The Shadow of History: Lessons from Japan’s Great Depression in the 1930s

The Great Recession has resurrected an interest in another major crisis, the Great Depression. For example, Alan Greenspan talked about the Great Recession as a “once in fifty years, or in a century” event, hinting that the Great Recession is the Second Great Depression (Greenspan 2007). Ben S. Bernake, chairman of the Federal Reserve Board from 2006–2014, and Christina D. Romer, chair of Council of Economic Advisors from 2009– 2010, both foremost experts on the Great Depression, drew lessons from the Great Depression for today’s Great Recession (Bernanke 2012; Romer 2009, 2013). Barry Eichengreen and Kevin O’Rourke explicitly compared the two crises, stating that the initial phase of the Great Recession was more severe than the Great Depression was in terms of declining stock prices and the volume of exports (Eichengreen and O’Rourke 2009). Academic economic historians gathered to discuss the “Lessons from the 1930s Great Depression for the Making of Economic Policy.”1 A similar comparison has already been made during Japan’s Great Stagnation. This chapter goes back further, to the 1930s, showing disturbing similarities between the policy mistakes of the 1930s and those of the 1990s in Japan. The Great Depression is commonly known in Japan as the Showa Depression, named after the years of the reign of Emperor Hirohito. The Showa Depression has acted as a litmus test for Japanese economists, revealing an almost a similar range of diversity of opinions on how economists should deal with economic and financial crises.