2008 crisis in history
Posted September 27, 2008on:
The post mentions that policy action will aim to prevent the mistakes of 1929, the 1970’s, and Japan in the early 1990s – behind the slight humor this is actually a very important comparison.
One thing I would like to add is that the 1970’s crisis involved a huge negative terms of trade shock for a lot of the developed world (oil prices!) which we have already experienced this time around (I believe there was a smaller TOT shock in the early 90’s) – as a result, policy need to take into account this difference.
It isn’t just that policy was too tight in 1929 and the early 1990’s and too loose in the 1970’s – there are fundamental differences in the shocks being faced. Furthermore the structure of the economy is entirely different (unions are weaker, communications and information dissemination is a lot more rapid, prices appear to be more fluid in a lot of cases). As a result, a historical comparison can only take us so far – although we must not discount histories ability to provide an intensely useful benchmark.