Paul Krugman: Europe’s Second Depression


 

Reading Brad DeLong’s essay on how we’re on our way to matching the Great Depression has spurred me to do something I’ve been meaning to do for a while: an updated comparison of Europe’s woes now with those of the 1930s.

In Britain, the NIESR regularly publishes estimates showing that Britain has done worse this time around than in the 30s. Arguably, though, Britain is a somewhat special case: it had a lousy 20s, thanks to the misguided return to gold, and a relatively good 30s, thanks to the early exit from gold. What about Europe more broadly?

Well, a quick take: I use GDP estimates from the Maddison Project for the 30s, GDP growth from the IMF plus an assumed 0.1 percent growth in 2013 for the modern era. What you get is this:

The timing is, I think, a bit off — Europe’s earlier slump began in 1929, but the later didn’t really begin until early 2008. Still, the basics won’t change. In the 30s there was a very severe initial slump, but a strong recovery after 1933 as one country after another went off gold and adopted reflationary policies. This time around, the initial slump wasn’t so bad, but recovery was hobbled by austerity policies, especially in countries on the euro, and has now stalled out completely. So Europe in 2013 is doing barely better than Europe in 1935 — and all indications are that by next year recovery will be lagging behind what was achieved in the Great Depression.

Great work, guys.

Europe’s Second Depression – NYTimes.com

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