Identifying lessons from the Great Depression is certainly wise. Yet, it was not on the macroeconomic front that Roosevelt won the election in 1936. Marc Flandreau looks at the ‘microeconomics’ from the same period, with reference to contemporary policymaking.

In the middle of October 2011, making my way out of the Wall Street subway station in downtown Manhattan, I was met by a joyful crowd that did not quite match the local dress code. They were going from one passer-by to the other, asking directions for “the historical site of JP Morgan bank.” The young bankers in bespoke suits did not have a minute or a clue. As a financial historian, I certainly owed them directions to 23 Wall Street. As we traded jokes I learned they were part of “Occupy Wall Street” on their way to a rally that social websites had coordinated there.

This was an interesting coincidence. During a seminar delivered earlier that day, I had emphasized some aspects of the interwar crisis that involved finance, politics and symbols. I had spoken a lot of the House of Morgan, and how the New Deal financial Acts of the 1930s could be interpreted as a power fight between the Roosevelt Administration and Wall Street. This encounter with the “Occupy” people roaming the financial district in search of Morgans brought me an additional perspective; perspective that had been missing in my talk and that is missing in the conventional parallels currently being drawn between the Great Depression and the sub-prime crisis. It is this perspective I want to bring into the discussion.

Since the beginning of the Great Contraction of 2007, Great Depression era ‘lessons’ have inspired much economic policy action. It is fair to say that the first efforts at crisis fighting were devoted to addressing what was identified as a replica of 1929. Austere charts showing the parallel spiraling down of stock prices, trade and the economy after 1929 and after 2007 gained Tweeter currency. Thus policy makers have taken for granted that history matters. In fact, the extent to which economic discussion and debate have turned to historical precedent and analogy is astonishing. Macroeconomic ideas of the pumppriming variety – which had been tailored precisely in the aftermath of the Great Depression – were taken out from the closet where they were stored and adjusted to the fashion of the day. Government checkbooks were set wide open: not as wide open as some, such as Paul Krugman, would have wanted, but certainly wider than interwar policy makers dared, and wider than some modern constituencies support. This first round of history- inspired policy responses bought policy makers precious time, and ensured divergence between interwar and current economic curves: Economics 101 had saved the world.

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by Marc Flandreau

(Photo © DR)