Profit Growth in Boom and Bust: The Great Recession and the Great Depression in Comparative Perspective

The Great Recession of 2007–2009 and the Great Depression of the 1930s were triggered by the collapse of asset-price bubbles. However, preexisting structural imbalances in the US economy were the reason why the burst of speculative bubbles induced a general economic collapse. This article argues that the imbalance created by the combination of stagnant labor earnings and surging corporate profits not only played a leading role in the run-up to the downturns but also was chiefly responsible for the slow recoveries. On the one hand, the relative stagnation of labor income represented a key factor behind rising income inequality and a potential drag on consumption which was temporarily alleviated by credit expansion; hence, the rising household debt levels eventually became unsustainable. On the other hand, rising corporate profits created an overhang of idle money, eager to lend itself to speculative ventures, which played a key role in fueling the stock market bubble of the 1920s and the housing bubble of the 2000s. The article further argues that despite various superficial and deeper similarities between the circumstances surrounding the Great Recession and the Great Depression, some fundamental differences in the structure of the US economy then and now suggest vastly different future prospects for American capitalism.