It’s not a recession, it’s a depression

The current downturn resembles the great depressions rather than the post-World War II recessions in three significant ways:

1) The Financial Crisis: The downturns of 1893, 1929, and 2007-8 were precipitated, and deepened, by a financial crisis. In 1893, gold outflows resulting from a downturn in Europe (in the 1890s, London was the center of world finance) caused deflation and a spate of bank runs. In 1929, it was the stock market crash, and in 2007-8, the subprime mortgage crisis.

2) Overcapacity in a Leading Industry: After the Civil War, railway construction had driven the development of capital goods industries. In the years before 1893, it started to slack off, leading to a slowdown in private investment. Before 1929, the production of automobiles and streetcars tapered off, and before 2007, the growth of computer/telecommunications/Internet industries began to slow, along with construction, housing, and auto sales.

3) The Global Dimension: During recessions, a downturn in one country has been eased by prosperity in another, but in depressions, the downturns have been global. During the early 1890s, the downturn spread from Europe to the United States; in the 1930s and late 2000s, it spread from the United States to Europe and Asia.