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Are We Echoing the Great Depression?

Signs That Could Lead Toward a Depression in the Age of AI?

The Great Depression (1929–1939) was the worst economic calamity of the 20th century. A decade of plummeting output, sky-high unemployment and widespread hardship. Today, some of the same red flags are waving. Income and wealth are highly concentrated, financial markets showed frenzied speculation in recent years, and policy mistakes loomed. The question on many minds is whether the U.S. (and the world) is echoing 1930s conditions. This time in a 21st-century economy shaped by AI, global finance and roaring technology, or whether the lessons of history have been learned. Let’s examine the parallels and differences below, weighing the warning signs against today’s new realities.

The Roaring 20s and the Roaring 2020s: Inequality and Speculation

In the late 1920s, America enjoyed a “Roaring Twenties” boom. Output and profits grew, and the rich got much richer. But much of the wealth was plowed into speculation, like stocks, real estate, and other assets, consequently creating a bubble. As one history source notes, “Much of the profit generated by the boom was invested in speculation, such as on the stock market, contributing to growing wealth inequality.” The stock market soared (a 500% rise in five years) and household debt ballooned. When the bubble burst in late 1929, people who had borrowed on margin were wiped out, spending collapsed, and factories closed. By 1933, unemployment hit about 25% in the U.S. and one-third of farmers lost their land. A calamity that took a decade to overcome.

Fast-forward to the 2020s. Inequality in the U.S. is near historic highs. Research has found that as of 2019 the top 1% of households owned roughly 40% of the nation’s wealth, a concentration last seen in the 1920s. Corporate profits, too, have been extraordinary. By late 2024 U.S. firms were reporting record profits (on the order of $4 trillion annualized), as companies raised prices and cut costs. Meanwhile, middle-class income growth has been very modest. A Pew study finds the share of national income going to upper-income Americans rose from 29% in 1970 to 48% by 2018, squeezing middle-class wages. This mirrors the 1920s in spirit. Where a super-rich few are capturing a huge share of gains.

Just as the 1920s had stock and real-estate bubbles, the last decade has seen its manias. Home prices and stock valuations (especially tech stocks) surged, and in 2020–21 a frenzy of cryptocurrency trading and meme-stock speculation gripped Main Street. In some ways markets today are even more frothy. Tech giants like Apple, Microsoft and Nvidia briefly traded at market capitalizations above $3 trillion, and even small startups went public at stratospheric values. After a crash in crypto in 2022, the scene remains volatile. In short, the financial excitement of the 2020s had echoes of 1929, and bubbles by definition carry the risk of a crash.

Key parallels emerge are that both eras featured extreme wealth concentration and speculative excess. Both saw surging debt too. In 1929, millions of Americans had taken on margin loans and installment debt during the boom. Today, household debt is again at record levels. By Q1 2025 U.S. consumers owed $18.2 trillion, driven by mortgages and student loans. In both cases, easy credit helped fuel booms that may not be sustainable without strong wage growth. The result is dangerous. When only the top earns most of the income, middle-income households struggle to buy the goods they produce, undercutting demand. In the 1920s this “underconsumption” helped precipitate collapse. Now, with much of the wealth at the top and wages stagnant for many, purchasing power is constrained, even as the rich spend freely or invest abroad.

It’s not all identical. Unlike the 1920s, today’s economy is more global and digitally integrated. Consumers now rely on credit cards, installment loans and digital payments, which can trigger crises differently than stock crashes. Also, unlike the fixed gold standard of the 1930s, modern currencies float (for now), giving policymakers more flexibility. But the broad pattern, a boom driven by concentrated gains and debt, followed by potential bust, is strikingly similar.

Policy Blunders Then and Now: Did We Learn?

One defining feature of the Great Depression was policy mistakes that magnified the downturn. The Fed, fearful of stock-market excess, first tightened credit in 1928–29; after the crash it did too little to flood the system with liquidity (and the gold-standard limited its options). Meanwhile, Congress enacted the Smoot–Hawley Tariff in 1930, prompting trade wars that caused exports to plunge. With state governments also cutting budgets to balance books, the result was compounding deflation and unemployment. As the Depression deepened, millions fell into poverty. Only after Franklin Roosevelt’s 1933 New Deal policies and later social programs (Social Security, unemployment insurance in 1935) did things slowly stabilize.

