In today's New York Times, Professor Mankiw writes "... it’s hard to avoid seeing parallels (with the Great Depression) to the current situation." Conspicuously absent from the article are specifics about the parallels he sees (not to mention the lack of a conceptual framework -- supply and demand maybe?! -- to understand what fundamentals are even worthy of comparison, but that's another topic).
He points out that consumers are scared. I agree. Anything else?
He points out that that many banks failed during the Great Depression. But those bank failures came well after the economy was severely depressed. Friedman and Schwartz (p. 306) explain how the economy had already declined very significantly by October 1930: "Even if the contraction had come to an end in late 1930 or early 1931 ... it would have been ranked as one of the more severe contractions on record."
That's it. That's all the parallels he mentions about the two economies! He has an interesting discussion about how economists might be in a similar situation today as there were then. I'm not sure that I agree, but anyway this blog is about the economy, not economists.
I stick by my list of top ten reasons why today's economy is fundamentally different from the 1930s:
- Productivity is high today, and was low prior to the 1930s bank panics
- Nonfinancial corporations are very profitable this year, and were not prior to the 1930s bank panics
- GDP had grown at least through 2008 Q2. Friedman and Schwartz (p. 306) explain how the economy had already declined very significantly by October 1930: "Even if the contraction had come to an end in late 1930 or early 1931 ... it would have been ranked as one of the more severe contractions on record."
- The Midwest grew corn very high this year, and was a dust bowl in the 1930s.
- Bank deposits increased during this year's financial panic, they fell during the 1930s (Friedman and Schwartz, Chart 27).
- Today's banks suffer from a crisis of solvency; 1930s banks suffered from depositor-runs (see Anna Schwartz). [Prof. Mankiw acknowledges this]
- Today's failed banks are gobbled up by large investors from around the world. In the 1930s, many of them just failed.
- Today bank lending rates are falling; in the 1930s they were not.
- Today we have inflation (so far); in the 1930s there was deflation (both before and after the bank panics). [Prof. Mankiw acknowledges this]
- Today JP Morgan Chase is buying competitors; in the 1930s JP Morgan was buying competitors (OK, I admit that this hasn't changed!)