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Home , Great Depression, Kenneth Rogoff, Recession

The Great & the

In the depths of the Great Depression, a paroxysm of violence that brought wrote that “[p]rac- the of the tical men, who believe themselves to be nineteenth century to a sudden end, quite exempt from any intellectual influ- produced the imbalance that led to the ence, are usually the slaves of some de- Depression. Britain, the workshop of funct .”1 This acute observa- the prewar world, was exhausted by the tion is applicable to our current Great struggle. America, the rising economic Recession as well. In fact, the newly dis- behemoth, was unprepared to take re- credited ideas are not all that different sponsibility for its new role in the inter- from the old, suggesting that Keynes may national . , having have overestimated people’s ability to unsuccessfully challenged the Allied learn from their mistakes. Powers, refused to acknowledge its I pursue the parallels between these defeat. two watersheds in recent economic Patterns in the international move- history along three paths: the causes of ment of reveal this imbalance. the crises and their relation to econom- During the postwar decade, one of the ic theory; the spread of the crises on a most important reasons for approving global scale; and, ½nally, recovery–at resumed capital flows was the ruling least as far as we can see it at this point. economic theory of the . As famously said, history In the eighteenth century, philosopher, repeats itself “the ½rst time as tragedy, historian, and economist David Hume the second as farce,”2 a criticism that explained how valued in gold also ½ts our current condition. remain stable relative to each other. If, for instance, a to one country de- Both of these dramatic and costly eco- creased its exports, the result would be nomic crises emerged from the interac- an outflow of gold, which would lower tion of economic imbalances in the in the exporting country. Lower world economy and the ruling ideolo- prices would encourage exports and de- gy of ½nancial decision-makers who con- crease imports, leading to an inflow of fronted these imbalances. World I, gold. Prices would rise again, re-creating the previous equilibrium. This argument © 2010 by the American Academy of Arts is known among as the - & Sciences specie-flow mechanism.

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 Peter Hume’s contribution is still useful Nevertheless, after , policy- Temin today, although we are now aware of makers could think of no better way to on the ½nancial the many assumptions that underlie the reorganize the international economy crisis & mechanism’s proper functioning. In than to restore the gold standard–that particular, the theory presupposes that is, to ½x one price (the exchange rate) prices are fully flexible and determined while assuming all others were flexible. in competitive markets. These assump- Freezing exchange rates in this fashion tions express a view of the economy– reduced countries’ ability to adapt to often attributed to –that new conditions; this defect, however, has become characteristic of economic was deemed preferable to the anticipat- models in the years since Hume’s writ- ed chaos of alternative arrangements. ing. This view is taught in introductory When England attempted to reduce economics classes; it is the starting prices to sustain the of sterling, a point for many journal articles; and it general strike resulted, revealing both is referred to as a perfectly competitive the inaccuracy of the gold standard’s economy. When conditions cross the underlying assumptions and the strength line between descriptive and normative, of the economic policies based on those however, they are transformed from assumptions. description–which may or may not In this context, the took be accurate–to prescription–which over the of leading internation- in turn affects public policy. al lender and exported massive amounts These conditions may have been ful- of capital to Germany in the . The ½lled in the eighteenth century, but they were meant to help Germany main- were not accurate in the 1920s postwar tain the gold value of its , and world. In contrast to Hume’s assumption they enabled Weimar Germany to pay of a ½xed link between gold flows and reparations owed to the victors in World prices, central bankers thought them- War I and enjoy a consumption boom. selves responsible for and Higher prices after the war also put strain . Business ½rms had become on gold currencies, and while England larger, and many product markets were and Germany struggled as a result, econ- no longer fully competitive. As the size omists in the more prosperous United of production units, whether mines or States proclaimed the advent of a new factories, became larger, the ability of economy in which stability and prosper- labor markets to be fully competitive ity would continue inde½nitely. Hind- also diminished. Large employers - sight suggests that these conditions were ed little bargaining power to workers not sustainable; rather than celebrating to negotiate and working condi- the promised strength and vitality of a tions. If a factory, for example, was the new economy, countries should have only large employer in town, the options been concentrating on how to avoid a for workers were even more limited and rough landing from the high-flying re- the power of the employer more sults of the previous shocks. obvious. Workers formed unions to Economic troubles appeared in Ger- countervail the market power of employ- many and the United States in the late ers, and bargaining and strikes 1920s. The former’s consumption growth supplanted the individual wage nego- produced a boom in municipal expendi- tiations implicit in Hume’s and Smith’s tures that began to ½zzle; in the latter, analyses. both housing and booms