Today’s policymakers keep a wary eye on history. Central banks since 2008 have vowed “never again” to allow credit contractions as in 1930. The Fed’s aggressive rate cuts and quantitative easing after 2008 helped prevent a repeat collapse. More recently, however, the Fed has done a sort of reverse-lesson. It overshot by keeping rates near zero into 2021 and then sharply raising them to combat inflation (see image below). In early 2025 the Fed’s benchmark rate was 4.25–4.50%, a two-decade high. (This “restrictive” stance has hit debtors hard. Savers cheer higher yields, but people with variable mortgages or student loans feel squeezed.) The Fed is keen to avoid letting inflation spiral, so it has signaled only modest rate cuts.

Chart 1: Fed Funds Target Rate (Upper Bound), 2000–2025. After a decade near zero, the Fed has hiked aggressively to over 4%. This tight monetary policy is intended to tame inflation, but also risks slowing growth and echoing the contractionary stance of the 1930s. Image from Us Bank.

Fiscal policy, too, has echoes. In the 1920s government debt was relatively low and balanced budgets were prized; after the crash many economies severely cut spending (wrongly, many economists now think). In contrast, COVID-era fiscal stimulus left much higher deficits and debt in the 2020s. This gives governments room to spend if needed. Something like a buffer nonexistent in the 1930s. On trade, however, some recent moves are worrying, such as proposals for broad import tariffs (in excess of 20% on many goods) have been floated, raising alarm that a new protectionist wave could “tip” the world economy into recession. (Indeed, Fitch ratings warned that sharply higher tariffs could snap global growth back to the Great Depression’s dark levels, dragging U.S. GDP down sharply.)

The 1930s also lacked a modern safety net. Unemployment insurance, deposit insurance, and Social Security did not exist before 1935. Today the poorest have Medicaid and dole programs, and even small businesses can access Fed-backed loans. This means a downturn need not instantly turn into mass hunger as it did in 1933. On the other hand, critics note our current safety nets are uneven (e.g. U.S. still has no universal healthcare or guaranteed basic income), so millions remain vulnerable. The polarization is stark. While some workers enjoy steady tech wages, others scrape by on low-paid gig work.

In summary, policymakers since 2008 have tried to avoid 1930s mistakes, and in many ways they have succeeded so far. But new policy slip-ups could rewrite that record. Sky-high tariffs or premature budget cuts, for example, could restart a vicious cycle of declining demand. Corporations and banks are large and interlinked as never before, raising counterparty risk (if one big bank fails, who goes under next?). Some firms are “too big to fail” (and have become even bigger), making it politically painful to allow failures. So far regulators post-2008 have kept tighter reins on big banks; but there are new fields like crypto and shadow banking that are less regulated, which could hide dangers of contagion if a bust comes.

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Inflation, Unemployment, Debt: Reading the Modern Indicators

What do today’s economic numbers tell us? The rough parallels and differences are clear when we look at the data:

• Inflation vs. Deflation. The Great Depression was marked by deflation. Prices fell year after year, worsening debt burdens. Today, we have the opposite problem. Consumer price inflation briefly hit nearly 9% in 2022 (peak), though by 2025 it’s fallen. As of April 2025 U.S. CPI inflation over 12 months was about 2.3%, close to the Fed’s 2% goal. Core inflation (excluding food/energy) was 2.8%. This moderation shows the Fed’s high rates are working. But unlike the 1930s, prices are not crashing. Indeed, after decades of very low inflation some economists worry about stagflation. Slow growth with sticky prices. Also, the causes differ. Today’s inflation was driven by pandemic disruptions and fiscal stimulus, not by monetary collapse, so it can (in theory) be managed with interest rates.
  

