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Crisis, Rinse, Repeat

Key economic data from the periods following the 1929 stock-market crash and the 2007-2008 financial crisis suggest that the current recovery has been unnecessarily anemic. If policymakers refuse to heed the lessons of the New Deal era, then the next crisis is destined to be as prolonged as the last.

BERKELEY – Later this century, when economic historians compare the “Great Recession” that started in 2007 with the Great Depression that started in 1929, they will arrive at two basic conclusions.

First, they will say the immediate response of the US Federal Reserve and the Department of the Treasury to the crisis in 2007 was first-rate, whereas the response immediately after the stock-market crash of 1929 was fifth-rate, at best. The aftermath of the 2007-2008 financial crash was painful, to be sure; but it did not become a repeat of the Great Depression, in terms of falling output and employment.

On the other hand, future historians will also say that the longer-term US response after 2007-2008 was third-rate or worse, whereas the response from President Franklin Roosevelt, Congress, and the Fed in the years following the Depression was second- or even first-rate. The forceful policies of the New Deal-era laid the foundations for the rapid and equitable growth of the long postwar boom.

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