The Great Depression(s) of 1929-1933 and 2007-2009? Parallels, Differences and Policy Lessons

Hungarian Academy of Science MTA-ELTE Crisis History Working Paper No. 2

53 Pages Posted: 31 May 2015 Last revised: 4 Jul 2015

See all articles by Peter Eigner

Peter Eigner

University of Vienna - Department of Economic and Social History

Thomas S. Umlauft

University of Vienna

Date Written: July 1, 2015

Abstract

This paper provides a comparative analysis of the Great Depression (1929-1933) and the Great Financial Crisis (2007-2009) by contrasting the crises' main driving forces and how they relate to each other with respect to the United States. To this end, causes, consequences and measures undertaken during the crises are evaluated and dissected. The analysis reveals striking parallels between the Great Depression and the Great Financial Crisis. Causal factors in both crises were a flawed design of the banking system (unit banking, too-big-to-fail), a real estate boom and high debt burdens of both households and financial institutions, as well as pronounced economic inequality. Measures taken during each of the crises differed markedly, however. Whereas the political approach to the Great Depression was long characterised by inaction, the response during the recent crisis proved to be swift and aggressive, which prevented a repeat of the Great Depression by attenuating the immediate adverse effects on the economy. However, strong evidence exists that the response may only have deferred the adjustment process initiated by the crisis of 2007-2009. This paper presents empirical observations supporting the view that the structural problems which led to 2007-2009 are still existent today and continue to threaten financial stability.

Keywords: Global Financial Crisis, financial crisis of 2007-2009, Great Depression of 1929-1933, banking system, real estate boom, subprime boom, inequality, Federal Reserve, too-big-to-fail, deposit insurance, lender-of-last-resort

JEL Classification: B1, B2, B53, D31, E42, E52, E58, E63, E65, E66, G01, G21, G28, H12, H23, N12, N22, N42

Suggested Citation

Eigner, Peter and Umlauft, Thomas S., The Great Depression(s) of 1929-1933 and 2007-2009? Parallels, Differences and Policy Lessons (July 1, 2015). Hungarian Academy of Science MTA-ELTE Crisis History Working Paper No. 2. Available at SSRN: https://ssrn.com/abstract=2612243 or http://dx.doi.org/10.2139/ssrn.2612243

Peter Eigner

University of Vienna - Department of Economic and Social History ( email )

Universitaetsring 1
Vienna, Vienna 1010
Austria
+43 (0)1-4277-41319 (Phone)

Thomas S. Umlauft (Contact Author)

University of Vienna ( email )

Vienna, Vienna 1090
Austria

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