October 15, 2008 10:36AM

The Biggest Economic Nonsense Since the Great Depression

An otherwise interesting Washington Post front‐​pager on “What Went Wrong” claims the current situation “has erupted into the biggest economic crisis since the Great Depression.” On the contrary, that honor surely goes to 1980–82, with 1973–75 as a close runner‐​up.

This may indeed be the biggest postwar financial crisis, but that is a very different thing.

The biggest postwar financial crisis so far was the S&L collapse of the late 1980s, when nearly 3000 financial institutions were closed. But the impact of the S&L debacle on the real economy was minor at best (the economy grew by 2.9% a year during that “crisis”). The stock market crash of 1987 inspired many hysterical predictions but no recession at all.

An economic crisis implies a deep and prolonged drop in real output and employment, not just another routine recession. To describe current conditions as a worse economic crisis than 1980–82 is fanciful nonsense.