First off, just let me say that I'm not predicting another Great Depression. I doubt anyone really knows where the economy is headed, much less when the true bottom will be reached.
That said, past history can at least inform us. It can help us put things into perspective, so we don't instinctively let our guards down at a critical time. So I have been reading extensively about this country's last depression, and in doing so I have run across many, many essays that assure us that things are clearly different now, and not nearly as serious as they were "back then."
Maybe, maybe not...
Like most of you, I'm a little anxious about where the economy might be headed. I think it is only natural to speculate about whether we are headed into another "Great Depression." I don't want to be overly gloomy and pessimistic, but I don't want to have my head in the sand either.
Bonddad's excellent series of diaries on the Great Depression, found
here
here
here and
here
were a great place to start, in my opinion.
But what I really wanted, which was a comparison of where we are now relative to where we were six months into the last depression, seems to be in short supply anywhere in the Internet - at least it wasn't jumping out at me.
Naysayers point out that this can't be another depression, because unemployment isn't anywhere near the hideous 25% levels found at the depths of the Great Depression. But it took 3 or 4 YEARS to hit that low back in the 1930's. Likewise, the country's Gross Domestic Product (GDP) has not plummeted to anything close to what it did back then. But again, it took YEARS for the economy to bottom out back then.
Perhaps it's because of the simplistic way the history of the Great Depression is often told - the stock market crashed and things just tanked - but it seems to me that it is foolish to compare what is happening today with what eventually happened 4 years into that past event.
I want to know what things look like now compared to what they looked like in roughly the same time period back then (ie. early 1930).
That isn't as easy as it sounds, largely because many of the statistics we thrive on now, including unemployment and GDP figures, simply weren't available back then (as near as I can tell) on a monthly, or even quarterly, basis.
Here's what I could find. According to the Bureau of Labor Statistics, unemployment went from roughly 3.3% in 1929 to roughly 8.9% by the end of 1930. Again, unemployment didn't hit bottom until 1933. In some respects, the Great Depression was kind of a slow motion train wreck.
Likewise, as Bonddad pointed out in his opening diary, GDP in 1930 fell 8.6% (in constant 2000 dollars).
How does that stack up to where we are today? Well first of all, we have another 10 months to go before the data become truly comparable, but it seems to me we are following the old curve in an eerily similar fashion. Again, according to the Bureau of Labor Statistics, we went from an unemployment rate of roughly 4.7% in October 2008 to roughly 7.6% today. With rumblings of more mass layoffs coming in the auto industry, it seems we could easily keep pace.
Likewise, GDP in the last two quarters of 2008 fell an estimated 0.5% and 3.8% respectively. I'm no economist, but it doesn't sound like that trend will suddenly reverse, either.
Again, I'm not saying we are heading into another Great Depression. But these comparisons alone give me a little more reason to be cautious in how I organize my life.
That's all I intend for you to do with them as well.
Let's keep our fingers crossed that the stimulus bill will perform as advertised...