Unemployment during the Great Depression

Are we really going back to this?

I’ve seen a lot of commentary recently about how the current situation is so bad that we may be at the start of a depression rather than a recession. While we can’t predict the future, we can study the past. So, let’s take a look at unemployment during from the start of the Great Depression to the end of World War II:

One thing that is difficult to understand about the Great Depression is that, even far beyond its name, it was a seriously awful economic period unlike any recession we have seen since. A regular recession is like a walk in the park compared to a depression.

Even the Financial Crisis in 2007-2009 (aka the Great Recession) falls far short as a comparison. We really have nothing in our collective experience as a society to fully understand a depression - just a bunch upsetting anecdotes and a little bit data from people long gone.

I don’t say all this to downplay recessions. Losing jobs is terrible. But there is an objective difference between the 25% unemployment we see in the chart above and the 10% unemployment we have seen at worst in recessions since.

Now, with coronavirus threatening perhaps 20% unemployment due to the massive country-wide shut down, it does make sense that people are saying the virus outbreak could be the start of a depression when comparing the unemployment numbers. But, there is a big difference between a temporary spike in unemployment and sustaining that double digit unemployment over a decade like in the chart above!

The coronavirus is a terrible tragedy and will come at a great cost. Let’s just take a step back before we fan the flames by proclaiming a new Great Depression as well. Nothing is impossible but let’s not jump the gun and worry about something that is still unlikely. We have more than enough to worry about from a human perspective.