“YOU’RE right, we did it,” Ben Bernanke told Milton Friedman
in a speech celebrating the Nobel laureate’s 90th birthday in 2002. He was
referring to Mr Friedman’s conclusion that central bankers were responsible for
much of the suffering in the Depression. “But thanks to you,” the future
chairman of the Federal Reserve continued, “we won’t do it again.” Nine years
later Mr Bernanke’s peers are congratulating themselves for delivering on that
promise. “We prevented a Great Depression,” the Bank of England’s governor, Mervyn
King, told the Daily Telegraph in March this year.
The shock that hit the world economy in 2008 was on a par
with that which launched the Depression. In the 12 months following the
economic peak in 2008, industrial production fell by as much as it did in the
first year of the Depression. Equity prices and global trade fell more. Yet
this time no depression followed. Although world industrial output dropped by
13% from peak to trough in what was definitely a deep recession, it fell by
nearly 40% in the 1930s. American and European unemployment rates rose to
barely more than 10% in the recent crisis; they are estimated to have topped
25% in the 1930s. This remarkable difference in outcomes owes a lot to lessons
learned from the Depression.
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