What Are the Differences Between the Causes of the Great Depression and 2008 Financial Crisis?
Differentiate the causes of the Great Depression and 2008 financial crisis In October 2008, President Obama said that the United States is suffering the worst financial crisis since the Great Depression. As this crisis continues to develop, it has led to a global economic recession. At the beginning of the 2008 financial crisis, many people wondered: Will the current financial crisis be another Great Depression? Both the Great Depression of the 1930s and the current recession are world-wide, and governments have intervened by creating new regulations and policies regarding business and financial practices, etc. However, there still are differences between these two events, especially the causes of these two financial crises. In this paper, the Great Recession and the Great Depression will be compared though expounding the different causes related to historical background, economic nature and monetary policy.
Historical background
After WWI, the American economy developed fast and people were optimistic to that development, but unbalanced economic structure appeared gradually. Killian (2010) pointed out that America experienced an industrialization movement and there became a market economy with more competition in the early twentieth century. (p. 3) The economy and productivity increased quickly, but the citizen’s real wages did not have a big change. According to Killian (2010), people had to rely on the market economy instead of enjoying it, and a lack of employment and job opportunities made many people’s lives more difficult, especially in urban areas. (p. 3-4) Due to the increasing imbalance between economy and personal wages, the economic collapse led to a widespread depression. “Increased prosperity led to an increase in consumer spending which encouraged production. Advertising and the use of the installment plan to purchase big-ticket items spurred this increased consumption” (Killian, 2010, p. 4). People used an installment plan to purchase products
Historical background
After WWI, the American economy developed fast and people were optimistic to that development, but unbalanced economic structure appeared gradually. Killian (2010) pointed out that America experienced an industrialization movement and there became a market economy with more competition in the early twentieth century. (p. 3) The economy and productivity increased quickly, but the citizen’s real wages did not have a big change. According to Killian (2010), people had to rely on the market economy instead of enjoying it, and a lack of employment and job opportunities made many people’s lives more difficult, especially in urban areas. (p. 3-4) Due to the increasing imbalance between economy and personal wages, the economic collapse led to a widespread depression. “Increased prosperity led to an increase in consumer spending which encouraged production. Advertising and the use of the installment plan to purchase big-ticket items spurred this increased consumption” (Killian, 2010, p. 4). People used an installment plan to purchase products
References: Hang, P. (2011, August 08). Similar crises: Two depressions with same causes. Retrieved from http://article.m4.cn/history/1119965.shtml Killian T. N. (2010). Teaching points in comparing the Great Depression to the 2008-2009 recession in the United States. Retrieved July 29, 2012, from http://digital.library.unt.edu/ark:/67531/metadc28442/m2/1/high_res_d/thesis.pdf Zheng, L. (2009). Historical comparison between new financial crisis and the great depression in United States. International economic review, 1st of 2009(ISSN1007-0974). Retrieved from http://www.doc88.com/p-7178391 7105.html