Karabell: We Are Not In A Great Depression

It has now been firmly established—and endlessly repeated—that the world is mired in the worst financial crisis since the Great Depression. In the past weeks alone, there have been headlines announcing the "worst industrial production numbers since World War II" and the greatest contraction of prices since the middle of last century. And throughout the world the data continues to roll in, with economic growth in the United States likely contracting at nearly a 6 percent rate for the first quarter of 2009 and countries from Japan to Brazil linked by the common phenomenon of shrinking economies and lost jobs. While U.S. and global stock markets have made up some ground, they remain down as much as 50 percent from their highs just over a year ago.

And yet, there's reason to believe that the Depression is not a good analogy for today's crisis. The Depression conjures images of lines of grim-faced men and women, waiting on bread lines and work lines, or "Okies" trekking glumly from their desiccated farms to California in scenes of Steinbeckian squalor. It evokes James Agee's haunting photographs in ironic "praise of famous men" who would never be famous save for the shared infamy of their misery. The Depression gave birth to violent politics: Nazi nationalism in Germany, hard-line jingoism in Japan, war and Mao's long march in China. It was an age of toppled governments, nationalized industry and seething workers throughout Latin America.

The images from around the world are very different today. It is the Western elite that has supposedly been hit hardest and changed forever, but they are pondering their losses while downing $17 martinis in New York or Dallas. And even though the IMF and the World Bank have grim projections for the year ahead and fears of instability are rife, we are, for whatever reason, not seeing much evidence of that. There is not yet an Agee documenting the plight of the emerging world, which suggests that misery is not as easy to spot as it was in the 1930s.

Take the city of Buenos Aires, capital of an economy built on the export of food and leather, and acutely sensitive to downdrafts in global trade. The sprawling old neighborhood of Palermo and its subsections "Palermo Soho" and "Palermo Hollywood" see new clubs, bars and restaurants opening weekly. Hip spaces are filled nightly with the young and sleek, including young American and European expats with funds to spare.

The same might be said of São Paolo, or of Mumbai, Dubai, and Shanghai. Business in these boomtowns is more muted than before, but Dubai has a multibillion-dollar credit line from oil-rich Abu Dhabi; Mumbai continues to hum even after the wrenching terrorist attacks; China's recovery is so sharp and so V-shaped that you could have missed the bottom by going away for a weekend.

The only thing vaguely like the Great Depression right now is the rhetoric. Yes, the financial implosion has led to job losses in the tens of millions globally, and even those with secure incomes face fear and uncertainty. Credit has contracted even as government spending has expanded, so there really is less money to spend. Countries such as Russia and Iran, which tethered their fate to oil prices, now falling, are facing restive populations and potential political crises. And some parts of the world, such as Iceland, Eastern Europe, Thailand, the coasts of Africa, and Pakistan, are already reeling from instability aggravated by the economic squeeze.

But nowhere is there the massive dislocation of populations or wholesale social collapse of the 1930s. Unemployment is 8.5 percent in the United States, and as much as 13 percent for some parts of the country, but that's nothing compared with the more than 25 percent rate of the '30s. The consequences of joblessness are also less severe. During the Depression, the losers were laborers and farmers and agricultural workers who had little to start out with. There was no Social Security, no dole, no emergency medical system for the impoverished—not even a flawed one. There were no safety nets to catch the falling middle class. Losing a job and a home meant losing everything. Government had little to offer, and offered little.

It is, of course, possible that if the crisis deepens, the world could see broader levels of hunger, chaos and political turmoil. But for now there is no Mao, no Hitler visible anywhere, even on the distant political horizon. The rising affluence of the past two decades has created a middle class that is more resilient in financial storms, especially in emerging economies such as China, India and Brazil. Yes, those countries do still have hundreds of millions of deeply poor rural inhabitants whose lives are not much different today than they were 70 years ago. But, having had little to lose, and having never been integrated into the global financial system, they are not suffering more than usual from the current financial crisis. Their lives may be grim, but the cold fact is that their lives have always been grim.

On the flip side, some economic activity isn't captured by the panoply of data that shapes our sense of what is going on in the world. Cash transactions, undocumented immigrant workers, the "black economy" of metropolises everywhere, and even some service transactions, are all but invisible in GDP and trade statistics. That may be one reason why daily life has more ballast than the data suggests.

For now, the world is living in a fugue state. The wide gap between rhetoric and reality for all the major economies shows few signs of narrowing, and those perceptions can make matters worse. Yet someone is buying the tens of millions of iPhones and Nintendo consoles that were sold in the past six months, not to mention the basketball, baseball and football tickets, or at least the HD packages that beam those games into living rooms.

In the end, this period may be remembered as a severe economic recession accompanied by a great psychological depression. Perhaps what the world needs, even more than a master banker, is a global therapist, someone to minister to the collective psyche, or at least divert its focus away from the relentless stream of excessively bad news. Nothing adds to collective depression more than Great Depression analogies, and we've all heard way too many of them.

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