Two of the world's best economic historians, Barry Eichengreen and Kevin O'Rourke, have done some 'presentist' analysis, comparing the speed and size of the present economic crisis with 1929. VOXEU has a summary of their findings... and they are pretty depressing, if you pardon the cheap pun. While many pundits seem convinced that a) the current downturn is much milder than the Great Depression b) the green shoots of growth are already apparent again, Eichengreen and O'Rourke show that output and exports are now plummeting faster than they did in 1929, and stock markets have fallen further (abstracting from last month's bounce):
Figure 1. World Industrial Output, Now vs Then
Source: Eichengreen and O’Rourke (2009).
Figure 2. World Stock Markets, Now vs Then
Source: Global Financial Database.
Figure 3. The Volume of World Trade, Now vs Then
Sources: League of Nations Monthly Bulletin of Statistics, http://www.cpb.nl/eng/research/sector2/data/trademonitor.html
As I said before, the current fall of exports is nothing short of amazing. The good news? Policy responses have been much stronger than they were in the 1920s -- interest rates have been cut more, and governments have cranked up spending + borrowing to a greater extent. If all this stimulus is starting to work, the stockmarket may yet have it right -- but the latest pricing from the credit markets seem to point the other way... Gilchrist and Yankov's research (forthcoming in the JME) on the predictive powers of corporate bond spreads puts a lot of question marks behind the Jim Cramer-style cheerleaders (recently joined by President Obama) who see the end of downturn.
