No one can say for certain that such a depression cannot happen again. As this is written (Fall 2012) the United States is passing thorough the worst economic crisis since the Great Depression. It is obvious, however, that as bad as the current recession has been, it has never reached the proportions of the Great Depression. One reason is that we did not repeat the same mistakes. The Federal Reserve, with better data at hand and with the monetary history of the Great Depression laid out in many books and articles, pumped vast amounts of liquidity into the banking system and prevented the collapse of money and credit. The same is true of fiscal policy. In the 1930s, especially the early 1930s, the Roosevelt administration was unwilling to run large deficits, even as it increased spending for emergency relief. Today’s crisis was met by a massive economic “stimulus package.” Many sorts of spending such as unemployment benefits—the so-called automatic stabilizers—increased without specific congressional actions.
The private economy, too, was less vulnerable to economic collapse. The industrial sector, particularly producers of consumer durables, is the most susceptible to sudden shifts in demand that produce massive layoffs. This is true today, as it was in the 1930s. This sector, however, is now relatively much smaller compared with the service sector than it was in the 1930s. The rapid increase in two-earner households, moreover, reduced the proportion of families that found themselves without any source of income rose. Finally, there exists a vast network of government programs that, however imperfect, alleviated suffering and, simply by being there, reduced the chance of a paralyzing fear. These include the FDIC, the Pension Guarantee Corporation, and others. However much we may have been aware of these facts, it is nevertheless true that when the crisis of 2007-2008 hit, the nightmare of the Great Depression came back to haunt us.
World History
