The global crisis has been frequently compared to the Great Depression. The recession of 1937 has been less widely discussed. This column asks what lessons it can teach today’s policymakers. Its key message is that while fiscal consolidation should not be postponed, the exit strategy needs to focus on providing monetary support for aggregate demand as fiscal stimulus is withdrawn.
Nicholas Crafts, Peter Fearon, 23 November 2010
Douglas Irwin, 20 September 2010
A large body of research has linked the gold standard to the severity of the Great Depression. This column argues that while economic historians have focused on the role of tightened US monetary policy, not enough attention has been given to the role of France, whose share of world gold reserves soared from 7% in 1926 to 27% in 1932. It suggests that France’s policies directly account for about half of the 30% deflation experienced in 1930 and 1931.
Carmen Reinhart, Vincent Reinhart, 13 September 2010
Is the global economic recovery about to grind to a halt? This column provides evidence on economic performance in the decade after a macroeconomic crisis. It finds that growth is much slower and as well as several episodes of “double dips”. It adds that many of these economies experience plain “bad luck” that strikes at a time when the economy remains highly vulnerable.
Paul Seabright, 10 September 2010
Paul Seabright of the Toulouse School of Economics talks to Romesh Vaitilingam about his book ‘The Company of Strangers: A Natural History of Economic Life’, recently issued in a revised version, which applies the ideas about social trust and social fragility to the financial crisis. Among other things, he outlines the three lessons mistakenly learned from the experience of the 1930s. The interview was recorded at the annual congress of the European Economic Association in Glasgow in August 2010.
Kenneth Snowden, 10 September 2010
Was the subprime crisis inevitable? This column looks at how the last mortgage crisis in the 1930s shaped the policy landscape in the US, arguing that it eventually led to the emergence of private securitisation in the 1990s, a surge in homebuilding and homeownership, and a second great mortgage crisis that was just around the corner.
Timothy Hatton, 09 September 2010
The recent recession that followed the global crisis has often been compared with the Great Depression. This column argues that an important but neglected lesson from that period is that policymakers should be firmly focused on fostering labour market flexibility and maintaining the employability of those out of work, rather than on short fixes that actually cause unemployment to persist.
Richard Grossman, 23 July 2010
Richard Grossman of Wesleyan University talks to Romesh Vaitilingam about his new book ‘Unsettled Account: The Evolution of Banking in the Industrialized World since 1800’. Among other things, they discuss the problems of striking a balance between a dynamic banking system and a stable banking system. The interview was recorded at a conference on ‘Lessons from the Great Depression for the Making of Economic Policy’ in London in April 2010.
Kris Mitchener , Joseph Mason, 15 June 2010
Many commentators have compared the global crisis to the Great Depression. This column explores lessons that can be applied to help shape expectations and guide exit policy for central banks. It argues that the need for credit stimulus should end when failed intermediaries are resolved and positive net present value credits are reallocated to solvent lenders.
Price Fishback, 30 April 2010
Price Fishback of the University of Arizona talks to Romesh Vaitilingam about whether the current US economic situation is really comparable to the Great Depression. He argues that today’s monetary policy response is heavily and positively influenced by the failures of the past – but that today’s fiscal stimulus is far stronger than in the 1930s and out of proportion to the problem. The interview was recorded at a conference on ‘Lessons from the Great Depression for the Making of Economic Policy’ in London in April 2010.
Marc Flandreau, Norbert Gaillard, Ugo Panizza, 18 April 2010
The global crisis is frequently compared to the Great Depression and the interwar debt crises. This column argues that, contrary to prevailing opinion, the interwar debt crisis had little to do with bankers’ conflicts of interest – intermediaries were in fact careful in selecting and placing sovereign bonds. Then, as now, public opinion may not be the best guide to policy.
Guillermo Calvo, Rudy Loo-Kung, 12 April 2010
The causes and consequences of the current global crisis have been compared with the Great Depression as well as crises in emerging markets. This column argues that the main difference between emerging market crises and the global crisis is that the former relied on an export recovery while the recent recovery has been fuelled by far less sustainable government expenditure.
Eugene White, 02 March 2010
Where do the real causes of the global financial crisis lie? This column argues that that a dispassionate examination is needed in order to properly reform the banking system. As the Glass-Steagall Act of 1933 illustrates, a mad dash for regulation where special interests can manipulate popular outrage is a recipe for cooking up the next financial disaster.
David Jacks, Christopher Meissner, Dennis Novy, 27 November 2009
Trade has declined massively during the crisis. This chapter assesses the relative roles of falling demand and rising trade costs in explaining the collapse and compares it to the Great Depression. Surprisingly, the authors calculate that the increase in trade costs today is as large as in 1929 despite the absence of any modern protectionism resembling Smoot-Hawley. If their calculations turn out to be correct, reviving global demand alone will be insufficient to revive world trade.
Barry Eichengreen, Kevin O'Rourke, Miguel Almunia, Agustin Bénétrix, Gisela Rua, 18 November 2009
There is one important source of information on the effectiveness of monetary and fiscal stimulus in an environment of near-zero interest rates, dysfunctional banking systems and heightened risk aversion that has not been fully exploited: the 1930s. This column gathers data on growth, budgets and central bank policy rates for 27 countries covering the period 1925-39 and shows that where fiscal policy was tried, it was effective.
Carlo Favero, 18 November 2009
Today’s global crisis has been compared to the Great Depression in terms of world output, trade, and stock market value. To extend the comparison, this column proposes a new, historically comparable measure of economic uncertainty. The evolution of uncertainty in this crisis has been much less dramatic than in the 1930s.
Lee Ohanian, 19 October 2009
What started the Great Depression? This column says that the industrial decline began before monetary contraction or banking panics – the conventional culprits – took hold. It attributes the massive drop in manufacturing hours to President Hoover’s labour policies, which kept nominal and real wages high.
Antonio Spilimbergo, Paola Giuliano, 25 September 2009
Economic events can have long-lasting non-economic effects. This column shows how economic circumstances affect individuals’ life-long beliefs. Individuals growing up during recessions tend to believe that success in life depends more on luck than on effort and support more government redistribution, but they are less confident in public institutions. The current severe recession may be forming a generation that is more risk-averse and believes more in redistribution.
Douglas Campbell, Christopher Meissner, Dennis Novy, David Jacks, 19 September 2009
Trade has declined massively during the crisis. This column assesses the relative roles of falling demand and rising trade costs in explaining the collapse and compares it to the Great Depression. Surprising, the increase in trade costs today is as large as in 1929, despite the absence of any modern protectionism resembling Smoot-Hawley. It appears that reviving global demand alone will be insufficient to revive world trade.
Daniel Gros, 01 May 2009
Today’s general consensus is that a key factor behind the Great Depression was the breakdown of the US banking system and that we must avoid large-scale bank failures this time around at all costs. However, this column shows that commercial banks actually do relatively well during recessions. It is the financial sector outside banking – in other words, investment banking – that suffers huge losses.
Thomas Helbling, 29 April 2009
Despite the stunning contraction of industrial production and trade across the globe, the global economy is still a far cry away from the calamities of the Great Depression. However, if the economic damage of the current global crisis may have been contained so far, worrisome parallels to the early 1930s remain and preventive policy actions must be kept up.