• Unemployment. The U.S. unemployment rate exploded from ~3% in 1929 to ~25% by 1933, an incomprehensible jump for today’s policy-makers. By contrast, modern unemployment is low but ticking up to around 4.2% as of April 2025. This is higher than the 3.5% recorded in 2022, but nowhere near Depression levels. Some sectors (tech) have begun laying off workers in 2023–24, but others (healthcare, hospitality) are still hiring. Inertia in labor markets today, within unions, minimum wage laws, and stimulus distribution, means jobless spikes take time. We do see warning signs. Long-term unemployed have crept up, and the labor force participation rate has fallen slightly. These suggest slack may be increasing. If a recession hits (or if AI eliminates jobs), unemployment could rise rapidly, which is a political red line.
  

• Debt. Consumer and corporate debt levels today are historic. By early 2025, U.S. household debt was about $18.2 trillion, which is higher in nominal terms than before the Great Recession of 2008. Mortgage debt alone was $12.8 trillion, an all-time high. Student loans hit $1.63 trillion (another record). Credit card balances also exceeded $1.18 trillion. (Importantly, in real terms this is near the 2008 peak.) Rising debt makes the economy more fragile. In the 1930s, many households had taken on installment debt on goods and were wiped out when deflation hit. Today, rising rates mean interest payments on that $18 Trillion debt are much larger than in recent years, potentially crowding out spending on essentials. On the plus side, banks now enforce stricter lending standards and the worst excesses of the 2000s subprime boom have been curtailed.
  

• Corporate and Government. Corporate balance sheets are strong. Profits are up, cash piles large, so companies could ride out a storm (or at least use cash for layoffs or buybacks). But their endurance depends on sustained sales and investment. Government debt (over 100% of GDP in the U.S.) is also higher than pre-2008, giving the federal government (unlike Hoover’s) leeway to spend if things get dire. Some worry, however, that without clear plans for fiscal sustainability, this debt could become a burden if interest rates stay higher.

To sum up, we are seeing worry signs. High (though falling) inflation, creeping unemployment, debt overhang. Yet the current situation is far less catastrophic than 1933’s numbers. Let us note this distinction. Low inflation and sub-5% unemployment are nowhere near the 1930s deflation and mass joblessness. Still, trends like debt and inequality suggest if big shocks hit, the vulnerability could mirror a Depression scenario.

Chart 2: Initial jobless claims in 2025 (black line) began the year elevated but declined through mid-year, before rising again sharply in the fall—surpassing the 2014–2025 median (dotted red) and 2024 levels (green), signaling late-year labor market strain.Image from Us Bank.

Automation, AI and the Economic Landscape

A factor absent in the 1930s is modern technology, especially computing and artificial intelligence. This changes the game in unpredictable ways. On one hand, automation has been quietly eroding jobs for decades (think manufacturing robotization), but AI now threatens even white-collar work. If a machine can write a report, analyze legal documents or code software, huge swaths of corporate bureaucracy could vanish.

AI’s impact is double-edged. Productivity could get a massive boost. Imagine AI enabling a 10% GDP growth rate as some optimists suggest. But at the same time, millions of jobs (particularly entry-level and routine positions) could disappear. Dario Amodei, co-founder of AI firm Anthropic, warned in 2025 that “AI could wipe out half of all entry-level white-collar jobs — and spike unemployment to 10–20%.” In a scenario he describes, cancer cures and booming tech happen and 20% of people have no job. Likewise, a United Nations report cautions that AI may replace many workers without creating enough new ones, sharply worsening income inequality. (It notes that advanced economies like the U.S. and UK, where many jobs are “information work,” face the biggest labor shocks).

These insights matter. In the 1930s, machines (like tractors and assembly lines) did indeed displace some labor, but overall technology was seen as a boon, and jobs eventually returned with wartime production. Today’s AI revolution is faster and broader. If 20% of workforce unemployment became reality, we would face social and political turmoil far beyond anything since the Depression. The demographic most at risk are those with fewer skills or older in career, which is a source of bitterness and social strain.

