Chart Of The Day

New Studies Show Economy Tracking 1930s Declines

So far, the collapse of the world economy since April 2008 has actually been worse than the rate of collapse in the Great Depression.

The main difference between now and then is that most economists expect the world economy to recover more quickly than it did in the 1930s.

The cause for this optimism has been that the government policy response this time around has been much more aggressive. Most major countries have cut rates and ramped up spending to unprecedented levels, which some economists believe will stop the pain.

Of course, other economists disagree. In fact, we're actually all now participating in a sort of lab experiment that will prove or disprove one of the major economic conclusions of the past 70 years: That the original Great Depression was not an inevitable outgrowth of the wild speculation of the 1920s but was caused by "policy errors" after the collapse.

If the 1930s was the result of policy mistakes, we should emerge from our current swoon relatively soon. It if wasn't, the new economic conclusion will be that there is simply no way to avoid economic catastrophes after a financial bubble the size of the one we just had.

Professors Barry Eichengreen (Berkeley) and Kevin O'Rourke (Trinity) have produced a startling series of charts that compare the progress of this "Depression event", as they're calling it, with the Great Depression.

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