PARIS – Global policymakers regularly congratulate themselves on having avoided the policy errors of the 1930’s during the financial crisis that began in 2008. Led by US Federal Reserve Board Chairman Ben Bernanke, an economic historian of the Great Depression, they remembered the ideas of John Maynard Keynes and loosened monetary and fiscal policy to avoid the worst. We are still coping with the budgetary consequences, especially in Europe, but it is true that the world did not end in 2008.
Monetary tightening was not the only major policy error of the 1930’s; so was a retreat into protectionism, symbolized by the Smoot-Hawley tariff increases at the beginning of that decade. Historians continue to debate the centrality of the Smoot-Hawley law itself, but the subsequent tariff war certainly damaged trade and economic growth, making a bad situation worse.