What we can learn from past recessions

As the world enters a new recession, it’s worth reflecting on what we’ve learnt from past experiences with economic downturns. The most recent economic recession in living memory was the 2008 economic crisis, but it’s also worth taking lessons from the Great Depression which first began in 1929. What can we expect to happen over the next few years?

Well, let’s take a look at what happened during the more recent financial crisis first. The 2008 crash saw a huge reduction in the profits of the financial sector, although that had almost completely recovered by the second quarter of 2009. In later years, finance profits actually experienced growth and by 2017 the sector was making a great deal more than it was pre-crisis.

Profits were slower to grow in other sectors but they did experience growth because many companies now had less employees and lower wages following the crisis – wages dropped during the recession and were not quick recover. By 2013 the stock market had made a full recovery but unemployment was high and household wealth was still lower than it was pre-recession whilst the wealth gap for minorities widened.

In comparison the Great Depression saw a restructuring of the way the financial sector worked, reforms held banks accountable for risky investments and the New Deal began by helping workers in order to help banks and other financial institutions, rather than protecting banks and organisation first.

Newer approaches have seen a ‘trickle down’ approach being taken but this is proving to be ineffective. Banks and other institutions will prioritise their interests first. The effectiveness of our recovery from the latest recession will depend on the approach governments choose to take and whether they decide to take lessons learnt from past recessions to protect unemployed workers and vulnerable groups, or if they will once again prioritise banks and company interests.