Woolf: Recession not Depression

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(HOST) All this week, VPR news is looking at the effect of the economic downturn on Vermonters. Economist and commentator Art Woolf agrees that the economy is in bad shape – no doubt about it – but he insists that we’re not in a depression.

(WOOLF) The economy is in terrible shape.  Worse than anyone predicted a year ago.  Far worse than economists forecasted as recently as six months ago.  And it  will continue to decline in coming months.  

This is a recession, a serious one, and you don’t have to be an economist to be worried about how long it will last and how deep it will get.  But we’re not in a depression and we’re certainly not in a situation like The Great Depression of the 1930s.  

The nation has lost more than 3 million jobs and the unemployment rate is now nearly 8%.

But, in 1933 25% of Americans were unemployed.  Seven years later, on the eve of World War II ,15% were still out of work.  

The broadest measure of economic activity, Gross Domestic Product, is no higher today than it was a year ago, and will likely to fall by 2% this year.  But in the early 1930s, the nation’s output fell by 25%.

Today, 5 million unemployed workers receive unemployment insurance checks and 30 million people get food stamps.  For those 10 million Americans out of work in 1933, there was no safety net.  No unemployment insurance.  No food stamps.  No welfare assistance.   

There are some worrisome parallels between today and the 1930s.    In the 1930s the entire developed world was also mired in an economic collapse, but more than half of the world’s population – the Soviet Union, India, China, Africa-was not part of the global economy.  By contrast, today, nearly all 6.8 billion of us are affected by the global downturn.

In addition, the Great Depression was worsened, some say caused, by a collapse of the nation’s financial system.  

Although we also have a financial crisis today, the magnitude is far different.  Since the crisis began more than a year ago, 35 banks have failed.  That’s a far cry from the 9,000 that went under in the early years of the Great Depression.   Today the federal government insures bank deposits.  In the Depression, if your bank failed, you lost everything.

We are, unfortunately, seeing some of the same mistakes being made today that were made in the 1930s.  Concern over saving domestic jobs led to the 1930 passage of the Smoot Hawley tariff, restricting imports, leading to trade retaliation by other nations, and making a bad situation even worse.  Today, we are also seeing rising protectionist sentiments.

Economic policymakers and governmental officials, both then and now, didn’t know what to do in the face of the financial and economic crisis.  Some of their policies and rhetoric helped the economy, but others worsened the downturn.     

Policymakers need to be very careful about what they do and what they don’t do.  We can learn from the lessons of the Great Depression, but we should also remember that as bad as the economy is today, it has changed a lot since the 1930s.  

We will see a return to prosperity.  And it will come far sooner than it did in the Great Depression.

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