American Economic History: The Great Depression

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Two of the most dramatic episodes in American economic history were the 1929 Great Depression and the 2008 Great Recession. While in each period the sources of economic excess differed, manufacturing in 1929 and housing in 2008, there are many similarities in their causes and effects. Initially there were also similarities in the way government and monetary authorities responded. However, it is the differences in response that are the most important and will have the greatest impact on the length, and depth of the two economic declines. Both crises began with poor quality lending by banks and unaffordable borrowing by consumers and industry. This led to overvalued prices for asset. While both crises were global, this paper will focus on national policy decisions and how they impacted U.S. outcomes. This paper connects these economic crisis to Cynthia Gornys “Urge to Merge” in that they both display how human greed and lack of human thought an lead to disastrous effect. In both periods the use of leverage created self-reinforcing cycles: on the way up as the economy grew and on the way down as the economy crashed. For about the first year of both downturns, the pattern of decline was similar. However, in the 2008 Great Recession, global economies started to recover much more quickly. This can be seen in Graphs 1-3 below, which chart world industrial production, global stock market returns, and world trade for both periods (Eichengreen, O’Rourke, voxeu.org). The
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