1929 all over again?

Posted By: James Quinn at Dec 9, 2008 at 07:26:33

Just how bad is the current American recession? Barely a day goes by when some form of all-time record is not smashed by one troublesome economic indicator or another. Be it foreclosure levels, job losses or businesses going bankrupt, if the US economy were a patient it would definitely be on the sick-list.

But would it be listed as terminally ill? Some of the great and the good appear to think so. Merrill Lynch chairman John Thain said last month: "This is not like 1987 or 1998 or 2001. We will in fact look back to the 1929 period to see the kind of slowdown we are seeing now."

And he is not alone. Barely a day goes by when some great thinker or economist is not likening the current problems to the start of the Great Depression, and getting all hot under the collar about it.

It wasn't helped when President-elect Barack Obama, in a bit of pre-inauguration grandstanding, unveiled highlights of his economic plan which in part resembles Roosevelt's New Deal with its spirit of setting the unemployed back on the road to work through building roads and schools. Quite whether former Lehman Brothers bankers want to be retrained to use a pick and shovel remains to be seem, but it has to be said that the similarities are there for all to see.

But are these similarities somewhat overblown? Just last week, Federal Reserve chairman Ben Bernanke said there was "no comparison" between the Great Depression and the current downturn, and he should know, given he's spent the best part of his years studying it.

And now, the official arbiter of the US business cycle - National Bureau of Economic Research president James Poterba - has come out and agreed with Bernanke. Poterba, speaking at yesterday's Reuters Investment Outlook Summit, declared: "We are in a very different place than the U.S. economy was in the 1930's."

"It is possible to have the worst postwar recession without getting anywhere close to what it was in the 1930's," added the man whose organisation last week declared the US economy to have been in recession since December 2007.

So, 2008 just like 1929? Personally, I agree with Poterba and Bernanke, and for lots of reasons, not least the very different shape and form of the current crisis, and indeed the industries it is hurting.

http://blogs.telegraph.co.uk/james_quin ... ver_again_