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 eventually crashed. As recession spread stable exchange rates and responsible The Great to other countries, international ½scal policies to and priva- Recession & 4 the Great decreased, but prices did not fall rapidly tization. It was an adaptation of the gold Depression enough to equilibrate markets in the standard to current conditions, stipulat- fashion Hume described. Prices were ing stable–instead of ½xed–exchange sticky, and rather than deflation, a lack rates to avoid the rigidities of the gold of foreign reserves led to . standard that proved to be harmful in When all countries found their exports the . Other requirements marked a falling, the processes of deflation and departure from the era of large govern- depression chased a moving target.3 ment that followed the Great Depression A similar international imbalance and World War II. The terms of the Con- developed after the end of the . sensus favored diminished government The new world lender, the United States, influence, so as not to impede the prog- traded roles and became the world’s larg- ress of private ½nance and industry; com- est borrower. China, a “loser” in the Cold petition would ensure continued growth War, became the United States’ primary and prosperity. Like the gold standard, lender. Just as the inflow of capital to the Consensus was based Weimar Germany had fueled expansion, on the Enlightenment ideas of David the inflow of capital from China ½nanced Hume and Adam Smith and promulgated a consumption boom in the United States as a way to organize the postwar world. that developed into a housing boom. It was the economic component of the This global imbalance was apparent, new world order that the ½rst President and economists feared that a crisis Bush was looking for. would ensue. Because the United States More explicitly than the gold standard no longer adhered to the gold standard, mentality, the Washington Consensus the value of the dollar could change free- spelled out the conditions needed to ly from day to day. The question was maintain stable exchange rates. It ac- whether there would be a smooth decline knowledged that most in the in the value of the dollar, in the fashion later twentieth century did not resemble of the price-specie-flow mechanism, or the eighteenth-century conditions ana- an abrupt fall. These concerns were mis- lyzed by Hume and Smith and argued placed; even though the international that policies designed to re-create these imbalance created crisis conditions, earlier conditions would lead to econom- -run booms and busts precipitated ic growth and prosperity. Using familiar economic calamity in the interwar and theories of and flexible recent years. One such boom was surg- prices, the underlying theory showed ing housing expenditures in the 1920s. how the competitive process of allocat- The housing market was only a minor ing resources in individual markets player in the drama of the Great Depres- would generate stable conditions for sion, but it had a starring role in our cur- society as a whole. rent crisis. and associated businesses in the The housing boom flourished in recent United States extended the underlying years, nourished by the availability of reasoning to the creation of new assets Chinese capital and the ruling economic known collectively as structured ½nance. theory of the Washington Consensus. The Washington Consensus was designed This term, coined in 1989, referred to a to reduce risks, and innovative securities set of economic policies that ranged from provided a means of allocating risk to