In finance, AI and algorithms also dominate. High-speed trading, AI risk models, and crypto markets add new layers of instability. Flash crashes (like the 2010 “Flash Crash”) suggest markets can gyrate unpredictably under algorithmic trading. There’s no human central bank that can simply intervene in seconds.

The tech giants themselves wield enormous economic power, akin to the titans of the 1920s (General Electric, US Steel, etc.) but on steroids. Companies like Apple, Microsoft and Google are not only worth trillions, but also control essential digital infrastructure and data. Their profit-seeking decisions, from investing in robotics to influencing policy, will strongly shape the economy. This concentration of corporate power recalls the trusts and monopolies that Congress took on in the early 20th century, often unsuccessfully. Today’s regulators are debating antitrust actions against Big Tech, but any such move is far from settled.

Automation, then, both holds promise and poses risk. It could break the link between work and income (suggesting ideas like a Universal Basic Income), which might prevent a Depression by giving people spending power even without jobs. But without such measures, mass unemployment would deepen any downturn. Imagine a 1930s without new jobs in factories, because the robots took over. In this sense, our economy is susceptible to a very different kind of “perfect storm.”

Power, Politics and Preparation: Are We Smarter?

Do today’s political and corporate elites seem to grasp these dangers, or are they making the same mistakes? On one hand, there is far greater awareness of inequality and historical precedent than in 1930. Many executives publicly acknowledge social responsibility; governments monitor poverty rates. The lessons of past crises are studied by central banks. At least rhetorically, the focus on transparency and data-driven policy is far ahead of the shadowy decision-making of the Hoover era.

On the other hand, power structures have only grown more entrenched. Lobbying by big banks, tech firms and wealthy individuals shapes legislation in ways that may not favor broad resilience. For example, corporate tax rates in the U.S. were cut in 2017, adding fuel to the inequality fire by sending more income to owners and shareholders rather than workers or public goods. The financial sector remains lightly penalized for risk-taking. Compare the 1930s when banks simply failed or were nationalized, to now when troubled firms are bailed out. The “too big to fail” doctrine is stronger than ever, reducing the market discipline that might otherwise check excess.

Even as central banks tightened policy on inflation, fiscal support to working people has waned post-pandemic. Unemployment benefits and stimulus checks in 2020–21 prevented the poverty lines from bursting, but many of those measures have since expired or been scaled back. Meanwhile, corporate subsidies and loopholes often persist. Thus, some critics argue that the government is doing for the rich what it failed to do for the middle class. Vaccinate big corporations while quietly starving average households.

Interestingly, public discourse today resembles the 1930s in one respect. The spread of conspiracy theories and scapegoating. In the 1930s it was those who are Jewish or communists blamed for economic woes; today it can be global elites or immigrants or tech bros. The targets change, but the undercurrents of desperation are similar. Political polarization is high, making unified, bold policy action difficult. In 1932 Franklin Roosevelt promised a “New Deal” and enacted massive government intervention. In our polarized era, even modest proposals (like infrastructure bills or green stimulus) become bitter fights. This “paralysis risk” is a difference. We have more technical knowledge, but less political consensus on using it.

On the global stage, responses vary. In Asia, China’s government is juggling a debt-laden property sector and slowing exports, with IMF warnings that more stimulus and social support are needed. Europe is recovering from COVID and war-driven inflation, now on a gradual rate-hike path. If one region falters (say China has a hard landing), others could import recession through trade. This interconnectedness is a modern twist. The 1930s became a depression partly because all major economies caught the bug. We do see signs of decoupling (Russia is isolated, the U.S. and China are in a tech cold war), but not full economic autarky yet.

Overall, there are both optimistic and pessimistic notes. On the plus side, safety nets and knowledge are stronger than in 1930. On the negative side, if major players keep repeating reckless policies (tariff wars, bloated debt, ignoring social inequality), they could be sowing a second Great Depression. From my perspective we have one shot to use our tools wisely. Bailouts or stimulus after a crash are easy (2008 and 2020 proved that), but preventing the crash or catching inequities early is the challenge.

