Great Depression vs Great Recession: Key Similarities

Introduction: Two Economic Crises Compared

The Great Recession of 2008–2009, which in strict economic terms lasted two quarters but for many people stretched out considerably longer, was widely characterized as the worst economic event since the Great Depression. This provides an opportunity to examine both events, their respective time periods, and the similarities and differences that can be identified between them.

The Roaring Twenties: Boom, Technology, and the American Dream

The 1920s were known as the Roaring Twenties and were considered a boom time. The period following the First World War saw significant shifts in American life in terms of standard of living and how people lived. The decade saw a pronounced trend toward urbanization, fueled by job opportunities emerging in white-collar sectors. The term urban was juxtaposed against rural — in many cases, rural areas were what we would consider small country towns. The shift away from farm life was a profound development, and many major cities began to grow rapidly during this period.

Technological change drove many lifestyle changes. The automobile had only begun to become a mass technology at the start of the war, but with newfound prosperity and increased production capacity it moved from a luxury to a life necessity during the 1920s. Motion pictures were another technology that gained significant social importance during this period, as did radio, which emerged alongside film as one of the two most popular forms of entertainment. Music evolved as well, again fueled by technology — both the radio and the phonograph — and the introduction of jazz marked a move toward modern musical forms (Sullivan, 2014).

In Winter Dreams, F. Scott Fitzgerald captures some of these themes, particularly the theme of upward mobility and the American Dream. The main character, Dexter Green, is ambitious and initially pursues a wealthy girl as the embodiment of his aspirations. He eventually moves to New York, where he makes a great deal of money in business. There is a moment where he realizes that his old dreams are no longer relevant. The themes of wealth, upward mobility, a newly prosperous class, and urbanization all resonate throughout the story.

The 1920s are thus remembered as an era of excess, where wealth was not only possible but relatively accessible for the ambitious, and where society was changing in significant structural and sociological ways. From an economic perspective, these excesses were fueled in part by very loose economic policy, known as laissez-faire economics — or "let it be." This approach creates high levels of risk and volatility, such that boom periods like the 1920s are very strong, but bust periods can be equally severe (Investopedia, 2014).

World War I contributed significantly to the boom of the 1920s because of the destruction it had wrought on Europe. The war brought about a reshuffling of power across the continent: older, weaker empires like the Ottoman collapsed, Germany fell into crisis, and many other countries were forced into prolonged periods of rebuilding. Britain remained the strongest empire in Europe, but America had become the world's most significant power — having entered the war late — and during the 1920s was both selling goods to Europe and lending the continent money for reconstruction.

The 2000s: Deregulation, the Internet, and a New Bubble

There is some irony in the fact that the Great Depression led to the introduction of greater structure and regulation in the economy, while the 2000s began with the removal of some of that structure through the unwinding of the Glass-Steagall Act. The removal of banking restrictions in 1999 led, within just a few years, to the same kind of fast money and deceptive banking practices that had both created wealth in the 1920s and caused the Depression in the 1930s (Rickards, 2012).

There were also significant societal shifts. The Internet had a transformative effect on the way society communicates, spawning entire new industries much as the automobile had done decades earlier. This created many jobs and a great deal of economic speculation, and it also brought about social liberalization. A new moneyed class emerged, not only from the Internet economy but also from changes overseas, where more people were accumulating extraordinary wealth and emigrating. The new technology gave rise to many new applications of knowledge and made far more information available to ordinary people with far greater ease (Berger, 2013).

One key difference between the two eras is that in the 1920s there was a genuine sense that anyone with ambition could become wealthy — as illustrated by Dexter Green. Fitzgerald embodied a sentiment in which social climbing was important, yet wealth itself seemed almost randomly attainable; the mechanics of wealth-building were never a central element in his characters' stories. The 2000s offered a different version of the American Dream. With America losing jobs overseas rather than benefiting from overseas demand, the American Dream for those outside the Internet economy became tied to real estate. The pursuit of that dream through real estate gave rise to a housing bubble not unlike the stock market bubble of the 1920s — both were manifestations of the pursuit of easy money through investment, something that had become newly accessible to everyday people.

References

Berger, I. (2013). The continuing, transformative impact of IT. Wall Street Journal. Retrieved December 6, 2014.

Escow, R. (2014). 7 facts that show the American Dream is dead. Salon. Retrieved December 6, 2014.

Investopedia. (2014). Definition of laissez-faire. Investopedia. Retrieved December 6, 2014.

Rickards, J. (2012). Repeal of Glass-Steagall caused the financial crisis. U.S. News and World Report. Retrieved December 6, 2014.

Sullivan, N. (2014). 1920s American culture: City life & values. Education Portal. Retrieved December 6, 2014.