Although the current recession presents obvious financial problems for many Americans and is affecting other markets worldwide, the comparisons between this economic crisis and the Great Depression tend to be more misleading and perhaps dramatic, than accurate.
A few examples of this would be the unemployment rate. During the Great Depression the unemployment rate was 25%. Today, during the “Great Recession,” as it is being called, the unemployment rate is about 9.5%.
Another example would be the percentage of bank failures. Between January 1930 to March 1933, a massive 50% of banks failed, compared to 0.6% that occurred between December 2007 and May 2009.
Though both of these economic downfalls are unfortunate in their own ways, there are several notable differences between the two collapses.
First, one reason for the Great Depression is that banks failed. Deposits were not insured then and this caused the banks to collapse and people to lose their savings. Also, any banks that did survive failure didn’t give out loans, which prevented them from losing more money, but made life difficult for people desperate for financial assistance.
Though bank failure isn’t impossible today, there are agencies such as the Federal Deposit Insurance Corporation, or FDIC, which insure a customer’s money in banks for at least $250,000.
Next, because people simply couldn’t afford to buy anything but the necessary items, purchases went down significantly and so did the need to manufacture goods. This slowed production which caused the great amount of layoffs that made the unemployment rate soar to 25%.
Today, people may not be purchasing an excessive amount of unnecessary items, but people haven’t stopped buying altogether.
In addition, according to the Bureau of Labor Statistics employment in a variety of areas has actually increased recently. Employment in mining, manufacturing, transportation and warehousing have all increased. Additionally increases in retail, professional and business services and healthcare have also been recorded. In general, in the month of June alone, over 206,000 jobs were added to these various areas.
Overall, though this economic crisis is difficult and may require a more rigorous way of handling your finances, it certainly isn’t the downfall that was the Great Depression.
What do you think of the comparisons of this recession to the Great Depression? Share your thoughts and comments below!