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Where We Might Be Headed: Choices and Outcomes

No one can predict the future with certainty, but we can outline possible paths:

• Worst-case: Triggered by a shock (like a renewed financial crash, severe supply shock, or technology-driven unemployment), the economy sinks into stagflation or outright recession. Imagine inflation still near 4% (core sticky), growth near zero, unemployment rising to 10%. Debt stays high as incomes fall, so defaults spike (student loans, mortgages). Housing prices could tumble (unlike 2008, but like 1931 real estate crash). Corporate profits would plunge from their record highs. Politically, this could fuel populist backlashes. Trade war tantrums could reignite, fiscal austerity could reappear, or conversely, drastic left-wing reforms (like wealth taxes or full UBI) might take hold. In the bleakest view, social trust frays. If Washington is seen as failing again, history teaches us that divisive ideologies and international conflicts can surge (1930s gave us Nazism and World War II).
  

• Status-quo case: The economy muddles through with mild recession risk. Fed maintains rates to keep inflation in check, perhaps cutting modestly later. Unemployment inches up but stays in low single digits. Wages and productivity resume a sluggish trend. AI and automation gradually transform jobs, leading to more gig work but not a bloodbath. Tech monopolies become more regulated but remain highly profitable. Inequality stays high but doesn’t double in a downturn. The result is a continuation of the post-2008 “slow growth, rich get richer” pattern. This isn’t a catastrophic outcome. Growth stays positive, but it stokes resentment and populism as non-elite Americans feel left out. In such a scenario, we avoid another Depression, but at the cost of chronic underutilized resources and social friction.
  

• Best-case: Policymakers act preemptively on all fronts. Governments invest heavily in retraining and education to handle AI transitions, and perhaps institute policies like a job guarantee or basic income. Social programs are expanded (childcare, healthcare) to stabilize demand. Central banks coordinate globally to manage liquidity calmly. Crucially, fiscal policy might swing expansionary while monetary policy is tight, supporting infrastructure, green energy and safety nets instead of only fighting inflation. Trade tensions ease, and leaders recognize that broad tariffs would be suicide and instead work on cooperative models. Big Tech is curbed by pro-competition rules and taxes, and some gains are redistributed (via higher capital gains taxes, for example). The result is that the economy may still grow slowly (demographics are headwinds) but remain stable, with inflation near target, unemployment low, and inequality at least partially addressed. The shock of AI and globalization is absorbed without catastrophe because the social contract has been updated. In this scenario, we effectively learn from the past.

Which path will it be? I think that is the wrong question to ask. I would ask, are we doing the big-picture thinking we need? Policymakers in the 1930s famously did not see the storm until it was too late. Today’s world has data, satellites, and faster communication. There is no excuse for ignorance. A Depression could still happen (so could stronger democracy or a green-tech boom), but it depends on choices. Will elites tax themselves and rebuild the middle class, or double down on the status quo? Will central banks remain independent or bow to short-term political pressures? Will trade wars escalate or fade? In short, “where we could be” has a very wide range of outcomes.

One thing is sure, the lessons of 1929 still resonate. Extreme concentration of wealth and persistent inequality undermine consumer demand, just as in the 1920s. Huge debt burdens with high interest rates risk squeezing growth, as unsustainable debts did in the 1930s. Repeating the worst mistakes (trade isolation, bloodletting of spending) would be foolhardy. The alternative is to heed the warnings and act differently, such as strengthen social insurance, ensure fairer income distribution, manage the AI transition humanely, and maintain open markets. The window for action is open now. If leaders don’t move, markets or politics might force a crisis that we could have forestalled.

TL;DR

Now that I have your attention, “Are we repeating the Great Depression?” The honest answer is, we see familiar symptoms, but it’s not a replay yet. We are in a new era with old risks. Whether that yields a new Depression or not depends on will and wisdom. My advice is that we take the historical analogies seriously, but do not despair. Instead, use the advantages of our time (technology, information, international institutions) to write a different ending. The stakes could hardly be higher, and the choices are ours.

*Research Gathered using ChatGPT.
*Article Copyedited and Proofed using Gemini in Google Docs.

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