It is instructive to look at the pattern of the great depression. The level of Britain\’s gross domestic product in 1930 was not reached again until 1934. The annual unemployment rate of 1929, 8.2%, was lower than in every year during the 1930s, reaching a high of 17.6% in 1932.
That\’s Danny Blanchflower and he goes on to say that of course we\’ve got to borrow more, spend more, to get out of the slump.
But, but….how can anyone at all write about the Depression in the UK (and marginally about it in the US) without mentioning the most salient point about it? There\’s a hint above there, the UK came out of it by 1934….the US in 1943.
What was it? Anyone? Bueller?
Yes, the UK abandoned the gold standard in September 1931. The currency fell. Unemployment (with the inevitable lags) peaked and then fell and we were back to previous output levels within a couple of years.
Really rather similar to what happened in 1991/92 actually. And, umm, really rather similar to what has been happening just recently. We\’ve a floating currency, the pound has fallen substantially against the major currencies and we\’ve had, through that, a large amount of the stimulus that we need.
It simply boggles the mind that people, even senior and well respected economists, will potter around this subject without mentioning something so blindingly obvious.