Recession Comparisons with the Great Depression

Although some casual comparisons between the late-2000s recession and the Great Depression have been made, there remain large differences between the two events. The consensus among economists in March 2009 was that a depression was not likely to occur.[157] UCLA Anderson Forecast director Edward Leamer said on March 25, 2009 that there had not been any major predictions at that time which resembled a second Great Depression:

"We've frightened consumers to the point where they imagine there is a good prospect of a Great Depression. That certainly is not in the prospect. No reputable forecaster is producing anything like a Great Depression."

Differences explicitly pointed out between the recession and the Great Depression include the facts that over the 79 years between 1929 and 2008, great changes occurred in economic philosophy and policy,[159] the stock market had not fallen as far as it did in 1932 or 1982, the 10-year price-to-earnings ratio of stocks was not as low as in the '30s or '80s, inflation-adjusted U.S. housing prices in March 2009 were higher than any time since 1890 (including the housing booms of the 1970s and '80s),[160] the recession of the early '30s lasted over three-and-a-half years,[159] and during the 1930s the supply of money (currency plus demand deposits) fell by 25% (where as in 2008 and 2009 the Fed "has taken an ultraloose credit stance").[161] Furthermore, the unemployment rate in 2008 and early 2009 and the rate at which it rose was comparable to most of the recessions occurring after World War II, and was dwarfed by the 25% unemployment rate peak of the Great Depression.

Price-to-earnings ratios have yet to drop as low as in previous recessions. On this issue, "it is critically important, though, to recognize that different analysts have different earnings expectations, and the consensus view is more often wrong than right."[162] Some argue that price-to-earnings ratios remain high because of unprecedented falls in earnings.[163]
Three years into the Great Depression, unemployment reached a peak of 25% in the U.S.[164] The United States entered into recession in December 2007[165] and in March 2009, U-3 unemployment reached 8.5%.[166] In March 2009, statistician[167] John Williams "argue[d] that measurement changes implemented over the years make it impossible to compare the current unemployment rate with that seen during the Great Depression".

Nobel Prize winning Economist Paul Krugman predicted a series of depressions in his Return to Depression Economics (2000), based on "failures on the demand side of the economy." On January 5, 2009, he wrote that "preventing depressions isn’t that easy after all" and that "the economy is still in free fall."[169] In March 2009, Krugman explained that a major difference in this situation is that the causes of this financial crisis were from the shadow banking system. "The crisis hasn't involved problems with deregulated institutions that took new risks... Instead, it involved risks taken by institutions that were never regulated in the first place."

On February 22, NYU economics professor Nouriel Roubini said that the crisis was the worst since the Great Depression, and that without cooperation between political parties and foreign countries, and if poor fiscal policy decisions (such as support of zombie banks) are pursued, the situation "could become as bad as the Great Depression."[171] On April 27, 2009, Roubini expressed a more upbeat assessment by noting that "the bottom of the economy [will be seen] toward the beginning or middle of next year."

Market strategist Phil Dow "said he believes distinctions exist between the current market malaise" and the Great Depression. The Dow's fall of over 50% in 17 months is similar to a 54.7% fall in the Great Depression, followed by a total drop of 89% over the next 16 months. "It's very troubling if you have a mirror image," said Dow.[173] Floyd Norris, chief financial correspondent of The New York Times, wrote in a blog entry in March 2009 that the decline has not been a mirror image of the Great Depression, explaining that although the decline amounts were nearly the same at the time, the rates of decline had started much faster in 2007, and that the past year had only ranked eighth among the worst recorded years of percentage drops in the Dow. The past two years ranked third however.

On November 15, 2008, best selling author and SMU economics professor Ravi Batra said he is "afraid the global financial debacle will turn into a steep recession and be the worst since the Great Depression, even worse than the painful slump of 1980–1982 that afflicted the whole world"[175]. In 1978, Batra's book The Downfall of Capitalism and Communism was published. His first major prediction came true with the collapse of Soviet Communism in 1990. His second major prediction for a financial crisis to engulf the capitalist system seems to be unfolding since 2007 with increasing attention being paid to his work.

In his final press conference as president, George W. Bush claimed that in September 2008 his chief economic advisors had said that the economic situation could at some point become worse than the Great Depression.
A tent city in Sacramento, California was described as "images, hauntingly reminescent of the iconic photos of the 1930s and the Great Depression" and "evocative Depression-era images.

On April 6, 2009 Vernon L. Smith offered the hypothesis "that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system. It appears that we're witnessing the second great consumer debt crash, the end of a massive consumption binge."

On April 17, 2009, head of the IMF Dominique Strauss-Kahn said that there was a chance that certain countries may not implement the proper policies to avoid feedback mechanisms that could eventually turn the recession into a depression. "The free-fall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today." The IMF pointed out that unlike the Great Depression, this recession was synchronized by global integration of markets. Such synchronized recessions were explained to last longer than typical economic downturns and have slower recoveries.