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 Peter those investors who wanted to take it from the eighteenth century, hard-headed Temin on. Just as banks can hold fractional policy-makers either assumed or tried on the ½nancial reserves on the assumption that people to re-create the idealized conditions crisis & draw on their deposits randomly and described by Hume and Smith. These economic policy independently, the creators of new se- policy-makers ignored both the growth curities reasoned that homeowners of in modern econo- on mortgages randomly and mies and the work of behavioral econo- independently. Collateralized obli- mists that has shown that people do not gations (cdos) allowed ½nancial insti- behave as homo economicus. Their efforts tutions to bene½t from the fact that only produced the new economy of the 1920s a few homeowners default in any given and the Goldilocks economy of recent de- time, so that most mortgages are safe. cades that turned into booms and busts. Combining mortgages into “tranches,” Was it inevitable that these economic banks could separate the safe part of expansions would end badly? According mortgages from the risky parts without to the late economist , knowing which mortgages would be people become more complacent with defaulted–just as banks do not know prosperity and more willing to take on which deposits will be withdrawn but risks they often know are highly suspect.6 can safely assume that only a fraction More recently, economists Carmen Rein- will be withdrawn at any given time. hart and Kenneth Rogoff analyzed histor- Based on the ability to sell mortgages ical evidence and reached a similar con- to be securitized, mortgage brokers ex- clusion: booms typically precede ½nan- panded, encouraged homeownership, cial crises, just as pride goes before a fall.7 and promoted the ownership society More formally, people in both expan- championed by the second President sions miscalculated the risks they faced. Bush. Banks and other ½nancial inter- Their models were based on shocks to mediaries holding securitized assets individual countries or homeowners and took on more and more leverage, which did not allow for collective actions. The was justi½ed by their calculations that gold standard model explained how to the risks of many of these assets were deal with a shock to an individual coun- vanishingly small. But when the result- try, implicitly assuming that other coun- ing housing boom burst and many tries would be immune to whatever dis- mortgages failed, the assumption that turbance affected the distressed country. defaults occurred randomly and inde- The interaction between the country in pendently turned out to be false. cdos crisis and other countries would lead were much more risky than they had back to stability; a collective shock to appeared to be, and the separation of many economies was not considered. risky and safe assets proved to be invalid.5 Similarly, the model behind the Wash- Investors refused to buy the cdos, and ington Consensus considered individual markets seized up. Countries that risks. Structured ½nancial obligations had adopted the policies of the Washing- were valued as if the underlying risk of ton Consensus found themselves mired mortgage was the result of in a worldwide ½nancial crisis. random and independent shocks to in- The Great Depression and the Great dividual homeowners. As with the gold Recession were both caused by policies standard, no consideration was given to derived from nostalgia for the world of collective shocks; housing prices were the Enlightenment. Drawing on theories expected to rise continually. It was

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 assumed that homeowners experienced for expansive policies, which were neither The Great ½nancial dif½culty and defaulted on their large nor expansive enough to stimulate Recession & the Great mortgages randomly. The randomness recovery in countries that remained in Depression of defaults enabled ½nancial designers to thrall to gold. It has become common to reduce the risk to any security by diver- attribute the continued economic decline si½cation, that is, combining many mort- to banking crises, but banks failed only gages the same way a combines in countries that adhered to the gold many bank deposits. When the housing standard.9 As long as countries set pol- boom ended and housing prices fell, icies to maintain the value of their cur- however, many homeowners began to rency, their banks were at risk; bank fail- default, and the risk that was supposed ures were a damaging outcome of the to be protected for through diversi½ca- depression, not its cause. Governments tion was now present in securities pre- and central bankers–not commercial viously thought to be risk free. Investors banks–led the way into depression in could not discern safer assets from those country after country. more at risk, and the prices of all struc- This process is illustrated clearly in the tured ½nance fell. Prices of some securi- United States’ experience. Banks contin- ties fell rapidly because there were no ued to fail as the government clung to buyers for them. Financial markets froze the gold standard. For instance, in early in September 2008. 1933, the Reconstruction Finance Corpo- ration refused to help a prominent Michi- The second step of this comparative gan bank holding company for reasons analysis is to evaluate the spread of each that are not clear (anticipating the fail- crisis. In the early 1930s, countries pur- ure of in 2008). States sued a moving target as their economies declared bank holidays, and the New contracted to deal with what appeared to York Bank lost gold as be budget and current-account de½cits. investors speculated against the dollar. Consequently, a series of currency crises Franklin Delano Roosevelt took of½ce in Summer and Fall 1931 turned a bad in early ; he immediately recession into the Great Depression. The instituted what he called a federal bank German mark collapsed when the chan- holiday to protect the banking system cellor put domestic politics ahead of from complete collapse.10 sensible ½nance.8 The At the center of the ½nancial panic abandoned the gold standard after a sub- that initiated the were sequent . And the U.S. the banks and other private ½nancial Federal Reserve raised its discount rate institutions that had accumulated large dramatically in October 1931 to preserve portfolios of mortgage-backed assets, the value of the dollar; the Fed kicked the in which mortgages were combined and American economy when it was down then separated–at least in theory–into and drove it further into depression. securities of differing risks. When the Many countries continued to maintain housing boom ended in 2006 and 2007, deflationary policies in the early 1930s homeowners began to default on mort- as they tried to hold on to the gold stan- gages at an increasing rate. These defaults dard or, in the case of Germany, follow were not the random defaults assumed its prescriptions even after abandoning in the construction of mortgage-based the gold standard. Some countries fol- securities, and investors could no longer lowed England off gold and created room distinguish between the various assets.

