Hall of Mirrors

The Great Depression and the Great Recession are the two great economic crises of the past hundred years. While there are accounts of both episodes, no one has yet attempted a sustained comparative analysis. In Hall of Mirrors, Barry Eichengreen draws on his unparalleled expertise for a brilliantly conceived dual-track account of the two crises and their consequences. Rather than telling the stories of the two crises in sequence, instead he weaves them together. He describes the two bubble-fuelled build-ups, then the onset of crisis, the subsequent financial and economic and collapse, the policy response, and finally the recovery. A theme of Eichengreen's narrative is that while the policy response to the Great Recession was importantly shaped by perceptions of the Great Depression -- contemporary policymakers did in fact learn lessons from the Depression that enabled them, this time, to prevent the worst -- they could have done better. Their failure to do so reflected a tendency to take the lessons of the Depression too literally, leading to an inability to recognize important respects in which circumstances, and specifically the structure of financial markets, had changed -- precisely in response to the policies put in place due to the Depression. In addition, success was the mother of failure: the success of the policy response took the wind out of reformers' sails. It diminished support for the kind of far-reaching social and financial reforms adopted in the 1930s. It allowed policy makers and society to prematurely indulge their desire for a return to normal policies before a normal economy had been restored. To be sure, this more recent crisis was better managed than the earlier one, which resulted in widespread social distress and, in the worst case, the rise of fascism. But a wiser collective response after 2008 would have staved off the painfully slow growth that subsequently plagued the United States and Europe.