trend. Also, the main cause of both economic crises was overproduction in terms of the real merchandise and the fictitious capital, respectively. Based on the relationship between demand and consumption, when goods are over produced, which means the amount of merchandise produced is significantly more than the demand of the market, there will be an enormous excess of goods. The depression of the 1930s first took place in America, then, it spread to other capitalist countries. Banks, stores, and factories experienced economic difficulties, and lots of companies encountered bankruptcies. (Aiginger, K. 2010, page 6-8) Both economic crises resulted in the unemployment rate significantly increased and the stock crashed, which led the economic system became chaotic. However, there are still differences between the two economic crises because they took place in different time periods. The economy of the world was affected in 2008 because the great recession took place in the context of the global economy. Nevertheless, only capitalist countries were affected in the depression of the 1930s, and the laissez free economic policy caused it to some extent. Eventually, the Hoover New Deal helped America to survive the depression. (Rothbard, M. N. 1963, page 285-286) Conversely, the government actively developed and implemented economic solutions to deal with the great recession, beginning in 2008. Thus, these two representative instances showed the economic crisis of the 1930s and the modern crisis beginning in 2008. I will illustrate the similarities and differences between the depression of the 1930s and the “great recession” which began in 2008.Ã‚Â

As for the similarities between the depression of the 1930s and the “great recession” which began in 2008, even though they took place at different times, both economic crises occurred in the context of a bubble economy. Usually, a bubble economy begins with false prosperity and it finally ends with the breakout of economic crisis. Both crises lasted for a long period of time: the depression from 1929 through the 1930s, and the great recession from 2008 until 2012.Ã‚Â Also, they were devastating in many ways: the value of financial assets reduced, the productivity reduced immediately, and the unemployment rate increased, which finally resulted in the decline of the economy. Furthermore, the main cause of the depression and the great recession can be concluded as the economic imbalance of overproduction. The depression of the 1930s was the result of the indiscriminate expansion of the production of merchandise without consideration of the real demands in the market. Hence, the economic system would eventually collapse when the overstocking rate reached the maximum capacity the market could handle. The reason for the great recession was overproduction within the financial industry, although it did not produce real goods, and the overproduction did not seem as obvious as the overproduction of real merchandise. Moreover, the great depression took place in the context of capital securitization, a large amount of fictitious capital released in that time period, which was far from the real economy. Eventually, the economic bubble was formed and caused economic crisis. (Krugman, P. R. 2009 page 185-187Ã¯Â¼â€°Hence, either the overproduction of real merchandise or the overproduction of fictitious capital, which is referred to as the indiscriminate expansion, would eventually cause the economic crisis. Although real economy is the foundation of economic movements, the production and the demand in the market need to maintain a balanced proportional relationship. Also, the development of virtual economy and the fictitious capital provided the real economy with effective financial tools; however, the rapid expansion of virtual economy would potentially cause a bubble economy. So, the government needs to reinforce the supervision of the entire market, not only the real economy but also the virtual economy.

The depression of the 1930s and the “great recession” which began in 2008 were representative examples that showed us the differences between modern economic crisis and the traditional crisis. Since the great recession took place in the context of the global economy, it affected the economic system world-wide; however, only capitalist countries were affected in the depression of the 1930s. Also, they are different in terms of the economic policies. The depression of the 1930s took place in the context of the laissez free economic policy which caused the depression to some extent. However, the government responded immediately with effective intervention in 2008. In my perspective, the key differences between the depression and the “great recession” are the remedial measures that the government implemented to deal with the economic crises. As for the depression of the 1930s, it was relieved because of the Hoover New Deal, and similar actions were taken in other countries. The banking and enterprise systems were reformed, and the government expanded the budget for the national public works to create job opportunities. Since the depression in the 1930s was caused by overproduction in terms of agricultural products, the agricultural policy was adjusted. In order to increase the price of agricultural products, a large number of livestock was slaughtered and the cultivated land was reduced. Also, the government paid a large amount of subsidies to the farmers to spur the consumption. Moreover, the government established a social security system in order to give the retired people insurance and annuity, the unemployed people could also receive insurance benefits. (Rothbard, M. N. 1963, page 285-286) However, as the great recession began in 2008, the remedial solution that the government implemented focused on financial aspects. The government gave up the previous laissez faire economic policy, and provided massive intervention in terms of the American finance. A larger amount of funds was invested into the market to increase its liquidity, which relieved the crisis in a short period of time. Also, the Federal Reserve board decided to take over the bad debt of the banks and large groups. For instance, a loan of $85 billion in bailout was given to assist the AIG and to stabilize the economy. Other countries adopted similar implementation from America to deal with the great recession. (The Wall Street Journal, 2008) Overall, although both economic crises in 1930s and 2008 caused the world’s economic downturn, and the multinational collaboration prevented the economic condition from becoming more severe. Hence, in order to improve the economic crisis, the government plays an essential role to supervise the market and provide assistance to the market when it is necessary.

To conclude, there are several similarities between the depression of the 1930s and the “great recession” which began in 2008. Both of the crises spanned a long period of time and the effects were multinational. Also, the key similarity of the two crises is that they were caused by overproduction.Ã‚Â Even though the overproduction was in terms of real merchandise in the 1930s and the overproduction was based on the fictitious capital in 2008, they eventually caused the economic crises. Moreover, there are differences among the two crises in essence because the implementations that were used to deal with the crises were different. The depression in 1930s took place in the context of laissez faire economy policy and Hoover New Deal was implemented to improve the crisis. (Rothbard, M. N. 1963, page 285-286) The key solution that the New Deal had was to reduce the production of agricultural products and livestock that were massively slaughtered. Also, welfare was increased and the social insurance system was established to ensure the basic demands of the residents. Nevertheless, in the great recession which began in 2008, the government realized that it was necessary for them to take action, so that the economy could recover effectively. Hence, the government invested a large amount of funds in the market. All in all, in order to prevent and relieve economic crises, the government needs to utilize the dominant power to stabilize the economy.

What was ‘The Great Recession’

The Great Recession is a term that represents the sharp decline in economic activity during the late 2000s, which is generally considered the largest downturn since the . The term “Great Recession” applies to both the U.S. , officially lasting from December 2007 to June 2009, and the ensuing in 2009. The economic began when the U.S. housing market went from boom to and large amounts of and lost significant value.

Comparison of the 2008 Great Recession and 1930s Depression

What was ‘The Great Recession’

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