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 Peter Ef½ciency-promoting securities were absent evidence that a crisis is indeed Temin transformed into toxic assets as it became about to emerge. Certainly, if palliative on the ½nancial progressively harder to sell them. High action forestalls the putative crisis, peo- crisis & leverage, initially a way to multiply earn- ple will ask what all the pressure was economic policy ings, became a company hazard as the about. Congress is a large and unwieldy price of assets fell. body; all these complexities precluded Apparent in American and European preventive action in Summer 2008. ½nancial markets by Summer 2007 were In September, another the deleterious effects of the inability to house, Lehman Brothers, found itself sell these toxic assets. Pressure contin- unable to borrow. It tried selling assets ued during the fall, and the Fed lowered to pay its obligations but could not sell its discount rate by more than a percent- its toxic assets and fell short of its needs. age point between September 2007 and Creditors wanted to be paid and investors January 2008. (The National Bureau of wanted to sell Lehman Brothers stock. Economic Research later concluded that Though an investment rather than a com- a recession had started in December mercial bank, Lehman was in a process 2007.) Fed Chairman , that resembled nothing so much as an Treasury Secretary Henry Paulson, and old-fashioned banking panic. Bernanke, President of the New York Fed Timothy Paulson, and Geithner did not wish to Geithner rescued the New York invest- repeat their rescue of Bear Stearns and ment house Bear Stearns at the point of therefore allowed the ½rm to fail on Sep- collapse with Fed funds and purchase by tember 15, 2008. After the fact, none of another investment house in March 2008. these articulate policy-makers was able They took over the two quasi-governmen- to tell a coherent story about why they tal mortgage brokers, and had not avoided bankruptcy for the ½rm. Freddie Mac, in August. Even at this late The event reprised the government con- date, the Fed and other public ½gures fusion that led Michigan banks to fail in argued that the pressure was largely lim- early 1933, precipitating the bank holiday. ited to the housing sector and that the The ½nancial triumvirate had tried to measures taken up to that point were ½nd a buyer for Lehman Brothers, as they suf½cient to maintain ½nancial health. had done for Bear Stearns, but was unable Bernanke and Paulson asserted after to do so. They apparently reverted to the the fact that they tried in Summer 2008 gold standard mentality as expressed in to get Congress to take action to forestall the free-market ideology of the Washing- a crisis. This effort proved futile for sev- ton Consensus: Lehman Brothers had eral reasons. For one, the ½nancial lead- taken large risks and now had to pay the ers were making reassuring statements penalty for losing too many bets. But hard to the public at the same time they were on the heels of Lehman Brothers’ failure appealing to Congress, a mixed message came American International Group that did not lend persuasiveness to the (aig). Although it was not an investment arguments they presented. In addition, bank, this multinational insurance com- Congress was not convinced that the ½- pany also had taken too many bets on nancial system was on the verge of a what were now toxic assets and was about meltdown and was reluctant to act out- to collapse. The epidemic had escaped side of an emergency. This reluctance the mortgage market and infected the may illustrate a general problem: it is whole ½nancial system. Nearly a year hard to prepare for a hypothetical crisis earlier, the global ½nancial system had

