Kevin O’Rourke: Lessons from the Great Depression
[Kevin O’Rourke is a Professor of Economics at Trinity College Dublin, and a co-organiser of the CEPR’s Economic History Initiative.]
On August 9, 1941, the Prince of Wales sailed into Placentia Bay on the coast of Newfoundland, after a risky journey from Scapa Flow. It was bringing Winston Churchill to a meeting with Franklin D. Roosevelt, which culminated in the agreement of the Atlantic Charter.... [The fifth point of the charter] stated that the two leaders desired "to bring about the fullest collaboration between all nations in the economic field, with the object of securing for all improved labour standards, economic advancement, and social security."...
To someone who had lived through the 1930s, this would not have seemed at all strange. The 1920s had seen a gradual reconstruction of the international economy, and with it signs that Germany was being successfully reintegrated into the international community....
Then, in late 1929, the Great Depression hit and everything fell apart. Thanks to Brüning’s deflationary policies, Germany’s national income fell by more than a quarter, and official unemployment rose to almost a third of the labour force. Optimism was replaced by a profound sense of insecurity. Inevitably, the extremist parties benefitted. In 1930 the Nazis increased their share of the vote to 18.3%, while in July 1932 they scored 37.8%....
Our Great Recession has strengthened the political extremes. Wilders’ party received 15.5% of the vote in 2010, while Jobbik got 16.7% in the first round in Hungary. A recent study by Markus Brückner and Hans P Grüne found that a one percentage point decline in economic growth was associated with a one percentage point increase in the share of extremist parties in 16 OECD countries between 1970 and 2002.
To quote Tony Judt: “why have we been in such a hurry to tear down the dikes laboriously set in place by our predecessors? Are we so sure that there are no floods to come?”
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On August 9, 1941, the Prince of Wales sailed into Placentia Bay on the coast of Newfoundland, after a risky journey from Scapa Flow. It was bringing Winston Churchill to a meeting with Franklin D. Roosevelt, which culminated in the agreement of the Atlantic Charter.... [The fifth point of the charter] stated that the two leaders desired "to bring about the fullest collaboration between all nations in the economic field, with the object of securing for all improved labour standards, economic advancement, and social security."...
To someone who had lived through the 1930s, this would not have seemed at all strange. The 1920s had seen a gradual reconstruction of the international economy, and with it signs that Germany was being successfully reintegrated into the international community....
Then, in late 1929, the Great Depression hit and everything fell apart. Thanks to Brüning’s deflationary policies, Germany’s national income fell by more than a quarter, and official unemployment rose to almost a third of the labour force. Optimism was replaced by a profound sense of insecurity. Inevitably, the extremist parties benefitted. In 1930 the Nazis increased their share of the vote to 18.3%, while in July 1932 they scored 37.8%....
Our Great Recession has strengthened the political extremes. Wilders’ party received 15.5% of the vote in 2010, while Jobbik got 16.7% in the first round in Hungary. A recent study by Markus Brückner and Hans P Grüne found that a one percentage point decline in economic growth was associated with a one percentage point increase in the share of extremist parties in 16 OECD countries between 1970 and 2002.
To quote Tony Judt: “why have we been in such a hurry to tear down the dikes laboriously set in place by our predecessors? Are we so sure that there are no floods to come?”