Definition
The Great Depression, spanning from 1929 to 1939, was a severe worldwide economic crisis characterized by widespread unemployment, steep declines in output, and severe deflation. On the other hand, the Great Recession was a global economic downturn that occurred from 2007 to 2009, characterized by a decline in GDP, housing market failure, and a significant increase in unemployment but was less severe and of shorter duration than the Great Depression. Both terms represent significant periods of economic downturn, but the Great Depression was much more devastating and longer-lasting.
Key Takeaways
- The Great Depression (1929-1939) and the Great Recession (2007-2009) were both significant global economic downturns, but the Great Depression was much more severe with its extended duration and depth of financial collapse.
- Different factors led to each of these financial crises – the Great Depression was mainly due to a combination of stock market crash, banking panics and drought while the Great Recession was largely a result of a burst housing bubble, poor banking practices, and over-inflated securities tied to American real estate.
- Both events led to drastic changes in policy making, banking and finance regulations. The Great Depression resulted in more vigilant financial regulations and the establishment of safety net programs, while the Great Recession led to regulations aimed at consumer protection and preventing risky lending behaviors by financial institutions.
Importance
The finance terms “Great Recession” and “Great Depression” are important to differentiate due to their significant impact on global economies but at very different magnitudes and durations.
The Great Depression, occurring during the 1930s, was a sustained, long-term downturn that led to drastic declines in output, severe unemployment, and acute deflation.
In contrast, the Great Recession, which spanned from 2007 to 2009, while severe, was shorter in duration, and the economic declines, although significant, were less extreme than those during the Great Depression.
Therefore, understanding the differences between the two can help economists, policymakers, and others make more informed decisions based on historical precedence and comparative economic analysis.
Explanation
The terms Great Recession and Great Depression reference two substantial downturns in the global economy that occurred in the 20th and 21st centuries respectively. Their purpose, as terms, is often to illustrate major economic events with dramatic, worldwide impact on the loss of jobs, wealth and overall economic activity.
Understanding these terms and their implications can provide invaluable lessons for policymakers and economic stakeholders, helping support decisions aimed at prevention, early detection or management of future economic crises. The Great Depression, dating from 1929 to late 1930s, serves primarily as a historical reference point— highlighting the extreme hazards of unregulated markets, trade protectionism and monetary mismanagement.
Its main use today is in economic and policy analyses, which utilize its lessons to understand how to better stimulate economic recovery and prevent similar occurrences. Meanwhile, the Great Recession, a term for the period of global economic decline that occurred from 2007 to 2009, is often invoked to describe an instance of a severe financial crisis spurred by a collapse in the housing market.
This term is generally used to underline weaknesses in the global financial system, guide appropriate regulation and convey the economic struggles associated with that era.
Examples of Great Recession vs Great Depression
Housing Market Impacts: One example of the Great Recession is the 2008 housing market collapse in the United States. The combination of risky lending practices and speculative trading in mortgage-backed securities led to a housing bubble. When it burst, millions lost their homes and global financial institutions collapsed or had to be bailed out. This was different from the Great Depression, where the housing market was not a key cause; the stock market crash of 1929 was the main trigger. Additionally, during the Depression there wasn’t a housing bubble and the circumstances were more tied to broader economic factors.
Unemployment Rates: Another important example is the impact on unemployment. During the Great depression, unemployment in the U.S in 1933 reached nearly 25%, which means nearly one out of every four workers was out of a job, while during the Great Recession, the unemployment rate peaked at less than 10% in
Although the unemployment rate was severe in both instances, the Great Depression was significantly worse.
Government Responses: The third example is the response from the government. During the Great Recession, the U.S. Government immediately stepped in to rescue failing banks and passed a large stimulus package to boost recovery. These decisive actions helped to limit the extent of the crisis. However, during the Great Depression, the response from the government was slower and less coordinated, which likely exacerbated the crisis. It took the New Deal, a series of government reform programs initiated by President Franklin D. Roosevelt, to alleviate the crisis years after the Depression started.
FAQ: Great Recession vs Great Depression
What was the Great Depression?
The Great Depression was a severe economic downturn that started in 1929 after the crash of the U.S. stock market and lasted until about 1939. It was the longest and worst depression experienced by the industrialized Western world. During this period, levels of employment, industrial production, and share prices fell dramatically.
What was the Great Recession?
The Great Recession is the term used to signify the severe economic downturn that took place from December 2007 to June 2009 following the bursting of the U.S. housing market bubble. It was the most serious global recession since World War II and resulted in a steep decrease in employment and a significant increase in the number of people living below the poverty line.
What is the difference between the Great Recession and the Great Depression?
The Great Recession and the Great Depression were both significant downturns in the global economy. However, the impacts of the Great Depression were far more severe and lasted considerably longer. The Great Depression lasted for about a decade and resulted in a 25% unemployment rate in the U.S., while the Great Recession lasted about a year and a half with a peak unemployment rate of 10% in the U.S.
What caused the Great Recession and the Great Depression?
The Great Depression was primarily caused by a crash in the stock market, which caused panic and widespread sell-offs. This was compounded by bank failures and a reduction in purchasing. The Great Recession was primarily caused by a housing market bubble and irresponsible lending practices, which led to a financial crisis when the bubble burst.
What lessons have been learned from the Great Recession and the Great Depression?
Both the Great Depression and the Great Recession have taught economists and policymakers the importance of government intervention during economic downturns. Following both crises, major regulatory reforms were put in place to prevent the same mistakes from happening again. These events have underscored the need for healthy lending practices, robust financial regulation, and active monetary and fiscal policy.
Related Entrepreneurship Terms
- Financial Crisis: This term pertains to any significant decline in financial activities such as the two main events, Great Depression and Great Recession.
- Unemployment Rate: During both the Great Depression and Great Recession, there was a significant increase in unemployment rate due to the economic downturn.
- Economic Downturn: This is a general slowdown in economic activity over a sustained period of time, as experienced during the Great Depression and Great Recession.
- Market Crash: Both the Great Depression and Great Recession were preceded by significant declines in stock market values, that are often known as market crashes.
- Fiscal Policy: These are government measures to influence an economy by adjusting spending levels and tax rates, significantly used during the period of the Great Depression and Great Recession.
Sources for More Information
- Investopedia: This platform offers a wealth of resources on a wide rang of financial topics. They have a multitude of articles going in depth about the Great recession and Great depression.
- History.com: This website has numerous articles describing historical events, such as the Great Depression and the Great Recession.
- Federal Reserve History: This site provides a host of information on key events in U.S. economic history, including the Great Recession and the Great Depression
- The Economist: As a highly-regarded global publication that covers a wide range of topics, this is another great resource to understand these two events.
