Discussion Paper
No. 2010-9 | February 15, 2010
Karl Aiginger
The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents
(Published in Policy Paper)


This paper compares the depth of the Recent Crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialized countries for seven activity indicators. This is done under the assumption that the Recent Crisis leveled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the Recent Crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators overall will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and priced, and least for manufacturing output. The difference in the depth in the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated. During the Great Depression for several years fiscal policy tried to stabilize budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the Recent Crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but it shows that the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit the depth of the Recent Crisis. Submitted as Policy Paper

JEL Classification:

E20, E30, E32, E44, E60, G18, G28


Cite As

[Please cite the corresponding journal article] Karl Aiginger (2010). The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents. Economics Discussion Papers, No 2010-9, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2010-9

Comments and Questions

Thomas Mayer - Comment
February 23, 2010 - 13:49
Although this paper provides useful information the author will probably have great difficulty in getting it published in a good journal because it is almost entirely descriptive, while most economists (rightly or wrongly) stress “theory” and look down on “mere description.” Moreover, I have the impression that the author’s thesis is already the dominant consensus of the profession, and hence less interesting and challenging than it would otherwise be. One way the author could enhance the appeal of the paper is by showing that this is not so, that many highly regarded economists have argued that the Great Recession and the Great Depression were alike. In its concluding section the paper hints at this, but does not document it. Not only should this point be documented, and discussed in some detail (e.g. by providing quotes) but it should also be moved to the beginning of the paper. Another way to enhance its appeal would be to cut it greatly. It now provides useful and interesting tables plus a verbal discussion of what each table shows. Surely the reader can read the table on his own. I have added several more specific comments in the attached copy of the paper. Thomas Mayer

A.W. Mullineux  - Invited Reader Report
February 25, 2010 - 14:21
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Karl Aiginger - Reply
April 08, 2010 - 17:16
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Anonymous - Referee Report 1
March 08, 2010 - 15:12
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Karl Aiginger - Reply
April 08, 2010 - 17:18
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Anonymous - Comment
March 12, 2010 - 00:48
The article is badly written and badly arranged. The comparison does not happen to be referring to the production or unemployment, or even financial markets. The making of a comparison between the two crises seems a difficult and implausible because firstly the 1930 crisis is a crisis of overproduction located internationally but not global. It is a crisis of an economic model based on the supply theory, in the opposite with the crisis case today when the global economy is strong when the crisis is far from a offer crisis and is instead based on a failed model of finance and polarizing completely degenerate when speculation occurs in both conventional financial products and the production (Exchange Market Commodities). The crisis of the 1930s is a protracted crisis, throbbing, creeping while the current crisis is a crisis “by point” that probably could come back periodically. In this sort of work, a great deal of subjectivity dominates the comparison.

Anonymous - Invited Reader Report 2
March 18, 2010 - 11:24
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Karl Aiginger - Reply
April 08, 2010 - 17:19
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