Lessons from the Great Depression - Brookings.pdfVIP

Embargoed until 3/9/09 at 1:30 p.m. ET Lessons from the Great Depression for Economic Recovery in 2009 Christina D. Romer Council of Economic Advisers To be presented at the Brookings Institution, Washington, D.C., March 9, 2009 In the last few months, I have found myself uttering the words “worst since the Great Depression” far too often: the worst twelve month job loss since the Great Depression; the worst financial crisis since the Great Depression; the worst rise in home foreclosures since the Great Depression. In my previous life, as an economic historian at Berkeley, one of the things I studied was the Great Depression. I thought it would be useful to reflect on that episode and what lessons it holds for policymakers today. In particular, what can we learn from the 1930s that will help us to end the worst recession since the Great Depression? To start, let me point out that though the current recession is unquestionably severe, it pales in comparison with what our parents and grandparents experienced in the 1930s. Last Friday’s employment report showed that unemployment in the United States has reached 8.1%—a terrible number that signifies a devastating tragedy for millions of American families. But, at its worst, unemployment in the 1930s reached nearly 25%.1 And, that quarter of American workers had painfully few of the social safety nets that today help families maintain at least the essentials of life during unemployment. Likewise, following last month’s revision of the GDP statistics, we know that real GDP has decli