With global trade down more than in 1930, is this the Greatest Depression?
Filed under: Economy
This morning I wrote about Paul Krugman telling the World Business Forum that global trade had fallen more in the current recession than it did in 1930, the year after the crash of 1929. Although the global economy has shown signs of improvement since April 2009, a widely discussed article by economists Barry Eichengreen and Kevin O'Rourke, A Tale of Two Depressions, argues that the current recession was worse during its first ninth months than the comparable time during the Great Depression.
Before getting into the details, I was a bit shocked to see Krugman's finding because in March 2008, I wrote a piece, Is This The Greatest Depression? My argument back then was that some simple math argued that it would not take much of a decline in the bulging portfolios of toxic waste balancing shakily on a sliver of equity to wipe out all the capital on the books of banks and hedge funds. But I had not bargained on the U.S. throwing $23.7 trillion against the problem.
In April, Eichengreen and O'Rourke argued that "the decline in industrial production in the last nine months has been at least as severe as in the nine months following the 1929 peak." They also noted that during that same period, global stock markets fell even faster during the current recession than they did in the Great Depression.
These two also argued that global trade fell much faster in the current recession than in the 1929 to 1930 period. Krugman, who appears to have read this article, also noted that this trend was alarming given the prominence of trade destruction's role as a factor compounding the Great Depression in the economics literature.
The silver lining in all this is that between April and September, when the co-authors published an update to their original paper, there has been improvement in global economic activity. Their conclusion is, "The downward spiral in global trade volumes has abated, and [June 2009] data show a modest uptick."
What remains to be seen is whether all that government money going into the global economy will prime the pump for the private sector or whether the only way to sustain that growth is through massive infusions of additional government money.
Peter Cohan is a management consultant, Babson professor and author of nine books including, Capital Rising (due in June 2010). Follow him on Twitter.
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Reader Comments (Page 1 of 3)
10-08-2009 @ 5:22PM
dang1067 said...
This is worse than the depression, it is now called "ANGUISHsession."
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10-08-2009 @ 5:31PM
dang1067 said...
When the Arabs, Chinese and the Russians are to replace the dollar from crude market.... I hope they do succeed cause there are far too many Wall Street market manipulating scvms in the American greenback who caused this "DPRESSION & ANGUISHESSION". It's about time, this will drive the Federal Reserve out of USA... That CANCEROUS Fed Reserve will seek countries with highest GDP to destroy. And soon after the "ANGUISHSESSION" USA's ecconomy will be "AGONI-SESSION or DISTRESSession" and after that it will "CHICKEN MANURE!!!!"
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10-08-2009 @ 5:31PM
kevin said...
Just more doom and gloom. Today's world and the 1930's are as different as night and day. There is no comparison.
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10-08-2009 @ 5:49PM
Andy said...
And the lying scum in dc still call it a recession. Its a DEPRESSION.
10-08-2009 @ 5:53PM
Andy said...
Your right there is no comparison. We are worse off today than they were. The dollar back then was worth more, we did not have a 12 trillion dollar deficit. (Doom and gloom) no, more like face reality.
10-08-2009 @ 6:01PM
KNUTE9 said...
Yes, the world was different back then, life was simpler. Today's economy is a lot more complex, making it very fragile. As history has taught us that all great societies collapse.
10-08-2009 @ 5:38PM
Kurt said...
All of the government spending that is taking place is likely merely temporarily reinflating the economic bubble. When the government stops spending the money, which it has to eventually or the dollar will be worth zilch, the bubble will pop again, and the economy will be even worse than it is now. Isn't Keyensian socialist economics great?
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10-08-2009 @ 5:59PM
Richard said...
Kingdoms come and go, economies rise and fall, people are born and die and this cycle while its outcome unknown, leaves many wondering what it is all for. The world looks to the USA for stability, hope and a future and should we as a nation destory that, the world is in for another version of the dark ages. God help us.
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10-08-2009 @ 6:36PM
ALFONSO said...
THE USA SUPPORTS MOST OF WORLD. WE HAVE SOLDIERS ALL OVER WORLD , WE GIVE AID TO ALL THE POOR NATIONS.WE POLICE THE WORLD WITH LITTLE HELP FROM OTHER COUNTRIES. LETS SAY WE STOP TAKE A FIVE YEAR BREAK LET THE REST OPF WORLD CHINA, INDIA, UK,,TAKE OVERFOR WHILE. WILL OUR DOLLAR GET STRONGER WILL WE REDUCE OUR DEFICET QUICKER.LETS STOP GIVING THINGS AWAY.LETS TAKE CARE OF THE USA FIRST FOR CHANGE.ITS 2009WE STILL ACT LIKE ITS 1962 WAKE UP USA.
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10-08-2009 @ 6:46PM
larry said...
It Is A Historical and Future Biblical Fact. When a Nation Becomes Complacient In Its Wealth and Security and continuosly oppresses the Poor and working Class and Does not Acknowledge God. He has a Remedy for Every Generation. Gone, Standing and Coming. Check History!!!!!!!!
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10-08-2009 @ 6:47PM
Win said...
