I remember my grandmother telling me about growing up in Chicago during the Great Depression and eating string beans with gravy (tomato sauce) for dinner. But that was because they were lucky. Her father had a job with the railroad so he had work.
While we see fast food restaurants and shopping malls still packed with people, we may have to sit back and wonder- are we really suffering a financial crisis comparable to the one America suffered in the late 20s and early 30s?
Let’s see how the two match up.
Many claim that the current crisis was brought on by the collapse of the housing market. As inflated prices lost their air, homeowners found that they could not afford the interest only loans that they bought their houses with. Since the prices were artificially inflated, they couldn’t recoup their money by selling the house for what they owed. But that comprised a portion of homeowners. Others who were suddenly jobless couldn’t afford to pay their mortgage regardless of the terms of their loan.
In the Great Depression, record numbers of Americans lost their homes as well, but because there was no income coming in for so many. Without the ability to pay a mortgage or rent, shanty towns began to spring up around the country called Hoovervilles. Unfortunately, similar townships are becoming more common today earning them the nickname Obamavilles.
2. Wealth Inequality
There will always be people who are rich and people who are poor. Right now, the inequity when it comes to the distribution of wealth is a hot button topic. In 2006 the top .01 percent of Americans average income is 976 times greater than that of the bottom 90 percent.
Ironically, the last time in history that the disparity between Americans paychecks was so great was in 1928. Back then, one year before the Great Depression, the top .01 percent earned an average 892 times that of the bottom 90 percent of Americans.
In this category, there is no comparison. During the Great Depression, unemployment peaked at 35.3 percent. This was followed up by the recession of 1937 when unemployment hit 26.4 percent after the economy pulled itself out of the Depression in 1933.
Fortunately for Americans, this current fiscal situation has only seen unemployment peak at 10.2 percent. Still this makes up 15,000,000 Americans and doesn’t account for the 84,900,000 who have a cut in their pay or the hours they work each week.
While there are many similarities between the two, there are some obvious differences. As stated earlier, easy access to credit for many Americans and the rapid depletion of a large financial surplus played a large role in pushing our country into financial turmoil in the 2000s opposed to a stock market crash that led to the Great Depression.
However this isn’t the only difference.
To escape the clutch of the Great Depression, the government and private industry spent money putting people to work despite a lack of cash flow. Getting money in the hands of consumers cut short a financial crisis that could have destroyed our country. Instead, the life span lasted from 1929 to 1933.
Today, we have taken a different route. Instead of allowing banks to fail, as 5,000 did worldwide during the Great Depression, financial institutions were injected with a $700 billion dollar bailout. Americans responded by demanding for steep cuts in spending by the government as well.