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 entered into what Frederic Mishkin, a between now and then is that it took a The Great member of the Fed’s Board of Governors, new group of leaders to change policy. Recession & 11 the Great had called an “adverse loop.” The Obama administration has many Depression One failure induced another; a world- holdovers–for example, Obama reap- wide ½nancial panic ensued. pointed Bernanke as Fed Chairman –but Paulson, Bernanke, and Geithner threw there is no doubt that the theories under- in the towel and nationalized aig. Their lying policy have changed since the last commitment to the had last- administration. An important difference ed one day; Congressman Barney Frank between the past and current economic (D-Mass.) suggested we call it Free Mar- calamities is that because the present ket Day!12 But while the sale of Bear crisis is only a recession–not a depres- Stearns had calmed the ½nancial markets, sion–Obama does not have the oppor- the nationalization of aig–arriving on tunity for reform that Roosevelt did. the heels of Lehman Brothers’ bankrupt- Roosevelt opened most banks quickly cy–only confused the market. The gov- after their holiday; he took the United ernment had restated its ideals and then States off gold a month later. He intro- abandoned them in the twinkling of an duced the National Industrial Recovery eye. Investors could not predict what Act (nira) and the Agricultural Adjust- would come next.13 ment Act (aaa), pillars of the , Barely functioning credit markets shortly thereafter. These actions signaled seized up completely. No one knew what a clear new direction in government pol- the government policy was or if anyone icy, or what economists call a new policy was insured; no one wanted to purchase regime. Investment rose and consump- toxic assets. Economic activity and inter- tion began to recover; the long econom- national trade came to a sudden halt. The ic decline had ended.15 brief reassertion of faith in the free mar- The continuation of high unemploy- ket in 2008 was as counterproductive as ment in the 1930s is commonly blamed ½delity to the gold standard had been on the high wages created by the nira in 1931. In both cases, the United States and the subsequent growth of unions. dragged the world down with it–doing This argument is inaccurate for several so faster the second time than it had ½fty reasons. progressed years earlier.14 rapidly during Roosevelt’s ½rst term and may not have been able to occur any fast- Fortunately, we are now in a Great Re- er because of bottlenecks in the supply cession, not a repeat of the Great Depres- of raw materials and production. Faster sion. Ten percent unemployment and growth, even if possible, likely would unemployment insurance compares fa- have led to inflation despite high unem- vorably to 20 percent unemployment ployment.16 In fact, the recovery was so without a safety . The primary reason fast that both the Fed and the government for this divergence is the vagary of the decided to reverse policy and rein in de- American political cycle. Voters had to mand through both monetary and ½scal wait three years after the Great Depres- policies. The result was the recession of sion began and a full year after the Fed 1937, which increased unemployment turned a recession into a depression to and delayed the return to full employ- vote on public policy; voters in 2008 ment for several more years. It was poli- had this opportunity just months after cy, not gains by labor, that extended the the ½nancial crisis began. The similarity Depression’s length.