The only problem I see hear is the someone above middle class is finally look the truth. Can anyone in the government see other than the lobbest money. Ask anyone who is out of a job how good are you doing?
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10-08-2009 @ 7:13PM
fred said...
I just love when these so called world class economists begin over and over again to compare 1929 to 2009. The very metrics of the way our government and business's are run today as opposed to then makes the comparisons totally useless..
The real issue today is can this country/Fed Res. restore the faith in it currency, not only to the outside world but olso to the citizens in this country. This market swing can partially be traced to the fact that with the dollar in decline people are willing to take a chance on stocks/bonds/etc I look at the daily uptick in gold and get only somewhat alarmed as to other country's clamorings to date because they will be required to exchange $$$$ in the mid term. (2 to 3 years) What scares me is by that time inflation will have hit in a major way in the US which may also interscect with the restoration of the dollar. That could prove to be one ugly time to be in the equity market in the US.If the dollar recovers our exports become less competative and Iwould want to take my profits and run.
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10-08-2009 @ 7:20PM
lisa said...
people are waking up to realize they dont need all this STUFF.. people will not go back to buying frivolous stupid purchases... trinkets and cheap merchandise which the chinese love to flood the world with as they load their toxic factory runoff into the environment destroying it...if there are new trends and attitudes in buying and purchasing with people realizing they dont need all this stupid merchandise and using retail therapy to shore up their miserable lives...then that is a positive development
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10-08-2009 @ 7:37PM
Dale said...
Until Americans wise up and quit electing representitives who support FREE_ TRADE, The American middle class is doomed. Our security is doomed, Before long we will have to call China and ask them to build our War Planes Tanks and all. The Uninted States Of America can not survive on taxes paid by 1/2 or more of their citizens paying taxes on poverty income. Matter of fact, what taxes they pay will be delt back to them in Govt. Aid. Not their fault. Thats the only Jobs out there. Fast food and Wal Mart.
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10-08-2009 @ 10:02PM
davidrep said...
There is no middle class anymore. President Regan and the republicans began to destroy it when Regan broke up the union of PATCO in the 80's. And that was just the start.
With all of our good paying union manufacturing jobs going to Mexico, or overseas to China, we make NOTHING here anymore, except for a few crappy cars. NOTHING ELSE.
And you're absolutely right, the only jobs left (if you can even find them) are at Wal-Mart and fast food outlets.
How sad. And you can all thank the Republicans for destroying this great country over the last 30 years. We will never recover from this.
10-08-2009 @ 8:01PM
gleeminghope said...
One major contribution everyone needs to make to help out this economy is to BUY AMERICAN. Buy anything foreign puts thousands of Americans out of work. I don't care if they put a couple of plants in the South..which by the way, they only pay $14 a hour and they keep all the profits and the good jobs. We need to keep Americans working not the Japanese working. They are working on appeasement, trying to appease the silly americans into thinking it is OK to put a few plants here while they keep all the accounting, finance, engineering and design jobs. The Japs just introduced a Cash 4 clunkers program and they refused to include American cars..Germans refuse to buy anything but German, same for Japanese, so we need to do the same. We just sent 80% of our hard tax dollars over from the cash for clunkers program to Japan and they just shut the door in our face. Wake up America..they don't care about us...if you want the economy to improve, buy local, support your country and not theirs.
Recession: when your neighbors lose his/her job
Depression: when you lose your job
Recovery: When Obama, Pelosi and Reid lose theirs..
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10-08-2009 @ 8:06PM
xtreme said...
Yes, our government has made a HUGE mistake. for this we will all pay I am sad to say, or should I say our kids. The banks and wall street just wanted to keep making the cash until the bank was broke. It's also our American Companies who took advantages of cheap labor here in Asia and still are. I have lived in Asia for the past few years, there are no rules here, unlike the west. Thing of it as two sports teams one plays by the rules the other does not, WHO do you think will win.
Well, now we will look at new countries going ahead of us while we strugle to keep up. Its just not China its all of Asia & Russia.
IT makes me angry and sad... we can still turn this around but Washingtons way to slow and we need to start playing by our own rules...
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10-08-2009 @ 8:16PM
John said...
What is the real story about police suppressing report about Krugman at hospital with gerble up his ass?
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10-08-2009 @ 8:24PM
gleeminghope said...
xtreme: Right on. We have always played by the rules and look where we are at? The other countries do not play fair, so why should we? China just put a ton of toxic drywall into Florida ruining hundreds of homes..and making people ill. They went back to the Chinese company and China and they refuse to help. Germany refuses to buy American goods, Japan refuses to buy our goods, so why do we continue to buy theirs? It is up to each and everyone of us to take charge and stop buying all this needless junk and start buying American and local. I know it is tough, but we can all try. Buy American wine, not French wine, buy American cars..buy American fish..food not foreign. Each and everyone of us can help contribute..to build this economy back.
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10-08-2009 @ 10:53PM
den said...
what we need to do, seeing OUR citizens like to buy from china and other countries, is to do something so bad that united nations puts a boycott on the U.S.A. nothing in nothing out, then see how the rest of the world survives...and see how fast the U.S.A. starts producing and buying AMERICAN MADE PRODUCTS...