January 10th, 2018
“The-third-depression” – comparative analysis
Both the 1873 panic and the 1930s great depression have many aspects of convergence with the current crisis. Such similarities for instance arise with the countries that have been affected by the depressions most. The UK in the 1870s just as the U.S in the present day boasted of being the main driver of economic events around the world. Part of this arose out of the international trade level that the countries controlled at the respective time frames. The U.K in the 1930s for instance controlled a large number of countries it had colonized and hence influenced the trade across the boarders of such countries. The U.S on the other hand is a trading partner in the modern era with many countries largely out of the consumption-driven nature of its economy that allows many partners to enjoy more favourable trade balances.
Similarity of the crises also occurs in respect of the events that fuelled the crises. First among these is the collapse of the financial markets. Just as in the 1930s the market collapse acted as a catalyst to the severity of the current financial crisis culminating in many bank failures as was the case in the 1930s. Similarly the approach by the government at both times appears to be similar. In 1930s, the FDR, for instance set the spring board for economic recovery to be its massive expenditures in line with the perspectives advanced by Keynes. Examples of massive government expenditure at the time included civilian conservation corps, programs for artists and writers and road and bridge construction works (Rothbard, 2000). In the current crisis the government’s stimulus program has followed a similar plan with road and bridge construction featuring among the list of government expenditures. Though production in the 1930s had improved after such government interventions the employment levels had still remained at unreasonable levels. Unemployment levels in the current crisis have also been on an increasing trend.
Unlike the 1873 crisis, the great depression and the current crisis have also had similarities in their transmission across borders. These latter two have been transmitted across boarders more effectively compared to the 1873 crisis where the transmission was largely curtailed. Such can be attributed to existence of a common monetary system in the 1930s (Huffman & Lothian, 1984) and the globalization trend of the current day. In 1930s the U.S just as the U.K was operating on a Gold standard that ensured the channels of transmission were open leading to almost equal severity and duration of the crisis in the two countries (Huffman & Lothian, 1984). The current crisis has also had similar transmission effects to the great depression due to globalization trends. Many corporations have expanded across boarders to explore avenues for growth and reduce competitive pressures. The outcome of the current crisis has influenced the extent to which these multinationals can engage in expansion activities thus affecting the growth of the economies in these areas. Similarly the ease with which commodities can be traded across boarders has been enhanced by weakened barriers to trade hence many countries have found markets for their output in foreign countries. Such has also been enhanced by the ease of foreign exchange transactions as opposed to the period when the gold standard was employed. With the credit crisis affecting many prime markets, the market for some countries produce has been curtailed thus adversely affecting the domestic economies. Go to part 6 here.