6 | Big Picture
In the UK, GDP fell by 0.7 per cent in 1930 followed by a severe
contraction of 5.1 per cent in 1931 (see: Chart 1). There was then a
very slight recovery with growth of 0.8 per cent in 1932.
Thereafter GDP growth picked-up, indeed it was quite strong as
some of the lost output in the early 1930s was recovered.
In the US, the depression was much more severe � hence the term
`Great Depression'. Chart 2 shows that GDP suffered huge
contractions of 8.6 per cent in 1930, 6.4 per cent in 1931 and 13 per
cent in 1932, followed by a 1.3 per cent fall in 1933. Subsequently
the economy grew very fast (with the exception of 1938).
The impact of the US depression on investment and
consumption is particularly striking. Fixed investment fell by 33
per cent in 1930, 37 per cent in 1931 and 70 per cent in 1932.
Consumption fell by 5.3 per cent in 1930, 3.1 per cent in 1931, 8.9
per cent in 1932 and 2.2 per cent in 1933. These numbers represent
a massive contraction in economic activity.
Table 1 summarises the characteristics of the depression of the
1930s in the US. Over subsequent decades there has been an
intense academic debate (with the current Chairman of the
Federal Reserve, Ben Bernanke, a key participant) as to exactly
what caused the depression to be so deep and so long. Space
-6
-4
-2
0
2
4
6
8
1930 1932 1933 1934 1935 1936 1937 1938
UK GDP growth in the 1930s
CHART 1
% change year-on-year
1931
The Great Depression in the US � key characteristics
� 25 per cent unemployment
� Hundreds of bank failures
� No deposit insurance
� Huge falls in asset prices
� Very large contraction in the money supply
� Federal Government response very limited prior to the New Deal
� `Beggar thy neighbour' trade policies � Smoot-Hawley Act
TABLE 1
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