Despite the government’s $700 billion financial bailout of banks and insurers and the recently enacted stimulus package, stocks continue to fluctuate and concern grows regarding a widening global financial crisis. Some are comparing the current state of the economy to the Great Depression and the New Deal. But what exactly are the parallels and how does our current situation differ?

Similarities

Bryant Simon, professor of history and director of American studies at Temple University, says that there are some obvious similarities between today’s crisis and the earlier one. “Of course, both crises were all-time lows for Wall Street — although the anti-Wall Street language in the 1930s was more pointed and directed,” said Simon.

“And, both were triggered by speculation, unregulated financial markets, and a failure of confidence. FDR closed the banks to restore credit.”

“We are seeing now how unemployment as result of financial missteps and perhaps deeper structural problems deepen the crisis and make the recovery more difficult,” he noted.

Differences

But, according to Simon, the Great Depression was much more severe because it hit a nation without a safety net. When people fell there was nothing to catch them.

“That safety net was built by the New Deal and whatever the New Deal's flaws it has helped to prevent another collapse by allowing people to keep spending,” said Simon.

A key difference, said Simon, is that society in the 1930s was better organized, and social groups — such as labor and even small business groups — were better able to push back against Congress.

Perhaps this push against Congress by a tightly-knit social infrastructure led to the New Deal’s bailing out of banks and homeowners at the same time, explained Simon.

“In 1933, Congress created the Home Owners' Loan Corporation (HOLC). This was supposed to buy mortgages from lenders in return for government-guaranteed bonds that paid interest. This helped to prevent foreclosures and this has been one of the reasons cited for some in the House initially voting against the bailout package last fall,” said Simon.

Another significant difference is that while the New Deal looked to solve things primarily through infrastructure improvements, many economists today suggest that to create jobs, we need to pursue more R & D and the development of new industries, including, for example, research into batteries for electric cars, said Simon.

Simon’s first book, A Fabric of Defeat (University of North Carolina Press, 1998), looks closely at the relationship between ordinary people and the Great Depression and the advent of the New Deal. He is currently at work on a book about Starbucks and is also author of Boardwalk of Dreams: Atlantic City and the Fate of Urban America (Oxford University Press, 2004).