Major crises and depressions: comparisons of the current crisis to the Great Depression and the classical Gold Standard

"A perfect storm. This is one metaphor used to describe the present global crisis. No other economic downturn after World War II has been as severe as today's recession. Although a large number of crises have occurred in recent decades around the globe, almost all of them have remained national or regional events – without a global impact. So the crisis of today has no recent match. ( ) To find a downturn of similar depth and extent, the record of the 1930s has to be evoked. Actually, a new interest in the depression of the 1930s, commonly classified as the Great Depression, has emerged as a result of today’s crisis. By now, it is commonly used as a benchmark for assessing the current global downturn. The purpose of this chapter is to give a historical perspective to the present crisis. The first section discusses the similarities and differences between the 1930s depression (with some reference to the pre-World War I period) and the present crisis concerning the geographical origins, causes, duration and impact, As both depressions were global, the transmission mechanism and the channels propagating the crisis across countries are analysed. Next, the similarities and differences in the policy responses then and now are mapped. Finally, a set of policy lessons for today are extracted from the past. A word a warning should be issued before making comparisons across time. Although the statistical data from previous epochs are far from complete and comparability is an issue, historical national accounts research and the statistics compiled by the League of Nations offer useful evidence for this chapter. ( ) Of course, any historical comparisons should be treated with caution. There are fundamental differences with earlier epochs concerning the structure of the economy, degree of globalisation, nature of financial innovation, state of technology, institutions, economic thinking and policies. Paying due attention to them is important when drawing lessons."