Home > Uncategorized > End of Second Great Depression

End of Second Great Depression

from David Ruccio

I am quite willing to admit that, based on last Friday’s job report, the Second Great Depression is now over.

As regular readers know, I have been using the analogy to the Great Depression of the 1930s to characterize the situation in the United States since late 2007. Then as now, it was not a recession but, instead, a depression.

As I explain to my students in A Tale of Two Depressions, the National Bureau of Economic Research doesn’t have any official criteria for distinguishing an economic depression from a recession. What I offer them as an alternative are two criteria: (a) being down (as against going down) and (b) the normal rules are suspended (as, e.g., in the case of the “zero lower bound” and the election of Donald Trump).

By those criteria, the United States experienced a second Great Depression starting in December 2007 and continuing through April 2017. That’s almost a decade of being down and suspending the normal rules!

Now, with the official unemployment rate having fallen to 4.4 percent, equal to the low it had reached in May 2007, we can safely say the Second Great Depression has come to an end.

However, that doesn’t mean we’re out of the woods, or that we can forget about the effects of the most recent depression on American workers.* 


For example, while Gross Domestic Product per capita in the United States is higher now than it was at the end of 2007 ($51,860 versus $49,586, in chained 2009 dollars, or 4.6 percent), it is still much lower than it would have been had the previous trend continued (which can be seen in the chart above, where I extend the 2000-2007 trend line forward to 2017). All that lost output—not to mention the accompanying jobs, homes, communities, and so on—represents one of the lingering effects of the Second Great Depression.

HS  college

And we can’t forget that young workers face elevated rates of underemployment—11.9 percent for young college graduates and much higher, 30.9 percent, for young high-school graduates. As the Economic Policy Institute observes,

This suggests that young graduates face less desirable employment options than they used to in response to the recent labor market weakness for young workers.

income  wealth

Finally, the previous trend of growing inequality—in terms of both income and wealth—has continued during the Second Great Depression. And there are no indications from the economy or economic policy that suggest that trend will be reversed anytime soon.

So, here we are at the end of the Second Great Depression—no longer down and with the normal rules back in place—and yet the effects from the longest and most severe downturn since the 1930s will be felt for generations to come.


*As if often the case, readers’ comments on newspaper articles tell a different story from the articles themselves. Here are two, on the New York Times article about the latest employment data:

John Schmidt—

Any discussion about “full employment”, when there are so many people who’ve essentially given up looking for work or who’re working in low-skill or unskilled labor positions, seems like the fiscal equivalent of rearranging deck chairs on the Titanic. Based on data from the Fed and the World Bank, GDP per capita has doubled since 1993, while median household income has risen ~10%. Most of the newly-generated wealth and gains from productivity increases are being funneled upward, such that the average worker very rarely sees any sort of pay increase. Are we expected to believe that this will change now that we’ve [arguably] passed some arbitrary threshold? Why should we pat ourselves on the back for reaching “full employment”? Shouldn’t we be seeking *fulfilling* employment for everyone, instead, at least inasmuch as that’s possible? Shouldn’t we care that the relentless drive for profit at the expense of everything else is creating a toxic environment where the only way to ensure a raise is to hop from job to job, eroding any sense of two-way loyalty between companies and their employees?

I’m not sure what the solution is, but I know enough to see there’s a problem. Inequality of this sort is not sustainable, and it’s not going to magically disappear without some serious policy changes.

David Dennis—

There is a critical parameter missing from full employment data. very critical. Here in Pontiac, Michigan before the collapse of American manufacturing, full employment meant 10, 000 jobs working at GM factories and Pontiac Motors making above the mean wages with excellent health insurance as well as retirement pensions. You can not compare full employment at McDonalds and Walmart with the jobs that preceded them. The full employment measure doesn’t mean much if it isn’t correlated with a index that compares that employment with a standard of living as it relates to a set basket of goods, services, and benefits.

  1. Risk Analyst
    May 10, 2017 at 9:36 pm

    One shocking and iconic picture from the Great Depression has a billboard in front of a town saying, “Jobless men keep going, we can’t take care of our own.” The billboard was in response to the migration of desperate unemployed workers. See the pictures of economic despair from Dorothea Lange. The unemployment rate was 25% in the US and over 30% in some other countries. I have an amazing book from the time called “Down and Out in the Great Depression: Letters from the Forgotten Man” you might want to read. To compare the Great Depression to the Great Recession is to trivialize and treat with contempt the reality faced by those in the 1930s.

  2. David F. Ruccio
    May 10, 2017 at 11:39 pm

    As you’ll see if you look at the syllabus for the Tale of Two Depressions course, we teach both of McElvaine’s books. We certainly don’t trivialize the first Great Depression nor do we treat with contempt the reality faced by people who suffered in the 1930s. But we do draw parallels that suggest the United States has just endured a second Great Depression, with all the attendant consequences for those who have suffered, in the United States and around the world, starting in 2007.

  3. Risk Analyst
    May 10, 2017 at 11:52 pm

    A quote from Dorothea Lange describing what is probably her most famous picture of a migrant woman: “She said that they had been living on frozen vegetables from the surrounding fields, and birds that the children killed. She had just sold the tires from her car to buy food. There she sat in that lean-to tent with her children huddled around her, and seemed to know that my pictures might help her, and so she helped me.”

    The students from your class should not be instructed to believe they lived though anything like the Great Depression, if you are indeed telling them that.

  4. David F. Ruccio
    May 11, 2017 at 2:12 am

    I teach. So, we pose the issue as a question: can we characterize what happened during the 1930s as a great depression (in light of what has taken place since 2007) and can we characterize the period since 2007 as a great depression (given what occurred during the 1930s)? Dorothea Lange is one—but only one—of the sources we use to make sense of the 1930s.

  5. Risk Analyst
    May 11, 2017 at 6:51 am

    It sounds like a great course and a great idea. I already know what my answer would be given the automatic stabilizers limiting unemployment and that now the standard of living is high enough that being poor now is very different than being poor then. The picture you have on the News link tells me a lot. The great depression soup line has skinny people lined up for their food. The great recession food give away has people in line so fat they look like they stopped at both Burger King and KFC before swinging by to some groceries. Anyway, I do think it is a great topic because of all the parallels, with the rise of extreme politics in both cases and such. You must be a good teacher to come up with an angle like that to keep history interesting.

  6. May 11, 2017 at 10:15 am

    This course is inspirational. I especially admire it’s semi-sociological approach. Sociologists have studied and teach about the Great Recession. They call it transformative. Not just in employment, income, and wealth, but also in poverty, fertility, consumption, mortality, marriage, attitudes, charitable giving, and much, much more. It has created once again a permanent underclass. Something that many thought had ended in the 1970s. It’s also created an upswing in militant anti-government groups, particularly right-wing militias (e.g., neo-Nazis). One thing it has not created thus far is a smarter and more brutal criminal class, as happened in the 1930s Great Depression. Perhaps that’s because the sophistication and brutality of existing criminals is already so advanced. But is has allowed us our first real estate baron-huckster President. Maybe he fits the picture well. After all it was financial swindlers and bribed regulators who got us into the Recession. One other thing the the Great Recession hasn’t brought yet is a current version of the “Red Scare” of the 1930s. But then I think of the close relationship between the current US President and the President of Russia. There don’t seem to be any Reds around to scare anyone.

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