March 22, 2019

Was the Great Recession Worse Than the Great Depression?

“Here’s today’s economic quiz: Was the 2007-09 Great Recession more damaging than the Great Depression of the 1930s? Surely the answer is “no.” In the 1930s, unemployment reached 25 percent. By contrast, the recent peak in the jobless rate was 10 percent. Case closed.

Not so fast, objects economist J. Bradford DeLong of the University of California, Berkeley. “Fifty years from now, historians will … write that President Franklin Roosevelt, Congress and the Federal Reserve provided a collective policy response that was, if not optimal, at least respectable. … By contrast, they will [argue] that the responses of President Barack Obama, Congress and the Federal Reserve did not come up to the standard [set by] the mid-1930s policy-makers.”

Could DeLong be correct? The answer matters, because if he’s right, the economy — despite its present strength — faces a future of long-term sluggishness.

Writing in The Milken Institute Review, an economics journal, DeLong accepts the conventional wisdom that the rapid response of the Federal Reserve and Congress to the Great Recession — the Fed lowered short-term interest rates to near zero, and Congress passed a huge stimulus package of spending increases and tax cuts — prevented a second Great Depression. But his praise stops there.”

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