Book Presentation: Hall of Mirrors

30 October 2015

In his latest book, Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, analyses similarities between the 2008 global financial crisis and the Great Depression in 1929. On 20 October, he presented his book “Hall of Mirrors – The Great Depression, The Great Recession, and the Uses – and Misuses – of History”, published by Oxford University Press. The event was jointly organized by the Center for Financial Studies and the Institute for Banking and Financial History Research.

In this talk, Eichengreen stressed the importance of history, arguing that this is the lens through which both the public and elected officials view current problems. Accordingly, the history of the Great Depression shaped how policy makers perceived and responded to the 2008 Global Financial Crisis, he said. Both crises occurred against the backdrop of sharp credit booms, dubious banking practices, and a fragile and unstable global financial system. But while the Great Depression caused a catastrophic collapse of the financial system, in 2008 policy makers were able to prevent the worst.

In the 1930s, central bankers across the world stuck to the gold standard, a system of fixed exchange rates between currencies and gold that had dominated the international monetary system for decades. To preserve the gold standard, most monetary authorities hesitated to loosen monetary policy dramatically, which worsened the recession. Only in 1933, for example, did the U.S. abandon the gold standard and the economy began to recover.

The lessons learnt from the 1930s allowed policy makers in 2008 to avoid the errors that led to the Great Depression. The complete collapse of the banking system was avoided by, for example, quickly providing large amounts of liquidity to the markets or applying extensive fiscal stimulus programs, Eichengreen said. However, he argued that this success was the mother of failure: while the painful plunge in the 1930s has led to radical reforms in the financial system (e.g. the 1933 Glass-Steagall Act in the U.S.), the reform legacy of the current crisis is much weaker. Also, Eichengreen criticized that monetary policy measures and fiscal stimulus were not used more aggressively to boost post-crisis recovery and that some countries, such as Germany, have done too little to help weaker European countries with large fiscal deficits and eliminate the internal imbalances of the Euro Area.