Comparisons with the Great
Depression
Harold James
Princeton University
Ancona, December 19, 2015
A constant memory
Ben Bernanke, September 13, 2008
My mind went back to my own studies of the
Great Depression of the 1930s. The most
catastrophic financial failure of that period was
the collaspe of the Kreditanstalt, the largest
bank in Austria. Its failure toppled other banks
and, perhaps, helped derail nascent economic
recoveries in the United States and Europe.
(The Courage to Act, p. 264)
Lessons from the Great Depression?
Too early to tell?
Analogies
1.
2.
3.
4.
5.
Long lived crises
Anemic recoveries
Search for explanation of causes
Challenge to domestic order/democracy
Challenge to prevailing international political
order
European Recoveries?
Ja
nM 28
ay
Se 28
p2
Ja 8
nM 29
ay
Se 29
p2
Ja 9
nM 30
ay
Se 30
p3
Ja 0
nM 31
ay
Se 31
p3
Ja 1
nM 32
ay
Se 32
p3
Ja 2
nM 33
ay
Se 33
p3
Ja 3
nM 34
ay
Se 34
p3
Ja 4
nM 35
ay
Se 35
p3
Ja 5
nM 36
ay
Se 36
p3
Ja 6
nM 37
ay
Se 37
p3
Ja 7
nM 38
ay
Se 38
p3
Ja 8
nM 39
ay
Se 39
p39
Industrial Production 1928-1939
U.S. Industrial Production in the Great Depression (1928 = 100)
160
140
120
100
80
60
40
20
0
Financial Crises
• Downturns last longer (Rogoff/Reinhardt)
• Populist politics (anger about bank bailouts)
• National orientation (bank regulation easier in
national context)
• Learning problematical: “We didn’t know we
could do that.”
Capital Flow Reversals
Current Account Surpluses and Deficits
Percent of own GDP
10
Gold Standard
Bretton Woods
Current
8
6
4
+
-
2
0
2
China
France
Germany
Japan
UK
US
4
6
1870
1890
1910
1930
1950
1970
1990
8
2010
Interwar Reversal
From: Harold James, The End of Globalization, 2001
Eurozone: Limited reversals?
Current account as a share of GDP
10
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
France
Germany
-5
Greece
Ireland
Italy
-10
-15
-20
Source: IMF WEO database October 2015
Bank Flows
31/03/2005
30/06/2005
30/09/2005
31/12/2005
31/03/2006
30/06/2006
30/09/2006
31/12/2006
31/03/2007
30/06/2007
30/09/2007
31/12/2007
31/03/2008
30/06/2008
30/09/2008
31/12/2008
31/03/2009
30/06/2009
30/09/2009
31/12/2009
31/03/2010
30/06/2010
30/09/2010
31/12/2010
31/03/2011
30/06/2011
30/09/2011
31/12/2011
31/03/2012
30/06/2012
30/09/2012
31/12/2012
31/03/2013
30/06/2013
30/09/2013
31/12/2013
31/03/2014
30/06/2014
30/09/2014
31/12/2014
31/03/2015
30/06/2015
German Banking Claims
(Ultimate Risk Basis million USD) Source: BIS
300000
250000
200000
150000
Ireland
Greece
100000
Italy
50000
0
31/03/2005
30/06/2005
30/09/2005
31/12/2005
31/03/2006
30/06/2006
30/09/2006
31/12/2006
31/03/2007
30/06/2007
30/09/2007
31/12/2007
31/03/2008
30/06/2008
30/09/2008
31/12/2008
31/03/2009
30/06/2009
30/09/2009
31/12/2009
31/03/2010
30/06/2010
30/09/2010
31/12/2010
31/03/2011
30/06/2011
30/09/2011
31/12/2011
31/03/2012
30/06/2012
30/09/2012
31/12/2012
31/03/2013
30/06/2013
30/09/2013
31/12/2013
31/03/2014
30/06/2014
30/09/2014
31/12/2014
31/03/2015
30/06/2015
Claims on Italy
(Ultimate Risk Basis million USD) Source: BIS
300000
250000
200000
150000
Germany
100000
France
50000
0
Bargaining Styles
• Merkel (May 2010): If the Euro fails, Europe
fails
• Tremonti (July 2011): If I fall, then Italy falls. If
Italy falls, then so falls the euro. It is a chain.
• Juncker (November 2015): A single currency
does not exist if Schengen fails. It is not a
neutral concept.
Impossible Trinities/ Trilemmas
Trilemma 1: The Classic
Trilemma 2: Financial Stability
Trilemma 3:Political Economy
Trilemma 4: International relations
Multiple Crises: Interwar
• Economic order (liberalism/capitalism)
• Democratic system
• International order
Addressing the problem
Multiple Crises: Today
• 2008: the Great Recession/World Financial
Crisis/Three Stage Crisis?
• The Democratic Recession since 2006 (Larry
Diamond)
• Legitimacy of International Institutions (UN,
IMF, G20) strained
Allowing for bundling/packages
• “globalisation” in French
• Issue linkages