News stories often describe the coronavirus-induced global economic downturn as the worst since the Great Depression.
This is likely to be literally true. Yet for many, the comparison does more to terrify than clarify. Economists say there is likely to be a big difference between a downturn that is the worst since the Depression and conditions as bad as the Depression.
"I don't find comparing the current downturn with the Great Depression to be very helpful," said former Federal Reserve Chairman Ben Bernanke, who has studied that 1930s era. "The expected duration is much less, and the causes are very different."
The trajectory of the pandemic and economy remains uncertain. How quickly health officials can contain the crisis, how much the public will cooperate and whether policies will spark a swift recovery remains to be seen. Even so, many economists find a scenario rivaling the Great Depression in severity and duration hard to imagine.
"The breakdown of the financial system was a major reason for both the Great Depression and the 2007-09 recession," Mr. Bernanke said. "Today, however, the banks are stronger and much better capitalized."
By most estimates, the current downturn is likely to be comparable in scale and duration to that 2000s recession and the other major post-World War II recession, in the early 1980s.
Comparisons with the Depression are difficult because most of the data sets collected today didn't exist in the 1930s. But some rough measures are available, including global trade tallies from the League of Nations, Federal Reserve data on factories and Works Progress Administration records on joblessness.
In the 1930s, industrial production fell by more than half. Production slowly made up ground for almost four years, only to decline sharply again in 1937-38. By contrast, production declined by about 15% in 2007-09 and 10% in the early 1980s.
When the coronavirus hit, industrial production had already been dipping as a result of the recent trade wars. While many factories closed as consumer demand shrunk, some are rapidly retooling. Auto makers General Motors Co. and Ford Motor Co., for example, have switched from making cars to ventilators. Medical-supply factories are struggling to keep pace with demand.
From 1929 to 1933, the economy shrank for 43 consecutive months, according to contemporaneous estimates. Unemployment climbed to nearly 25% before slowly beginning its descent, but it remained above 10% for an entire decade.
That compares with a 16-month decline in the early 1980s and an 18-month fall from 2007 to 2009. This time, many economists believe a rebound could begin this year or early next year if the virus is sufficiently contained.
While unemployment in the U.S. hit 14.7% in April and is likely to rise further, the blow today is softened by safety-net programs such as unemployment insurance.
"Many people are suffering now, and the economy won't recover in only a quarter or two," Mr. Bernanke said. "But if we're able to get reasonable control of the virus, the economy will substantially recover, and this downturn should be much shorter than the Great Depression."
The second quarter of 2020 is likely to be the worst ever for many economies. The median estimate of economists surveyed by The Wall Street Journal calls for a decline of 25% at an annual rate in the U.S. Some estimates are closer to 50%.
But annualized rates can be misleading. They assume that one quarter's pace continues for a year. If 10% of the economy shuts down for one quarter, that would be considered a 40% decline at an annual rate.
"We've had this very abrupt, very sharp, immediate reduction in economic activity, driven by government policies to shut down economies. And because it's very abrupt, the numbers are astronomical," said Douglas Irwin, a professor at Dartmouth College who has studied U.S. trade policy during the Depression.
By contrast, he said, "The way the world evolved into the Great Depression was a slow and steady decline. It was a slow strangulation of the economy."
As in the Depression, today's collapse is global. But the scale is smaller, Gita Gopinath, chief economist at the International Monetary Fund, said in a briefing last month. The IMF estimates the world economy shrank about 10% during the Great Depression, versus an expectation of about 3% this year and an expected return to growth next year. Advanced economies shrank about 16% in the Depression, compared with about 6% forecast for this year.
A series of severe policy mistakes around the world exacerbated the length and severity of the Great Depression. Central banks tightened monetary policy to maintain the gold standard, which no longer exists. The result was severe deflation, which increased the value of debt and lowered incomes.
Governments also initially cut spending in reaction to declining revenue. And as economies deteriorated, countries raised trade barriers in an effort to protect their domestic industries. The result, though, was a global contraction in demand, which only deepened the depression.
This time, central banks around the world quickly slashed interest rates and deployed programs to prop up credit markets. Governments approved massive spending measures, including the roughly $2 trillion stimulus in the U.S., to help keep businesses afloat and protect jobs. And they haven't raised trade barriers in response to the pandemic.
"I'm not going to say that everything in the policy is right, but we understand that delay worsens the economic outcomes," said Catherine Mann, global chief economist at Citigroup.