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People always wonder about the difference between the Great Recession and Great Depression. Talking about their similarities, both were devastating and agonizing for all the people who suffered. Suffering from huge financial losses, and seeing economic downturns is always a lousy bad time for everyone. Both the Great Depression and the Great Recession resulted in unemployment, scarcity of resources, bad physical and mental health, worst economic downturn, and loss of GDP in the United States. In this essay, we will explain shed light on the various differences between depression and recession.
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Great Depression vs. Great Recession
You may see both the terms “depression” and “recession” tossed around every now and then but you still may not know what they mean. In this essay, we will explain what these terms mean and what’s the difference between depression and recession as a whole.
What is a Recession?
An economic recession is defined as a huge decline in the GDP (Gross Domestic Product) for two consecutive quarters. However, the National Bureau of Economic Research (NBER) argues that recession is not just any decline but a significant decline in the economy that lasts for at least a few months. Therefore we can say that recession is directly related to the GDP of a country.
What is Depression?
Unlike recession, there is no clear-cut definition of economic depression. We cannot say that if the GDP falls X percent or there is a Y unemployment rate then we are in a state of economic depression. According to NBPR, economic depression has no specific timeframe or duration.
Some experts believe that a state is in a depression until the economic activity is declining. Experts also argue that the depression keeps on extending until the economic conditions reach a state when it can be considered normal.
The Difference Between a Recession and a Depression
Both recession and depression have some similar indicators and symptoms. However, the most significant differences between the two are their severity, the complete duration, and the overall impact. Depression is a severe kind of recession that lasts much longer and it is much more devastating for the economy in comparison.
A depression lasts for years but a recession lasts for much less time. A depression sees higher interest rates, low federal reserve, more unemployment rate meaning more labor is unemployed and sees a very sharp decline in GDP. Unlike a recession that affects a local environment, depression has a far-reaching global impact.
Great Depression vs. Great Recession: Most Significant Differences
There are some significant differences between the Great Depression and the Great Recession, these differences can help you identify the current economic state of a country. Here are the key differences between the Great Depression and the Great Recession
Difference in Duration
Economic depression lasts much longer than depression. The Great Depression of 1929 saw a severe economic crisis from 1929 to 1933 however it didn’t end in 1933 as it lasted almost a decade. On the other hand, the Great recession of 2008-2009 lasted for some months. The recovery phase of depression is very slow but a recession has a speedy recovery.
The main reason for the slow recovery of the great depression was the involvement of the united states in World War II in the 1940s. This involvement further slowed down the economic growth and recovery of the US which is why it is one of the important causes of the great depression.
The difference in Economic Failure
The great depression had a very severe economic failure, at that time, the prices level declined by 22% and the GDP fell by 31%. However, in the recession, the GDP only fell by 4% and the price level rose at a very slow pace. This shows that the recession is a much milter kind of economic decline.
Difference of Impact
A Depression has an impact on a very large scale and a recession usually has a very small or local impact. According to a report, the great depression affected the US and European countries along with Japan and much of Latin America. However, the Great Recession of 2008-2009 only impacted the US economy at large.
Difference in Severity
The great depression was much more severe than the recession. It was longer, the GDP decline was also severe, and the joblessness situation impacted the whole of the US and Europe. The recession was much less severe and only impacted one country which is the US.
Comparison of Bank Failure
In the great recession, the banks lent money to everyone without caring much about the liquid cash reserves. When the stock market collapsed and people tried to get their money out of the banks, the banks were unable to give their money back. Long waiting queues were seen and the worst economic conditions were seen.
In the recession of 2008-2009, the stock market crash was not as severe as the depression of 1929. The banks failed to pay the mortgage but it was not nearly as severe as the great depression.
Deflation Comparison
During the great depression in the year 1929, there was nothing that could stop the economic crisis. Almost all the economic departments that could stop the economic crisis were also failing. Even the industrial sector, as well as the farming sector, were failing and there was nothing that could stop the deflation.
However, in the great recession, the economy, stock market, or banks did not completely fail. During the 2008 recession, the FED bailed out the troubled financial system by doubling the monetary basis. It helped with the financial crisis by empowering the financial institutions.
In conclusion, all the above arguments provide a clear understanding of the differences and similarities between the great depression and the great recession. Both of these, the recession and the depression were devastating events that should be avoided at all costs for the betterment of humanity.
FAQs
How are the Great Depression and the Great Recession similar and different?
Both of them are similar in a way that both were mainly caused because of the financial crisis. The main difference between the two is the severity and duration of this financial crisis.
What do the Great Depression and Great Recession have in common?
Both of them were caused because of the financial crisis, banking failure, and stock market crashes but the great depression was much more severe than the recession.