Working Paper: NBER ID: w22239
Authors: Lee E. Ohanian
Abstract: This essay reviews Barry Eichengreen's recent book that compares the Great Depression and the Great Recession. Eichengreen focuses on deficient aggregate demand as the key reason for why both downturns were so deep and why they lasted so long. I assess the book's arguments regarding the causes and consequences of these episodes from a neoclassical perspective. I provide an alternative framework for analyzing these episodes, and argue that a key difference between the 1930s and today reflects the factors that continued to depress both economies after their respective troughs. The post-Depression economy featured rapid productivity growth, whereas today's economy is plagued by low productivity growth. I discuss how the post-Great Depression economy recovered to trend quickly once policies that depressed competition were removed. I also argue that returning today's economy to trend may be considerably more challenging.
Keywords: Great Recession; Great Depression; aggregate demand; productivity growth; economic policy
JEL Codes: E13; E6; N0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| deficient aggregate demand (E00) | depth and duration of Great Depression (N11) |
| deficient aggregate demand (E00) | depth and duration of Great Recession (F65) |
| policies during Great Recession (E65) | severity of Great Recession (F44) |
| rapid productivity growth post-Great Depression (O49) | quicker recovery post-Great Depression (N12) |
| low productivity growth (O49) | hindering recovery in current economy (E66) |
| shift to lower steady-state growth paths (O41) | economies after respective troughs (F44) |
| focus on increasing aggregate demand (E00) | overstatement of central issue (E65) |