The Great Depression analogy

Abstract

In the discussion of our contemporary economic disease, the Great Depression analogy refuses to go away. Almost every policy-maker referred to conditions that had not been seen since the Great Depression, even before the failure of Lehman. Some even went further - the Deputy Governor of the Bank of England notably called the crisis the worst financial crisis in human history. In its April 2009 World Economic Outlook, the IMF looked explicitly at the analogy not only in the collapse of financial confidence, but also in the rapid decline of trade and industrial activity across the world.2 In general, history rather than economic theory seems to offer a guide in interpreting wildly surprising and inherently unpredictable events. Some observers, notably Paul Krugman, have concluded that a Dark Age of macroeconomics has set in.3 © European Association for Banking and Financial History e.V. 2010.