We Are NOT in a Silent Depression
Let's talk about today's economy in the right context and avoid the misnomer of being in a "Silent Depression"
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Is the U.S. really in a “Silent Depression”? Absolutely and emphatically no, not by any definition of those words. A new claim is going viral, especially on TikTok. Influencers are attempting to draw parallels between today’s economy and those of those of the Great Depression in the 1930s. We know that the comparison is flawed, but why does the claim resonate today?
Many people are facing real economic hardship; perhaps the worst they have experienced in their lifetime. Real wages declined in 2022 for most people. They are looking for a new narrative to describe their personal experience. To solve our economy’s problems, however, we must accurately diagnose them. It’s important to understand the ways that today’s economy, despite its troubles, is dramatically better than the conditions of the 1930s Great Depression. We’ll soon see why.
The Flawed Conversion from 1930s Prices to Today
One of the most common trends influencers point to is the direct comparison of prices and living standards from the 1930s to today. It’s not enough to just convert the dollar values and compare products. This process is flawed. It excludes the dramatic improvements in the quality of life over the past 90 years.
Think about it—the 1930s were devoid of many modern conveniences and technological advancements we take for granted today as part of our basic necessities. We have access to modern plumbing, refrigeration and appliances, information technology, and a range of products that vastly improve our quality of life. Many of these products were unimaginable during the Great Depression.
Once we take these quality improvements into account, and then note the change in prices, we find that the average full-time equivalent worker in 2022 makes $72,656. While this has declined some over the past year, it’s a significant increase from 100 years ago. In 1932, using current-day prices, the average worker earned $22,684—a three-fold improvement in purchasing power.
The mean wage will be higher than the median wage due to inequality. It would have been nice to look at how wages have grown for the median worker, but there isn’t a reliable and consistent measure of median wages going back that far. However, because the current levels of inequality today are similar to the 1930s, the gap between median and mean will also be similar today as it was back then.
The official market wage data doesn’t include government benefits that people experiencing financial hardship are eligible to receive. The birth of our modern social safety net had its origins in the 1930s. Many of the programs we know today were created because of the Great Depression: Federal Deposit Insurance - FDIC (1933), Federal Minimum Wage (1933), Social Security (1935), Unemployment Insurance (1935), Section 8 Housing (1938), and Food Stamps (1939).
In the decades after the Great Depression, policymakers would expand the welfare state to include major programs like Medicaid & Medicare (1964). All of these programs alleviate economic suffering for the most vulnerable members of society.
And let’s not forget about the labor market as a whole. The nature of work requires skills today that simply didn’t exist back in the 1930s, and the sectors driving the economy have undergone seismic shifts. Not only do jobs pay better than before, they are also more comfortable and safer. Air conditioning and central heat became much more common in the decades after the 1930s.
The Census tracks data on workplace injuries, and the change since the 1930s is dramatic. Manufacturing is often the most dangerous working environment for many people. There were an average of 19.6 disabling injuries for every 1 million man-hours worked in 1932. Today it’s 0.64 injuries per million hours. Simply comparing wages and employment between these two eras without accounting for these life-altering changes oversimplifies the economic landscape.
The Great Depression: High Unemployment and Deflation
To understand why today's economic situation is far from a depression, we need to define what made the Great Depression so unique. It was characterized by extraordinarily high and persistent unemployment rates, peaking at around 25%. Fast forward to today—the unemployment rate peaked at 14% during the initial wave of the pandemic and then recovered rapidly. If we look at data from December 2023, the unemployment rate is 3.7%. It has been below 4% for nearly 2 years. We haven’t seen unemployment this low for this long since we landed on the moon.
Recessions are often characterized as reductions in the country’s production Between 1929 and 1932, industrial output declined by 50% in nearly every industry. The construction sector was especially hard hit, contracting more than 80%!
And what about today’s production levels? It decreased during the pandemic, and the NBER acknowledged a recession occurred. The inflation-adjusted gross domestic product (GDP) has since grown to a point where it is actually 7.3% larger than it was in the year before the pandemic. If the economy isn’t experiencing recession-inducing production levels, it’s far from experiencing Depression-like production levels.
Let’s revisit the impact on construction one last time with a very poignant example of the dire conditions people faced during the Great Depression. “Hoovervilles” are a stark reminder of the widespread poverty and homelessness that emerged during the decade. Named after President Herbert Hoover, these makeshift shantytowns were constructed from whatever materials people could find. They lacked basic amenities and were a visible reminder of the government's failure to address the suffering of millions.
This particular example is a good illustration of the different conditions today. We’ve seen a vast improvement in our quality of life, and yet many in our society still see suffering. Homelessness is a serious and solvable failure. However, we’ve made significant improvements in this area as well. In 1933, the sociologist Nels Anderson conservatively estimated around 1.5 million people did not have shelter. Today we have around 0.59 million living without shelter. This stark improvement in raw numbers is impressive given the population growth that has occurred. Accounting for population, the homelessness rate went from 1.2% to 0.2%.
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The Realities of Today's Hardships
Now let's pivot to today's realities. Many Americans face significant economic challenges: rising costs of living, student debt, and housing affordability. The notion that we’re living in a "silent depression" resonates because it speaks to these very real hardships. While the economic conditions indicate that the economy is heading in the right direction, the vibes seem off asand others have pointed out.
However, calling our current economic situation a depression risks misdiagnosing the problems and, consequently, the solutions. Our challenges today require targeted policies that address specific issues like income inequality, access to affordable education and healthcare, increased housing construction, and the evolving nature of work.
We must remember the lessons learned since the Great Depression, especially regarding the crucial role of banking systems in economic stability. Nobel laureate Ben Bernanke highlighted how bank runs and financial institution collapses were pivotal in the Great Depression’s severity. His research underscores the importance of robust financial regulation, something significantly strengthened since then. Modern financial crises, while challenging, have been tempered by these learnings, preventing the banking system collapse that exacerbated the Great Depression.
We must empathize with those struggling. Their experiences are real and should not be diminished. However, equating today's economic climate with the Great Depression overlooks critical differences in economic conditions, societal structures, and policy responses. Understanding history is essential in shaping our perception of the present. The Great Depression was unique and devastating. Today's challenges, while pressing, are fortunately smaller in scale and, therefore, more solvable.
Using income data from the 1930s can be misleading since only the richest Americans were required to pay taxes [Chris Clarke]
In 2019 around three in 10 people, including nearly half of U.S. children participated in a safety net program (U.S. Department of Health and Human Services)
Only around 44% of homes were owner-occupied in 1940 but jumped to above 60% today due in part to booming economic periods and favorable tax laws [U.S. Census Bureau]
The 1940 Housing Census reports that 45% of houses did not have a private bath or shower. [U.S. Census Bureau]
The largest U.S. Hooverville had its own mayor and a church made of orange crates [History Channel]