An economic depression is considered a longer form of a recession. A recession is determined by two or more consecutive quarters of negative GDP growth, while a depression is measured in years and not quarters.
During the Great Recession, the United States experienced six quarters of negative GDP growth (from the 3rd quarter of 2008 to the 1st quarter of 2010), so it was actually more than a simple recession. However, it did not quite meet the standard to regard it as a “depression” since the country was only in a recession for about a year and a half.
Had the United States been in an official recession for about eight quarters or more (take note that there are four quarters in a year), a debate could have been started as to whether it was a depression instead of a recession.
Some people in various countries argue that they experienced a depression, but the stigma associated with the Great Depression developed a belief that the term should only be used as a last resort if a country is in a severe financial crisis. No government wants to admit they are in a depression since that word is automatically associated with the hardship of the people during the early 30s when the Great Depression struck the US first and eventually the rest of the world.
What happened in the Great Depression?
The Great Depression was a worldwide economic crisis that started in 1929 up to the late 1930s. The time when the Great Depression happened varied for each country, but is it believed to have begun in the United States in 1929. Until today, the Great Depression is considered as the longest depression in history, and because of its impact, many economic researchers are using it as an example of what might happen to society if the global economy declines.
According to historians, the Great Depression started in the United States when a significant fall occurred in the stock prices on September 4, 1929. After the major fall, the stock market crashed on October 29, 1929, and the worldwide GDP fell by approximately 15%. During a normal flow of the economy in one year, the worldwide GDP would only fall or rise by 1%, which makes the 15% decrease during the Great Depression look devastating to the economy.
Because of the Great Depression, many people around the world lost their job due to the company they are working in unable to provide salaries because of the decrease in profits. It was estimated that 23% of the workforce in the United States lost their jobs, and as for the rest of the world, it was 33%.
The heavy industry was greatly affected by the depression, and it forced them to lay off workers since nobody had enough money to contact construction companies to build structures. Besides the said industry, the farming market was also affected by the Great Depression, and all of the prices for fruits, vegetables, and meat fell to 60%. Because of the decrease in price, the profits of farms have decreased as well.
Researchers believed that the Great Depression ended during the beginning of World War II, as the spending of countries for weapons allowed their economy to prosper a little bit. Because many military forces wanted to buy more and more weapons for the war, it prompted weapon-building companies to hire more people as factory workers to speed up manufacturing, and the mass hiring led to the reduction of unemployment rates in various countries. Women also played a big role in the recovery of the economy after the Great Depression, as they provided for the lack of workforce for companies who lost male workers drafted for World War II. Gone was the notion that women should only serve as housewives since they have proven that they can also work as factory workers or do hard labor in the early 1940s.
Thanks to weapon factories, almost all capable people in the United States and the rest of the world were given jobs. It was even reported that the unemployment rate in the United States went down below 10% when they went into war. Who knew that weapons built for destruction could help in the recovery of the world’s economy?