Critical evaluation frameworks and methodologies

Watson, William. "Lessons from the Great Depression: Not the 1930s all over again." Policy

Options, February 2009, pp. 41-44,

Historical analogies can lead policy makers to make major miscalculations, with grave consequences: consider how dangerous the comparison between Neville Chamberlain's appeasement of Hitler and the 'domino theory' of the spread of communism in Southeast Asia was for the United States. Analogies can obscure critical situational facts rather than clarify them: such is the case with the current analogy between the global financial situation and the Great Depression of the past says William Watson in his February 2009 Policy Options article "Lessons from the Great Depression: Not the 1930s all over again."

The Canadian author states: "One decidedly unhelpful tendency…has been the drawing of outlandish historical comparisons…[In the 1930s] the unemployment rate rose to 1 in 3 -- at 1 in 19 we are light years from that.

" Watson argues that likening the current crisis to the Depression is vastly overstating the current risks facing the global economy. Indeed, Watson's condemnation of alarmism seems justified, given that the economic crisis predicted in the fall of 2008 has not spiraled out of control, as the crisis quickly did in the 1920s. Watson praises the vigilance of the America government. Its stimulus package and the carefully constructed monetary policy of Fed Chairman Ben Bernanke is at least partially deserving of credit for the abatement of the crisis. Watson believes it was lucky for the world that Bernanke was a scholar of the Great Depression, and carefully studied why the monetary policy of the U.S. during the Hoover Administration lead to a spiraling, rather than the lessening of the crisis. The federal government initially cut spending and tightened the money supply commensurate with the Hoover government's faith in classical economic theory.

However, Watson seems unwilling to admit that deregulation mania of the past decades has failed and must be curtailed to avoid another crisis. While it is true that the current crisis did not parallel the severity of the Great Depression, surely that was at least partially due to the fact that the regulations put in place after the Great Crash were eased from the Reagan Revolution onwards. Watson does admit that Milton Freedman, an icon of the proponents of deregulation who orchestrated the crisis, would have disapproved of the current remedies, including the zero interest rates of Bernanke, which Watson credits with rehabilitating the world economy.

But at times Watson even seems to shrug at the severity even of the Great Depression itself. As a Canadian he notes: "our own country's financial system had an easier 1930s -- losing only one bank to an arranged merger -- and seemed last fall not to be hit as hard as the American system.

" A global economic recession is never suffered equally by all. But this does not mean it is fair to ignore how many fragile emerging economies, such as Iceland, Ireland, and Greece, have been suffering far worse turmoil than either the U.S. Or Canada today. Regarding the worries about the 'jobless recovery,' Watson believes decreases in employment do not always presage more serious recessions later on.

There are profound differences between today and the 1930s. The difference seem to lie in the political climate: there was widespread support for Franklin Delano Roosevelt's instituting of government programs to help the unemployed and dispossessed. Today, an intransigent Republican minority faction in Congress is stymieing such efforts. Watson's sunny forecast does not provide any advice about how to prevent a similar crisis in the future, he simply advises the reader to watch and wait unemployment figures creep up: "IPA forecast sees the national unemployment rate rising to an average of 8.1% in 2009 -- not good but not catastrophic -- but then falling steadily to 6.4% in 2012. It obviously would be better not to have had such a slowdown. But what awaits us may not be the economic equivalent of blitzkrieg. And if it is -- well, we survived blitzkrieg, we can survive this."

In the short-term, the recession may have abated. But in the long-term, the systemic injustices have not been addressed, such as the wide disparities between rich and poor n America, inadequate regulation of the financial markets, a developed world held hostage by debt and credit, and workers with obsolete educations and jobs.