Compare and Contrast the Response of Economic Policymakers to the Great Depression of the 1930’s and the Great Financial Crisis Today.

David Pattinson

‘Industrialisation, Imperialism and Globalisation: The World Economy since 1800’
Professor John Singleton

Compare and contrast the response of economic policymakers to the Great Depression of the 1930’s and the Great Financial Crisis today.

Essay 2
10/1/13
Word count: 2,299
The financial crisis that began in 2007-8 was the first time since the 1930’s that both the major European countries and the US had been involved in a financial crisis. In comparison, the disastrous 1931 banking crisis involved countries that accounted for 55.6 per cent of world GDP, whereas the banking crisis of 2007-8 only involved countries that accounted for 33.5 per cent of world GDP. Though, all the key economic variables fell at a faster rate during the first year of the later crisis. Keynes had argued in 1931 that ‘there is a possibility that when this crisis is looked back upon by the economic historian of the future it will be seen to mark one the major turning points.’ Keynes was correct. As a result of the lessons that were learned, policy in response to the Great Financial Crisis has contrasted sharply with policy during the Great Depression era. I will examine how national policy responses and international co-operation have differed, as well as highlighting how in creating the Euro, policymakers have unwittingly replicated many of the structural weaknesses of the Gold Standard. I will also consider how policy in the recovery phase has so far compared to policy during the recovery from the Great Depression.
The Great Depression was marked by bank failures. A total of 9,096 banks failed between 1930 and 1933 amounting to 2.0% of GDP. Friedman and Schwartz highlight the failure to increase the money supply whilst liquidity was tight as the primary cause. Bordo and Landon-Lane provide econometric analysis using examiners’ reports on failed banks that support this argument. Epstein and Ferguson have suggested that Federal Reserve officials understood

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