What Are The Similarities Between The Great Depression And Recession

Two of the worse economic times in America’s history are the Great Depression and the

Recession of 2007. However, how do these great events compare? Are they equally as

destructive or is one worse than the other? During both of these events, America’s

unemployment rates were very high, inflation was drastically increased, and overall economy

was unbalanced. The results included the extreme increase in homeless citizens, business

foreclosures, and destabilization of former monetary and fiscal policies. Due to these facts, both

of these major financial disasters are considered to be very similar. Although, the Great

Depression and Recession were very similar, they were exceedingly different due to their time

periods and causes. This difference

can be observed through the quantitative and qualitative data
of the details.
The first of these economic catastrophes was the Great Depression which occurred from
1929 to 1939. The Great Depression was a time when the business cycle remained in a trough
for an extended amount of time which is greatly attributed to the crash of the stock market on
Black Tuesday. On this day in history, a total of sixteen million shares were sold which caused a
major disbalance for the entire economic system of the United States of America. In fact, more than 900,000 businesses failed shortly after the crash of the stock market. Also, hundreds of
banks failed because everyone attempted to withdraw their money at once which the banks did
not have. Also, the United States government had no money which was mainly attributed to the
lack of tax revenue since the citizens had no money from the enormous amounts of bank and
business failures. During this time period, the government did not provide welfare programs to
help the poor. Since no welfare existed, everyone fell from their financial class since the majority
of people were unemployed or the wages for the few people with jobs was decreased by 50%.
Also, about 15 million people were unemployed which means they could not hope to pay the
government’s taxes along with their rapidly increasing debts. Since the citizens on every level
had become drastically poor, the government could not hope to support them since the flow of
money seemed to have stopped during this violent economic cycle. Due to this situation, many
families were homeless and could not find necessities such as food and water since they could
not afford them. To counter this issue, many soup kitchens were opened up that provided free
soup and bread. In fact, “Breadlines and Hoovervilles (homeless encampments) appeared across
the nation.” (The Great Depression (1929­1939). Also, several job summits were opened by the
government for the citizens to get back on their feet.

Due to the high demand for jobs and food,

soup kitchens and job summits would have enormous lines that were described as stretching as

far as the eye can see. Due to the hardships of the people and America’s economy as a whole, the

government took action when Franklin Delano Roosevelt became president. During his first

inaugural address, President Roosevelt described the situation "The withered leaves of industrial

enterprise lie on every side; farmers find no markets for their produce; the savings of many years

in thousands of families are gone. More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return."(Hardman, John).

Aware of the many issues of the economy, President Roosevelt established the New Deal which

consisted of several job and welfare programs. The New Deal’s programs and organizations

focused on several different areas to be improved within the economy such as unemployment.

Some notable programs and organizations in the New Deal include CCC(Civilian Conservation

Camps) and the Civil Works Administration. Both of these organizations focused on

providing
jobs for the unemployed citizens. Although the New Deal was effective, more action had to be
taken. Franklin Delano Roosevelt created the Second New Deal which consisted of more welfare
and job programs. The most well known programs from the Second New Deal include the Social
Security Act and WPA(Works Progress Administration). Due to both of the New Deals, the
economy recovered significantly from the initial damage. In fact, many programs established
during the Roosevelt’s presidency remain today such as Social Security and many other welfare
programs which aid in maintaining a healthy, balanced economy.
The second substantial economic recession was the most recent Recession of 2007. This
recession is documented as being “...the longest recession since World War II.”(Rich, Robert).
The Recession began in 2007 which is mainly attributed to the bursting of the housing bubble.
This event was caused by very low interest rates on housing loans. People wanted to buy as
much as possible while the rates were low. The entire monetary system was destabilized as
enormous amounts of money was borrowed from the banks while not being paid back at the
same rate. Due to the large amounts of spending and loans from low interest rates, inflation
reached an all time high causing the value of money to decrease drastically. Due to these reasons,
the Recession of 2007 was created. During the Recession, several economic factors decreased until the trough had been reached. One factor was the GDP which fell 4.3% from its peak in
2007 before the recession. Unemployment rates increased to 10% by 2009. The stock market lost
about 50% of its value. House prices fell by 30% which is especially due to the bursting of the
housing bubble. Along with the economic effects, the Recession of 2007 affected all levels of the
monetary system. Many small businesses were forced to close. Numerous smaller banks like
Wachovia and Washington Mutual were bought out by larger banks. Also, four major mortgage
providers went bankrupt since they were not given the money that they had loaned to so many
people. Many people were unemployed which led to their poverty or even homelessness.
However, much like the Great Depression, the Recession was eventually brought to an end by
government intervention. The Federal government established two goals that would help
accomplish recovery from the Recession. Numerous fiscal and monetary policies had to be
changed by the government in order to indulge the fragile economy. Several programs and acts
were used in the process of changing the fiscal and monetary policies. One such act is The
American Recovery and Reinvestment Act which consisted of $787 billion worth of tax cuts.
Spending was divided into thirds with each part being tax cuts, government spending, and aid for
those hurt most by the recession and weakened state and local governments. Thousands of
investment projects consisting of building projects for bridges, roads, and cleaner energy were
started to create jobs. After much time and effort, interest rates were significantly lowered to a
balanced level. Mortgage rates were lowered to help homeowners pay their house payments
without going bankrupt. Although America has made significant progress, we have not fully
recovered from this economic crisis since unemployment rates and inflation are still decreasing.
The author of Treatment and Prevention: Ending the Great Recession and Ensuring That It Doesn’t Happen Again stated, “Preventing future financial crises is something we owe to
ourselves and future generations.”(Treatment and Prevention: Ending the Great Recession and
Ensuring That It Doesn't Happen Again). as reassurance that all measures will be taken to
prevent another recession. This current economic trend of improvement shows that we are in an
expansion since we are recovering from the trough of the Recession.
The Great Depression and Recession are both times of massive economic depression in
America.

These times of economic distress are very similar in several ways. They both caused a

drastic increase in the unemployment rates. They were both preceded by good economic times.

Both of them were preceded by innovations in customer finance. Also, both troughs were

preceded by the movement of banks into a new business line and asset bubbles. Due to these

similarities, it can certainly be ascertained that these times of economic crisis were very alike.

Despite the similarities of their beginnings, the Great Depression was far more oppressive and

substantial. The unemployment rate in the Great Depression was 25% while it was 8.5% in the

Recession. The state response in the Great Depression was raising taxes and cutting spending

while the Federal plans provided fiscal relief to states to lessen impact of tax increases during the

Recession. The increase in the money supply for the Federal Reserve was 17% during the Great

Depression, but 125% in the Recession. The percentage of bank failures during the Great

Depression was 50% while it was 0.6% during the Recession. As for the overall comparison of

the Recession and Great Depression David Goldman stated, “Comparisons between

this
economic recession and the Great Depression are common, but the granddaddy of all downturns
was far worse.”(Goldman, David). Due to the information presented, it can be realized both the Great Depression and
Recession were times of extreme economic decline. They are very similar since they began much
the same and had the same problems. However, the severity of the Great Depression’s rates and
numbers cause it to be worse of the two. It had a stronger impact on the country’s economy some
of which is because it lasted a decade while the majority of the Recession endured a couple of
years.