NEW UPDATE: For updated data and an even better discussion of the issues raised here, please start with this post from August 2, 2009.
The Great Depression was an unspeakably bad time for the U.S. economy. I know that sounds obvious, but it seems necessary to say given all the recent rhetoric about “the worst economy since the Great Depression.”
Our economy has indeed been in terrible shape lately, with millions of families struggling with falling incomes, job losses, home foreclosures, and plummeting wealth. The current recession is severe by any reasonable metric. But it still pales in comparison to the Great Depression.
One simple way to see these basic facts — that the current recession is severe by historical standards, but falls far short of the Great Depression — is to consider how much overall economic output declined during past downturns. The following chart shows the five largest declines in real gross domestic product (GDP) since the end of World War II. For the current downturn, I have used official estimates of GDP through the first quarter of this year plus the median forecast for Q2 (-1.4 percent) from the Wall Street Journal’s May survey of forecasters).