The Great Depression lasted from 1929-1933 by most accounts. The trigger is usually deemed to have been the introduction of the Smoot-Hawley Act, where 22,000 items flowing into the United States were to be widely taxed; creating a global repercussion and meltdown on an unprecedented scale.
The actual story, according to Barry Eichengreen, one of the world’s top three experts on the global economic depression, along with Ben Bernake and Janet Yellen, both of whom had become chairs of the Federal Reserve , is far more complex. It involves the collapse of the fixed exchange rate mechanism pegged originally to gold, and the attempt by various European countries to devalue their respective currencies in order to steal an edge over other exporters to US, and invariably, the extreme fiscal probity of the Germans and the French, even the US, when all were afraid of easing their credit system for fear it might precipitate hyperinflation, as seen in Germany in the immediate days after the end of World War I in 1919. It was a combination of these factors, more decisively, the attempt to unpeg oneself from gold, that led to the economic meltdown.
The Great Recession in 2008, followed by the sharp “turn to the right” in 2010, which essentially meant an attempt to curtail the financial credit of the world, had some similarities to the Great Depression. First, there was the failure to rescue Lehman Brothers in 2008, just as the Great Union Banks of the Ford Motor Company was allowed to crash. Second, just as there was a housing boom in the US, the early 1920switnessed a similar event in Florida. Third, there was the fear of the government exercising too much power on the private sector, potentially, allowing the government to step over the remit of its own authority to save any banks, in turn, precipitating a moral hazard.
In nuanced, factual, and careful details, Barry Eichengreen was able to dissect both crisis from structural and systemic flaws, right down to the twists and turns of the Central Banks the dilemma they faced, and the personalities involved that often used the wrong history lessons to back their policy prescriptions.
For example, the European Central Bank argued in 2010 that it was time to rein in the fiscal credit and expansion, as anything more aggressive, would have created global inflation. Thusdepreciation of US and European currencies as a situation of too much money chasing too little goods would have immediately prevailed.
But, in 2010 global inflation was merely at 2 percent and the economic growth in the United States and across Europe was still anemic. It would have been better to allow more money to make the economy more buoyant. The global slowdown that one witnesses currently is due to events surrounding 2010 caused largely by a misapplied historical analogy.
“The Hall of Mirrors,” is a master class in economic narrative without the technicality of the stochastic regression models and game theories. It goes right to the heart of the issue from the perspective of an economic historian cum political scientist over a period that straddle more than 80 years. The sum total of Barry Eichengreen’s impressive book is a textbook of the two crisis and the institutional frailties to which the world is still exposed. It is therefore a book imbued with enough alarmist lessons to give future policy makers advanced warnings.