Economic history: What can we learn from the Depression?

SINCE the start of what some now call the “Great Recession” in 2007, economists have been unable to avoid comparing it with the Depression of the early 1930s. For some, the comparisons are explicit. Economists like Paul Krugman and Barry Eichengreen have drawn parallels between the two slumps. Olivier Blanchard, chief economist of the International Monetary Fund (IMF), warned several times over the last few years that the world risked falling into a new “Great Depression”. Economic historians themselves have had an unprecedented role in policy making during the recent crisis. Ben Bernanke at the Federal Reserve and Obama-administration advisors like Christina Romer all have academic backgrounds in the discipline.Can economic historians give policy-makers advice on the basis of what they believed caused the Great Depression? A discussion of this topic by Britain’s top economic historians in a lecture at Cambridge University on November 4th suggested the question is more complex than it first appears. Although there are similarities between this crisis and that of the 1930s, much else—including technology, geopolitics, and the role of the state—has changed dramatically in the intervening period. Financial markets and credit systems now work in different ways than back then. Exotic derivatives like CDOs and CDSs only became widely used in the 1990s. Global economic …

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