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A Tale of Two Depressions
Barry Eichengreen Kevin H. O’Rourke, vox
Vox editor’s note:This is an update of the authors’ 6 April 2009 column comparing today’s global crisis to the Great Depression. World industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better. The update shows that trade and stock markets have shown some improvement without reversing the overall conclusion — today’s crisis is at least as bad as the Great Depression.
The 6 April 2009 Vox column by Barry Eichengreen and Kevin O’Rourke shattered all Vox readership records, with 30,000 views in less than 48 hours and over 100,000 within the week.
… New findings:
* World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots’.
* World stock markets have rebounded a bit since March, and world trade has stabilised, but these are still following paths far below the ones they followed in the Great Depression. …
… Start of original column (published 6 April 2009)
The parallels between the Great Depression of the 1930s and our current Great Recession have been widely remarked upon. Paul Krugman has compared the fall in US industrial production from its mid-1929 and late-2007 peaks, showing that it has been milder this time. On this basis he refers to the current situation, with characteristic black humour, as only “half a Great Depression.” The “Four Bad Bears” graph comparing the Dow in 1929-30 and S&P 500 in 2008-9 has similarly had wide circulation (Short 2009). It shows the US stock market since late 2007 falling just about as fast as in 1929-30.
Comparing the Great Depression to now for the world, not just the US
This and most other commentary contrasting the two episodes compares America then and now. This, however, is a misleading picture. The Great Depression was a global phenomenon. Even if it originated, in some sense, in the US, it was transmitted internationally by trade flows, capital flows and commodity prices. That said, different countries were affected differently. The US is not representative of their experiences.
Our Great Recession is every bit as global, earlier hopes for decoupling in Asia and Europe notwithstanding. Increasingly there is awareness that events have taken an even uglier turn outside the US, with even larger falls in manufacturing production, exports and equity prices.
In fact, when we look globally, as in Figure 1, the decline in industrial production in the last nine months has been at least as severe as in the nine months following the 1929 peak. (All graphs in this column track behaviour after the peaks in world industrial production, which occurred in June 1929 and April 2008.) Here, then, is a first illustration of how the global picture provides a very different and, indeed, more disturbing perspective than the US case considered by Krugman, which as noted earlier shows a smaller decline in manufacturing production now than then.
(4 June 2009)
Recommended by Larry Hughes.
The new economy of tomorrow (Jeff Rubin)
John Pollack, Telegraph-Journal
Future Former economist Jeff Rubin says the ‘new economy’ will have a wide variety of goods produced regionally with less environmental impact
Regional demand is the key to reviving New Brunswick businesses that have gone under due to the pressures of competing in a global economy.
This is what former CIBC chief economist Jeff Rubin says New Brunswick will need in a world after cheap oil.
“Your neighbours become a lot more important to you than export markets on the other side of the world that you’ll soon lose access to because of the soaring shipping costs,” Rubin says on the phone from Edmonton this week.
He is on a North American tour promoting his book Why Your World Is About To Get a Whole Lot Smaller: Oil and the End of Globalization.
In the book he argues rising fuel costs will make international trade less profitable than domestic production, forcing local consumption.
“It’s not going to be economically possible for us to import our food, or steel or flat-screen TVs from halfway around the world, no matter how cheap their labour costs are,” he says in an interview. “What we save on wages we’ll more than blow on bunker fuel.”
(6 June 2009)
Nobelist Daniel Kahneman on Behavioral Economics (video)
Nobel Prize-winning psychologist Daniel Kahneman addresses the Georgetown class of 2009 about the merits of behavioral economics.
He deconstructs the assumption that people always act rationally, and explains how to promote rational decisions in an irrational world.
(15 May 2009)
Money worries: town prints its own
ABC News (Australia)
The old dairy farming town of Maleny in Queensland’s Sunshine Coast hinterland, perched lushly on the Blackall Ranges, now attracts tree changers, hippies, artists and weekend tourists.
In 2004 Maleny locals made headlines for trying to stop the construction of a Woolworths on the banks of the town’s Obi Obi Creek, which was a platypus habitat.
After long stand-offs, they lost that battle and the supermarket was built.
But this time they have taken on a bigger opponent and have decided to hit back at the global financial crisis.
They are going to print their own money.
…Mr Mitchell says the Baroon Dollar can be used in towns across the hinterland, including Montville, Mapleton and Kenilworth.
He says the initiative is the first regional paper-based community currency in Australia.
“It creates a central pool of money that’s used also in part for community grant schemes and micro financing,” he said.
(10 June 2009)
Suggested by EB contributor Stuart McCarthy, who points to several related articles:
– “Maleny’s Baroon Dollars” – http://www.thedaily.com.au/news/2009/jun/10/maleny-launches-its-own-curr…
– The Baroon Dollar – http://www.baroondollar.org/
– Sustainable Maleny – http://www.sustainablemaleny.org/
– Transition Sunshine Coast – http://www.transitionsunshinecoast.org/