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Jeffrey Frankel, James W. Harpel Professor of Capital Formation and Growth at Harvard Kennedy School, discusses key lessons learned from the Great Depression in the 1930s.
Jeffrey Frankel, James W. Harpel Professor of Capital Formation and Growth at Harvard Kennedy School, discusses the four key lessons lessons learned from the Great Depression in the 1930s.
He writes, "So the important question, then, is: how do we know that the recession that began in December 2007 will not turn out to be analogous to the downturn that began in 1929: the beginning of what could turn out to be a very severe loss of income and a decade of high unemployment? There are plenty of analogies between now and then:
(i) a crisis in the US financial sector that had its roots in long excessive booms in real estate and the stock market;
(ii) the spreading of the crisis from the financial sector to the real economy and throughout the world; and even
(iii) popular American disillusionment with a Republican president perceived as too passive and too beholden to the rich, which then helps elect a charismatic and activist new Democrat.
The usual reason that is given not to fear a repeat of the Great Depression is that we have learned from the mistakes of that era, and won't repeat them this time. What exactly is it that we learned? How can we be sure of doing it right this time?"