Differences Between Today and the Great Depression

Anyone who thinks this crisis is past us is dreaming in technicolour. The root causes of the "Great Recession" remain: the real economy has been squeezed almost to the limit, and the financial sector remains an unbalanced balloon stretched so thin that it can be burst by the tiniest of pin pricks.


The economic and political geniuses who brought us to this sorry state are still very much in the driver's seat and for want of a focused campaign, alternative political-economic forms are not going to get beyond the pages of progressive magazines and internet sites.


There's a number of differences between today and the Great Depression of 1929-1939 though, that have kept us (so far) from a truly devastating economic collapse.


As much as it pains them to admit it, our elites realize the bracing effects of Keynesian fiscal policy. Whereas Herbert Hoover (and every other major leader of his era) believed in fiscal restraint, our elites (with the exception of the dim-witted Jim Flaherty) understand that counter-cyclical deficit spending is necessary to stop a downward economic spiral.


Our current crop of leaders also had the benefit of hindsight and kept monetary policy loose with low interest rates. In 1929, British and US-American monetary authorities actually raised interest rates in the face of runs on their currency. In 2008, the United States wasn't facing a run on its currency and, indeed, the bush II regime would have welcomed a moderate devaluation of the US dollar to help with its trade imbalance.

In 1929, the public sector was a much smaller component of national economies than is the case today. One result of this is that there is a larger base that is relatively more immune to the swings of the economy. The security of public sector workers remains a sore spot with both anti-worker politicians and with private sector workers who ignorantly see their salvation in the destruction of the fortunes of people similar to or weaker than themselves.

In 1929, the US economy had been "roaring" since pulling the world out of an economic slump after 1925. (The Great Depression "hit" the USA harder than other countries because those other countries had been mired in sluggish growth or mild recessions since the end of World War I. Great Britain was still recovering from the disastrous effects of returning to the gold standard in 1926, and this probably mitigated the extent of its fall in between 1929-1932. It simply didn't have much farther to fall.) In 2008, all the Western industrial democracies have been long mired in stagnant wage growth and sluggish "jobless" economic growth.

Further to that last point ... I'll pick this up later.