Saturday, April 28, 2012

Great Depression comparisons always fall flat

Yesterday on NPR a non-economist guest was trying to compare the recent recession to the Great Depression, and as usual, he had to use faulty logic to make his point.

In Yoram Buaman's newest book, he lists the Great Depression as having a 27 percent decline in real GDP, compared to a 5 percent decline in the last recession. World trade went down by 36 percent, compared to 20 percent today. There were 43 months without economic growth, compared to 18 this time around. Most importantly, unemployment peaked at 25 percent during the Great Depression, while the not-great recession peaked at 10 percent.

The NPR guest's response was that there are poor communities that have 25 percent unemployment rates today, so in some ways, the recession was on par with the Great Depression.

This is nonsense.

In late 1932, the unemployment rate in Detroit was around 45 percent. If you want to use carefully-chosen examples from today where things are the worst, the comparison has to follow the same guidelines. Their worst trumps our worst.

This is as egregious as when people try to bring out the "underemployed" rate of modern people who want to work, but can only find part-time or lowly positions. This is a legitimate concern, but it's misleading to compare it to the unemployment rate of the Great Depression. Instead, you can only fairly compare it to the underemployment rate during the Great Depression. Anything short of that is an illegitimate comparison, and unfortunately, those numbers weren't cataloged.

The recent recession was a terrible ordeal. I was hit hard by it personally, but it is nowhere near as terrible as the Great Depression. These attempts to compare the two are foolish.

1 comment:

  1. Interesting tidbit for you.

    During the great depression the standard of living slipped back to where it was 20 years prior, everyone thought the world had ended! Yet the average standard of living was about what their parents were born into.