Crippling recessions: An empirical analysis of the Great Depression and the Global Financial Crisis

The Great Depression and the Global Financial Crisis are two historical events that can be labeled as the worst financial and economic disasters of modern times. For many, they serve as a reference when attempting to assess the causes and outcomes of numerous crises. However, it is challenging to obtain a clear view of both events, which led to the following question: ‘Are the Great Depression and the Global Financial Crisis alike, and, if so, to what extent?’ This literature-based thesis will seek to analyze the similarities and discrepancies of the main drivers, causes, consequences of these two economic crises. It will also assess the responses put in place by the policy makers. In what follows, I identify some similarities but draw in particular to marked differences between the Great Depression and the Global Financial Crisis. The study reveals key historical factors that had a direct influence on both events, which makes it incongruous to voice direct parallels. For instance, the repercussions of World War I and the constraint of the Gold Standard regime are elements specific to the Great Depression alone. The banking sector of both eras differs from the other, as the recent concentration of credit institutions has led to a scenario of entities ‘too big to fail’. On comparable levels, several key indicators help point out that the Great Depression still remains, without doubt, the longest, deepest and widest economic contraction that the industrialized world has ever faced. Measures taken to counteract the crises differed as well, as the policy makers’ approach to the Great Depression was long characterised by inaction. On the other hand, responses during the Global Financial Crisis proved to be swift and aggressive. As a consequence, the Democrats’ political ideology during the interwar period was radically reshaped whereas nothing profoundly has changed in in the post-Great Depression era.