One of the phrases that we see over and over again these days is ‘since the Great Depression.’
For example, the employment situation reports on Friday showed that the unemployment rate was the worst since the Great Depression. In the Great Depression, unemployment reached 25 percent, and the second worst reading until last week was 10.8 percent.
While perfectly accurate, I worry a little that using this phrase too much might have a negative effect. If I say, ‘don’t think about an elephant,’ what is the first thing you think about? An elephant! So too with the term, since the Great Depression.
Still, it’s natural to wonder whether we’re headed for a second Great Depression, so I was heartened to see a true expert on the subject, former Federal Reserve Chair Ben Bernanke, interviewed by the Wall Street Journal over the weekend, on the question.
“I don’t find comparing the current downturn with the Great Depression to be very helpful. The expected duration [today] is much less, and the causes are different.”
The article sites some of the major differences between today’s circumstances and those of the Great Depression. For example, industrial production fell by 50 percent in the 1930s. In the 2008 financial crisis, production fell by 15 percent.
Today, we don’t know how much industrial production will fall, but many factories are retooling. Ford and GM, according to the WSJ, have retooled and are making ventilators instead of cars. Medical supply factories can’t keep up with demand, and hopefully somewhere, someone is making more toilet paper.
The other big difference between now and the Great Depression is the government response. The Federal Reserve famously tightened conditions in 1937, choked off the recovery that was taking hold and sent the economy back into a tailspin. Today, the government has the fiscal and monetary stimulus spigots wide open.
“Many people are suffering now, and the economy won’t recover in only a quarter or two, but if we’re able to get reasonable control over of the virus, the economy will substantially recover, and this downturn should be much shorter than the Great Depression.”
Even though Bernanke doesn’t know where the economy is going specifically, he was widely considered an expert on the Great Depression before he was Fed Chair and some people credit his knowledge of that era for getting us out of the 2008 crisis.
So, hold onto your hat as we get more economic data, it’s going to be grim. And, yes, much of it will be the worst since the Great Depression, but that doesn’t mean that we’re resigned to suffer that fate again.