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In an August Wall Street Journal editorial, "What Happened to the ‘Depression’?: Despite the Rhetoric from Washington, We Were Never Close to 25% Unemployment," American Enterprise Institute Visiting Scholar Allan Meltzer wrote:
Day after day, economists, politicians and journalists repeat the trope that the current recession is the worst since the Great Depression. Repetition may reinforce belief, but the comparison is greatly overstated and highly misleading. Anyone who knows even a bit about the Great Depression knows that this is false. The facts we face today are very different than the grim reality Americans confronted between 1929 and 1932.
Now that there is strong consensus among economists that the U.S. recession ended sometime in early summer, we can start making some comparisons between the Great Depression and what has been called the "Great Recession."
The chart above displays annual unemployment rates from 1930 to 2009, and shows that we haven't even yet reached the average unemployment rate of 9.7 percent during the recession in 1982, a year when the monthly jobless rate reached 10.8 percent in November and December, a full point above the October 9.8 percent rate. The current consensus forecast is for U.S. unemployment to reach 10 percent by December, but fall to 9.4 percent by December of next year. Therefore, it's possible we won't even experience the peak level of unemployment that existed in 1982 on either an annual or monthly basis. Even if we did, it still wouldn't be anywhere close to the 25 percent peak level of unemployment in 1932, or the full decade of double-digit unemployment rates in the 1930s that averaged 17.1 percent and never fell below 11 percent.
The second chart above shows annual real GDP growth (BEA data here) from: 1) 1930 to 1932 (-25.7 percent cumulative decline) and 2) 2007 to 2010, assuming a) fourth-quarter growth this year of 3.5 percent and no revisions to the third-quarter estimate of 3.5 percent, and b) real GDP growth next year of 2.5 percent (the WSJ consensus forecast).
Under those fairly realistic assumptions, there would be a decline in real GDP during the “Great Recession” in only one year (-2.4 percent in 2009), preceded by one year of below average growth (0.40 percent in 2008), and followed by a return to average growth of 2.8 percent next year (2010).
If the assumptions above hold, the comparisons of recent economic conditions to the Great Depression would be exaggerated and overstated. After all, the three annual consecutive declines in real GDP of -8.62 percent in 1930, -6.50 percent in 1931, and -13.1 percent in 1932 were far, far worse than a single one-year decline in output of -2.4 percent in 2009. As Meltzer pointed out in the Wall Street Journal, it would be much more accurate and realistic to compare the 2008"“2009 recession to the severe and lengthy recessions of 1973"“1975 and 1981"“1982, instead of making hyperbolic comparisons to the Great Depression.
Finally, it should be pointed out that even if it is determined by economists that the Great Recession really has been the worst since the 1930s, that is much different than saying that the recent downturn was as bad as the Great Depression. Meltzer suggested that there were political motivations to claim we were about to enter Great Depression II to justify government intervention, but the recent data on unemployment and output make it very clear that we were never even anywhere close to the economic conditions of the 1930s.
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