Are We Reliving The 1930s?

At the close of last week’s G20 Summit, 

U.K. Prime Minister David Cameron warned that we’re on the verge of another global recession

, citing problems like looming deflation, falling prices, and rising protectionist sentiment. This list evokes a sense of déjà vu: not about the Great Recession, but the Great 

Depression

. That was the last time we ever seriously worried about disinflation, along with every practically other aspect of economic performance raising alarm bells today: low interest rates, weak investment, slow productivity growth, and chronic labor force detachment.

To be sure, this isn’t an easy comparison to swallow. The Great Depression is the ultimate measuring rod of economic catastrophe to which every other downturn is compared. But as time goes by and forecasts of full recovery keep getting deferred like an ever-fading mirage, it’s one worth examining. How does the Great Depression of the 1930s compare with the Great Recession of the 2010s? Let’s look at the GDPs of the U.S., U.K., and continental Western Europe from 1929 on and from 2007 on, using the base year as an index.

Great Depression v. Great Recession, United States GDP

Great Depression v. Great Recession, United Kingdom GDP

Great Depression v. Great Recession, Europe GDP

A few contrasts stand out. First, the Great Depression triggered much deeper drops in GDP and employment rates in the United States than in any major European country. The peak-to-trough drop in the United States from 1929 to 1933 was a stunning 26 percentage points of GDP, versus only 11 points in Europe and 6 points in the U.K. The employment drops were similar. Second, in both Europe and especially the United States, the depth of the Great Depression was much greater than the depth of the Great Recession. Only in the U.K. was the GDP loss roughly the same.

Yet these figures don’t mean that the Depression was definitely worse. Though it was deeper, it was also shorter than the Great Recession in the U.K. and in Europe—and it likely will be shorter than the Great Reces­sion in the United States. The recovery in the ‘30s occurred much faster than it has in recent years. In the U.K., GDP was already back above its 1929 level by 1934, five years after the recession began. Europe met that milestone by 1935, six years after their recession began. Today, Eur­ope is going into its seventh year of recession and still has not regained its 2007 GDP level. In the United States, we remain better off today (relative to before the crash) than during the Great Depression, but that’s due to the severity of the early drop.

What’s more, from 1933 on, U.S. GDP grew at a blistering average rate of over 8% per year for the next eight years. And that includes one recession year: 1938. By 1941, 12 years after the Great Depression began, U.S. GDP was 41% higher than its pre-downturn figure. This is almost certainly a much higher level, relative to 1929, than the United States will see by 2019, relative to 2007.

My point is not to diminish the magnitude of the Great Depression. It was certainly more terrifying, especially in its early years and in the social restlessness and political radicalism it spawned. But we can no longer think of it as longer-lasting: Bad times are shaping the temperament of a new rising generation around the world today just as surely as the original Great Depression did back then.

So perhaps a new nomenclature is in order. Instead of calling this the “Great Recession,” maybe we should call it the “Long Depression.” Paul Krugman, who has often pointed how much worse Europe is doing today than it was in the 1930s, coined the term “Lesser Depression” for our post-2007 experience. Brad DeLong, Krugman’s kindred spirit at UC Berkeley, also adopted this expression—until inventing yet punchier ones, like “The Second Great Depression” and “The Greater Depression.”

For Krugman and DeLong, such dire relabeling has (at least in part) one very specific objective: to shock voters and leaders into supporting the sort of massive fiscal stimulus they have long advocated. But you don’t have to be a militant neo-Keynesian to see the numbers for what they are—and to appreciate that the world has entered an era of grinding economic crisis since 2008 whose social and political consequences have yet to fully unfold.

Seeing the two “depressions” as historically and generationally comparable, makes it easier to recognize other similarities between the 1930s and the 2010s. Many are economic, as we have seen. But others are demographic (falling fertility, migration, and mobility). Still others are social (growing localism, income inequality, and distrust of elites; stronger families; and declines in personal risk-taking). And still others, ominously, are geopolitical (rising isolationism, nationalism, and authoritarianism, and the unraveling of any “world order” consensus).

The confluence of all these trends is not accidental. In general, each trend happens because most of the others are happening at the same time. The era as a whole, therefore, has its own internal logic, which doesn’t allow the component pieces to change much until the whole system changes and transforms into a new era. In my writings on generations and history, I call these sequential eras “seasons” or “turnings.” And right now, America and most of the rest of the world is in the winter season or the “Fourth Turning.”

These parallels between eras are so numerous and striking that they are hard to miss once we look broadly at the direction of events. That’s why connecting the economic challenges of the 1930s with those of the 2010s, and seeing them as comparable in some respects, makes a difference. When we are connected to history, we can comprehend better what else is happening in the 2010s, predict better what is likely to happen next, and to figure out, if necessary, how we can avoid an outcome that we regard as especially dangerous.