Question

Please analyse some of the important lessons learned from the Great Contraction, 1929-1933 (or the Great Depression), and how those lessons are being applied in today's global economy.

Answer 1

One lesson that we felt had been learned from the 'mistakes' of the 1930s was that we need to keep pouring capital into the economy in times of recession to sustain demand. Sounds like a smart idea, but it no longer seems to work. Quantitative easing may have rescued us from this crisis much earlier, but it doesn't seem capable of addressing fundamental systemic issues – or at least not in the way it was implemented.

Rather than being used to specifically boost jobs and demand through much-needed infrastructure spending, much of the money from quantitative easing in the US seems to have ended up in stock markets, driving valuations to unprecedented heights, long before the recent oil and resource price crash.

In the unlikely event that the “international community” can actually get it together to rebuild Syria, for example, this would be a major and encouraging step forward for humanity and a useful tonic for international economic activity.

Such efforts are potentially important, and not just for altruistic reasons. After all, the Depression also demonstrated the cost of not maintaining a stable and productive economic order.

The rise of extremism, even in places such as the US, is a salutary reminder of the link between politics and economics, and just how vulnerable we remain to the possibility of collective madness in troubled times.