Tuesday, April 7, 2009

Current Recession vs Great Depression

Via Paul Krugman Barry Eichengreen and Kevin O'ROurke compare the current recession to the great depression. Compared to this opinion here and Paul Krugman here they seem much less optimistic. "Often cited comparisons – which look only at the US – find that today’s crisis is milder than the Great Depression. In this column, two leading economic historians show that the world economy is now plummeting in a Great-Depression-like manner. Indeed, world industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better."

Figure 1. World Industrial Output, Now vs Then

Figure 3. The Volume of World Trade, Now vs Then
Their conclusion: "To summarise: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.

The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column."

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