Barry Eichengreen is the George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley. He is also one of the great economic historians of our time. His new book, “Hall of Mirrors: The Great Depression, The Great Recession, and the Uses – and Misuses – of History,” compares the Great Depression and the recent financial crisis in detail, looking at both similarities and differences in the underlying causes of these crises and the ways policy makers responded to them. I asked him several questions via e-mail about the arguments he makes in the book.
HF – Your account points out similarities between the Great Depression and the recent financial crisis (e.g. bad decisions to let financial institutions go bust, foolish investor beliefs about currency stability and the emergence of poorly regulated shadow banking systems in the U.S.). Yet you also point out many crucial differences between the two periods, and emphasize that no monetary policy will suit all times and circumstances. Put bluntly, if the cases aren’t comparable in many ways, what’s the benefit of studying the last depression for people interested in figuring out the current one?
BE – Differences as well as similarities can be revealing; both can be instructive when it comes to responding events. Building on your question, recall how in the book I emphasize the much greater importance of shadow banking and financial derivatives in the current crisis, as compared to the 1930s. I then go on and make some critical observations about how policy makers, when responding to the recent crisis, focused on stabilizing the banks while doing too little to anticipate and address problems in the commercial paper market, the repo market, and the money market until very late in the game. What are the “benefits” of this kind of observation, you ask? For one thing, there is value, in and of itself, to understanding where we went wrong. For another, seeing that policy makers were inadequately cognizant of changes in the structure of the financial system last time may encourage at least some of them to be more cognizant of such changes in the future.
Read the full interview at The Washington Post.