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 Peter The growth of unions was only one re- This foreshadowing of our current Temin sult of the New Deal reforms. Not all of problems was not seen as such at the on the ½nancial these reforms were consistent with each time; even the failures of Long-Term crisis & other, and not all of them lasted more than Capital Management (ltcm) in 1998 economic policy a few years. However, the enduring parts and in 2001 did not raise con- of the New Deal changed the economy in cerns. Most of the crises, like the Asian many ways. Labor and reforms pre- crises of 1997 (which spread to Russia, served a stable income in the bringing down ltcm), were seen as economic expansion that followed World problems of less developed countries, War II. Creation of the Food and Drug not mature economies like the United Administration helped expand the phar- States. Economists and politicians alike maceutical industry that extended life for pushed for less at home and many people. Social Security improved deregulation abroad. In particular, they the quality of life for many older people. sought to deregulate the international Reforms to the ½nancial system pro- flow of capital and hailed the Washing- duced a half-century free from ½nancial ton Consensus as the way forward for crises.17 The Federal all countries, developing and developed. Corporation (fdic) gave most people Like , a great economist of faith in the safety of their bank accounts. the early twentieth century who predict- Deposit insurance was complemented ed continued prosperity just before the by bank regulation to substitute for crit- Great Depression, they too readily be- ical investors and depositors. The Glass- lieved in the reigning .18 Steagall Act separated commercial and Even Bernanke, chairman of the Fed- investment banks. The Federal Reserve eral Reserve and student of the Great System was restructured to empower Depression, did not see chaos ahead its central of½ce; the Securities and Ex- during most of 2008. Bernanke, to his change Commission (sec) was created to credit, realized what was happening by regulate ½nancial . Banking the start of 2009. He resolved not to let became a boring industry, and more peo- the Fed duplicate its mistakes of the ear- ple invested safely in the stock market. ly 1930s, standing by as banks failed and There was little excitement in the ½nan- supporting the gold standard instead of cial markets, and the economy grew rap- the domestic economy. He pulled all the idly and consistently after the war. strings–some of them on the outer edge Nothing lasts forever, and prosperity of his authority–to loosen monetary generated a desire for more independent policy and encourage economic activity. ½nancial dealings. Economic turmoil in It was a bravura performance, but mone- the hastened the transition, and the tary policy lost its effectiveness as banks Washington Consensus arose in the 1980s. ran for cover even after the ½nancial The Glass-Steagall Act was repealed, and panic subsided. The banks used the Fed’s the sec’s regulation relaxed. services to rebuild their depleted reserves urged the rest of the world to follow suit as the value of toxic assets went to zero, and deregulate both domestic and foreign and they loaned only to the safest of capital movements. The distribution of customers.19 income widened, the size of the ½nancial Obama, even before he took of½ce, sector rose, and a string of small-scale urged Congress to pass a bill– (at least to the United States) ½nancial to create a ½scal expansion in addition crises ensued. to the hobbled monetary expansion.

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 Republican congressmen insisted he or so, but American exuberance appears The Great divert part of the stimulus to tax cuts, to chafe under these conditions. As the Recession & the Great which went into as individuals memory of past economic dif½culties Depression –like banks–tried to build up their de- fades, economic and political pressure pleted reserves, limiting the size of the for change rises to the fore. Internation- stimulus. This ½delity to the Washing- al economic imbalances are condoned ton Consensus reduced Obama’s ability until they have to be corrected, often to moderate the recession’s effects on painfully. ordinary people. The second lesson is that there are Expansive monetary and ½scal policies strong pressures for unregulated capital- were effective enough to preclude a repe- ism that only abate in the face of sharp tition of the Great Depression, and sup- economic downturns like the Great port for reforms on the order of the New Depression. We avoided another Great Deal ebbed. Obama had campaigned on Depression by luck–the election cycle– a program of bipartisan cooperation, and and skill. Marx was correct when he ar- although he tried to bring Republicans gued that tragic history repeats itself along with his policies, they had not as farce: we now have the oxymoronic abandoned their belief in the Washing- Great Recession after all the fears of ton Consensus. Banks, moreover–newly Great Depression II. Keynes was right, prosperous from the government bailouts too; discredited economic theories– –resisted increased regulation. When and the gold standard mentality–con- Obama put extending health care to all tinue to dominate the actions of even Americans before reforming the ½nan- “practical” men and women.20 Recent cial system, resurgent banks blunted the policy initiatives have done little to re- impact of ½nancial reforms. duce the underlying risk of another ½- nancial crisis. As of this writing, Jean- There are two lessons to be drawn from Claude Trichet, president of the Euro- this comparison. The ½rst is that the open pean , gave a striking illus- American economy is prone to collapse tration of the continuing gold standard every once in a while. Favorable condi- mentality, calling for worldwide ½scal tions–the New Deal and a vigorous post- in the early stages of a tenta- war expansion–can eliminate “great” tive recovery from our recent crisis.21 economic contractions for a

