The Novel Coronavirus pandemic severely affects the global economy, some experts have begun comparing the current crisis with the Great Depression. Currently, unemployment levels in the US are already estimated to be at 13 per cent, highest since the Great Depression.
Matter of concerns:
- Experts have warned that unemployment levels in some countries could reach those from the 1930s era when the unemployment rate was as high as around 25 per cent in the United States.
- Coronavirus could lead to the highest unemployment levels since the Great Depression,
- The numbers indicate that the economy is in deep distress, and point to more pain to come as the impact of stay-at-home mandates grows.
- Two-thirds of those losses were in the leisure and hospitality sectors, which have been especially hard-hit by the crisis.
What was the Great Depression?
- The Great Depression was a major Economic crisis that began in the United States in 1929, and went to have a Worldwide impact until 1939.
- It began on October 24, 1929, a day that is referred to as “Black Thursday”, when a monumental crash occurred at the New York Stock Exchange as stock prices fell by 25 per cent.
- While the Wall Street crash was triggered by minor events, the extent of the decline was due to more deep-rooted factors such as a fall in Aggregate demand, misplaced monetary policies, and an unintended rise in inventory levels.
Could Coronavirus trigger a Recession or Depression?
- Recently, the International Monetary Fund (IMF) stated that the negative global growth so far this year could trigger ‘a recession at least as bad as during the 2007-08 global financial crisis – or worse’. This highlights the severity of the situation that COVID-19 has put on the global economy.
Impact on worldwide:
- Economic impact- One-fourth of the labour force in industrialized countries was unable to find work in the early 1930s. With banks unable to provide savings for people and companies falling apart, unemployment levels rose too high rates.
- Political- The Depression affected politics by shaking confidence in unfettered capitalism. That type of laissez-faire economics is what President Herbert Hoover advocated. People voted for Franklin Roosevelt and his Keynesian economics promised that government spending would end the Depression. The New Deal worked. In 1934, the economy grew 10.8% and unemployment declined.
- Social- The Great Depression brought a rapid rise in the CRIME RATE as many unemployed workers resorted to petty theft to put food on the table. Suicide rates rose, as did reported cases of malnutrition. Mass migrations continued throughout the 1930s.
- In Europe, economic stagnation that the Depression caused is believed to be the principal reason behind the rise of fascism, and consequently the Second World War.
- Trade- As countries’ economies worsened, they erected trade barriers to protect local industries. In 1930, the US and other developed countries imposed tariffs for smoothening the economy.
- Impact on Policymaking- It had a profound impact on institutions and policymaking globally and led to the gold standard being abandoned.
How did the Great Depression impact India?
- The Depression had an important impact on India’s freedom struggle. Due to the global crisis, there was a drastic fall in agricultural prices, the mainstay of India’s economy, and a severe credit contraction occurred as colonial policymakers refused to devalue the rupee.
- The decline of agricultural prices, which was aggravated by British financial policy in India, made substantial sections of the peasantry rise in protest and this protest was articulated by members of the National Congress.
- The effects of the Depression became visible around the harvest season in 1930, soon after Mahatma Gandhi had launched the Civil Disobedience movement in April the same year.
- There were “No Rent” campaigns in many parts of the country, and radical Kisan Sabhas were started in Bihar and eastern UP.
- Agrarian unrest provided a groundswell of support to the Congress, whose reach was yet to extend into rural India.
What is the difference between Recession and Depression?
| Recession | Depression |
| In economic terms, a recession is a business cycle contraction when there is a sharp decline in economic activity. | Depression is a sustained, long-term downturn in national or global economic activity and is a more severe and prolonged economic downturn. |
| A recession occurs when there is a widespread drop in public spending and is triggered by events, such as a financial crisis, an external trade shock, an adverse supply shock or global pandemic. | Depressions are defined by their length and a sharp increase in unemployment. The further result of this decreased output is that there are fewer customers. |
| Typically, these last for between six months and a year. However, the 2008 financial crisis – known as the Great Recession – lasted 17 months. | The Great Depression of 1929 lasted a whole decade – the biggest recession of the last century. |
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