by Alexandra Swann
Similar to environmental problems, we seem to talk about the economy in cycles of delusion and despair. In the roaring 90s, America was unrealistically jubilant about the telecommunications and computer "revolution" changing the face of global economics. Some people claimed that recessions were a thing of the past and ignored lessons learned from previous speculative bubbles.
The recent global downturn is drawing semi-hysterical comparisons to the Great Depression of the 1930s, a period that saw the abandonment of world trade, the collapse of some 4,000 commercial banks, and American unemployment soar as high as 25 per cent. Compare this to the recent collapse of approximately 21 banks and most analysts' estimates that unemployment should peak at about 7.6 per cent. The Great Depression meant millions of Americans could no longer afford food. This recession means millions of Americans might not be able to afford a big-screen television. My ironic characterization doesn't mean that the current downturn is negligible or doesn't impact the lives of many individuals. Rather, I urge criticism of emotionally laden analogies, and some reflection on the general volatility that necessarily characterizes liberal economic systems.
Consider the 1990s. That decade started off with a North American recession in 90-91, and saw three international financial crises: the British defection from the European exchange rate mechanism in 1992, Mexico's peso crisis in 1993 and 1994, and the very serious Asian financial crisis beginning in 1997. Or remember the American savings and loan crisis in the 1980s, where deregulation of thrifts helped fuel risky loans and imprudent real estate leading, directly contributing to serious banking problems at the end of the decade. (Does this sound a little familiar?) All of these crises involved tightening credit, production downturns, stock market drops, rising unemployment, and concerns about the future of the global economic system. All of these crises were weathered by the countries affected, and we averted the collapse of civilization as we know it. Yes, the U.S. is in a recession that will affect both the international economic system and its domestic prosperity. But that doesn't mean the end of days or another Great Depression.
However, there's an important lesson to be drawn from these analogies: our interdependence makes us both prosperous and vulnerable. The Great Depression's material effects directly contributed to the social chaos that nourished totalitarianism and led to the Second World War. There was devastating loss of life and new technologies allowed for unprecedented kinds of atrocities. After the war, we tried to establish international regimes out of the realization that despair, poverty, and strife will not remain confined within artificial borders. Our well-being is intimately linked to the well-being of others in our international system. The "beggar-thy-neighbour" policies adopted by countries in the downturn of the 1930s-the economic punishment of Germany, predatory currency devaluations, and protectionist trade policies like the 1931 Smoot-Hawley tariff in the U.S.-were a key part of what turned this recession into a decade-long depression. Uncertainty makes us selfish, and fear makes us fools.
Whether we like it or not, the incredible interdependence of the modern economic system means that we must be concerned about the welfare of others. We must resist the temptation to close ranks and raise walls, because the effects could be worse than higher unemployment. The lesson of this crisis is not that the U.S. is collapsing today, or tomorrow, or next year, but that countries like China, India, Russia, and Brazil are projected to equal the U.S. in gross domestic product within forty years. The hegemon is declining, and this will cause fundamental changes in the international system. The lesson we should learn from the Great Depression is that when times are hard, turning inward makes them worse. The international institutions we supported in our period of prosperity may be necessary for the peaceful ascendance of new economic powers. The short-term appeal of economic protectionism must be balanced against the long-term risks to global order.
Alexandra Swann is a U3 political science and environmental studies student.
Similar to environmental problems, we seem to talk about the economy in cycles of delusion and despair. In the roaring 90s, America was unrealistically jubilant about the telecommunications and computer "revolution" changing the face of global economics. Some people claimed that recessions were a thing of the past and ignored lessons learned from previous speculative bubbles.
The recent global downturn is drawing semi-hysterical comparisons to the Great Depression of the 1930s, a period that saw the abandonment of world trade, the collapse of some 4,000 commercial banks, and American unemployment soar as high as 25 per cent. Compare this to the recent collapse of approximately 21 banks and most analysts' estimates that unemployment should peak at about 7.6 per cent. The Great Depression meant millions of Americans could no longer afford food. This recession means millions of Americans might not be able to afford a big-screen television. My ironic characterization doesn't mean that the current downturn is negligible or doesn't impact the lives of many individuals. Rather, I urge criticism of emotionally laden analogies, and some reflection on the general volatility that necessarily characterizes liberal economic systems.
Consider the 1990s. That decade started off with a North American recession in 90-91, and saw three international financial crises: the British defection from the European exchange rate mechanism in 1992, Mexico's peso crisis in 1993 and 1994, and the very serious Asian financial crisis beginning in 1997. Or remember the American savings and loan crisis in the 1980s, where deregulation of thrifts helped fuel risky loans and imprudent real estate leading, directly contributing to serious banking problems at the end of the decade. (Does this sound a little familiar?) All of these crises involved tightening credit, production downturns, stock market drops, rising unemployment, and concerns about the future of the global economic system. All of these crises were weathered by the countries affected, and we averted the collapse of civilization as we know it. Yes, the U.S. is in a recession that will affect both the international economic system and its domestic prosperity. But that doesn't mean the end of days or another Great Depression.
However, there's an important lesson to be drawn from these analogies: our interdependence makes us both prosperous and vulnerable. The Great Depression's material effects directly contributed to the social chaos that nourished totalitarianism and led to the Second World War. There was devastating loss of life and new technologies allowed for unprecedented kinds of atrocities. After the war, we tried to establish international regimes out of the realization that despair, poverty, and strife will not remain confined within artificial borders. Our well-being is intimately linked to the well-being of others in our international system. The "beggar-thy-neighbour" policies adopted by countries in the downturn of the 1930s-the economic punishment of Germany, predatory currency devaluations, and protectionist trade policies like the 1931 Smoot-Hawley tariff in the U.S.-were a key part of what turned this recession into a decade-long depression. Uncertainty makes us selfish, and fear makes us fools.
Whether we like it or not, the incredible interdependence of the modern economic system means that we must be concerned about the welfare of others. We must resist the temptation to close ranks and raise walls, because the effects could be worse than higher unemployment. The lesson of this crisis is not that the U.S. is collapsing today, or tomorrow, or next year, but that countries like China, India, Russia, and Brazil are projected to equal the U.S. in gross domestic product within forty years. The hegemon is declining, and this will cause fundamental changes in the international system. The lesson we should learn from the Great Depression is that when times are hard, turning inward makes them worse. The international institutions we supported in our period of prosperity may be necessary for the peaceful ascendance of new economic powers. The short-term appeal of economic protectionism must be balanced against the long-term risks to global order.
Alexandra Swann is a U3 political science and environmental studies student.
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