endnotes 1 John Maynard Keynes, The General Theory of , Income and (New York: Harcourt, Brace, 1936), chap. 24, “Concluding Notes.” 2 Karl Marx, The Eighteenth Brumaire of Louis Bonaparte (New York: International Pub- lishers, 1964), 1. 3 Peter Temin, Lessons from the Great Depression (Cambridge, Mass.: mit Press, 1989); , Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (New York: Oxford University Press, 1992). 4 John Williamson, “What Washington Means by Policy Reform,” in Latin American Adjustment: How Much Has Happened? ed. John Williamson (Washington, D.C.: Institute for , 1990).

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Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/DAED_a_00048 by guest on 29 September 2021 Peter 5 Peter Temin, “Real Views of the Great Depression and Recent Events: A Temin Review of Timothy J. Kehoe and Edward C. Prescott’s Great Depressions of the Twentieth on the Century,” Journal of Economic Literature 46 (September 2008): 669–684; Peter Temin, ½nancial “Corrigendum,” Journal of Economic Literature 47 (March 2009): 3. crisis & economic 6 Hyman P. Minsky, Can “It” Happen Again? Essays on Instability and Finance (Armonk, N.Y.: policy M. E. Sharpe, 1982). 7 Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Finan- cial Folly (Princeton, N.J.: Press, 2009). 8 Thomas Ferguson and Peter Temin, “Made in Germany: The German of 1931,” Research in 21 (2003): 1–53; Peter Temin, “The German Crisis of 1931: Evidence and Tradition,” Cliometrica 2 (April 2008): 5–17. 9 Richard S. Grossman, “The Shoe That Didn’t Drop: Explaining Banking Stability During the Great Depression,” Journal of Economic History 54 (September 1994): 654–682. 10 Barrie A. Wigmore, The Crash and Its Aftermath: A History of Securities Markets in the United States, 1929–33 (Westport, Conn.: Greenwood Press, 1985), 433–447. 11 Frederic S. Mishkin, speech at the Risk usa Conference, New York, November 5, 2007, http://www.federalreserve.gov/newsevents/speech/mishkin20071105a.htm. 12 David Wessel, In Fed We Trust: Ben Bernanke’s War on the Great Panic (New York: Crown Business, 2009), 26. 13 Thomas Ferguson and Robert Johnson, “Too Big to Bail: The ‘Paulson Put,’ Presidential Politics, and the Global Financial Meltdown,” parts 1 and 2, International Journal of 38 (Spring 2009): 3–34 and 38 (Summer 2009): 5–45. 14 Christina D. Romer, “Back from the Brink,” speech to the Federal Reserve Bank of Chica- go, September 24, 2009, http://www.whitehouse.gov/assets/documents/Back_from_the _Brink2.pdf. 15 Peter Temin and Barrie A. Wigmore, “The End of One Big Deflation,” Explorations in Eco- nomic History (October 1990): 483–502. 16 Christina D. Romer, “Why Did Prices Rise in the 1930s?” Journal of Economic History 59 (March 1999): 167–199. 17 Reinhart and Rogoff, This Time Is Different. 18 Irving Fisher, “Fisher Sees Stocks Permanently High,” , October 16, 1929. 19 Richard C. Koo, The Holy Grail of : Lessons from Japan’s Great Recession (Singapore: John Wiley, 2008). 20 , “How Did Economists Get It So Wrong?” The New York Times, September 6, 2009; Paul Krugman, “Misguided Monetary Mentalities,” The New York Times, October 12, 2009. 21 Jean-Claude Trichet, “Stimulate No More–It is Now Time for All to Tighten,” , July 23, 2010.

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