Can Great Depression Theories Explain the Great Recession?
The recent recession has brought a sharp decrease in income, output, and world trade, as well as an increase in unemployment in developed and underdeveloped countries. Experts such as Paul Krugman, Christina Romer, or Barry Eichengreen, compare the current situation with the Great Depression of the 1930s. However, the current debate is whether that comparison is even applicable. Since policy makers have to understand the roots and the dimension of the crisis in order to seize the fiscal stimulus package, adjust the level of taxes, and change regulation of the financial sector, the debate is of course a reasonable one to have. The Great Depression is the archetype of a recession, so it provides policy makers with valuable insights into right and wrong reaction methods. However, if policy makers orientate at the Great Depression, they have to make sure that the roots of the crisis are similar. So this paper addresses the question: Is the current financial crisis similar to the Great Depression? For that purpose I will systematically compare the Great Recession with the Great Depression. First, by examining the theories that commonly explain the Great Depression. Subsequently I will apply these theories to the Great Recession and discuss if they are applicable. I will argue that some theories are still applicable. For example, which flaws in the monetary system contributed to the Great Recession as well as to the Great Depression? However, the economic environment has changed and applying the same policy reactions today as in the Great Depression will be a policy error. Finally I will briefly present policy recommendations that are based on the findings.
|Date of creation:||24 Nov 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bernanke, Ben S, 1983.
"Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression,"
American Economic Review,
American Economic Association, vol. 73(3), pages 257-76, June.
- Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
- King, Gary & Rosen, Ori & Tanner, Martin & Wagner, Alexander F., 2008. "Ordinary Economic Voting Behavior in the Extraordinary Election of Adolf Hitler," The Journal of Economic History, Cambridge University Press, vol. 68(04), pages 951-996, December.
- John Van Reenen & Nick Bloom & Steve Bond, 2006.
"Uncertainty and investment dynamics,"
LSE Research Online Documents on Economics
2645, London School of Economics and Political Science, LSE Library.
- Nick Bloom & Stephen Bond & John Van Reenen, 2006. "Uncertainty and Investment Dynamics," CEP Discussion Papers dp0739, Centre for Economic Performance, LSE.
- Nick Bloom & John Van Reenen & Stephen Bond, 2006. "Uncertainty and Investment Dynamics," NBER Working Papers 12383, National Bureau of Economic Research, Inc.
- Frederic S. Mishkin, 1991.
"Asymmetric Information and Financial Crises: A Historical Perspective,"
in: Financial Markets and Financial Crises, pages 69-108
National Bureau of Economic Research, Inc.
- Frederic S. Mishkin, 1990. "Asymmetric Information and Financial Crises: A Historical Perspective," NBER Working Papers 3400, National Bureau of Economic Research, Inc.
- Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013.
"Really uncertain business cycles,"
LSE Research Online Documents on Economics
51526, London School of Economics and Political Science, LSE Library.
- Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen J. Terry, 2014. "Really Uncertain Business Cycles," Working Papers 14-18, Center for Economic Studies, U.S. Census Bureau.
- Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen J. Terry, 2012. "Really Uncertain Business Cycles," NBER Working Papers 18245, National Bureau of Economic Research, Inc.
- Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013. "Really Uncertain Business Cycles," CEP Discussion Papers dp1195, Centre for Economic Performance, LSE.
- Nicholas Bloom, 2009.
"The Impact of Uncertainty Shocks,"
Econometric Society, vol. 77(3), pages 623-685, 05.
- Reinhart, Carmen, 2008. "Reflections on the International Dimensions and Policy Lessons of the U.S. Subprime Crisis," MPRA Paper 11863, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:19781. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.