In 2009, the International Monetary Fund defined the current economic crisis as the worst recession since World War II. Looking further in the past, economists as Paul Krugman and Barry Eichengreen compared it to the precarious economic situation of the 1920s and 1930s – what is commonly known as the Great Depression.
Causes and origins of two slumps diverge, of course; geopolitics, technology and the role of state, moreover, have radically changed from the 1930s. Precarious economic and financial situations, however, tend to lead to increasing unemployment rates, generate distrust among both investors and consumers, and negatively affect people’s morale. This is common to each economic crisis; the bigger the crisis, the stronger the effects. Therefore, looking at how governments have dealt with the previous biggest economic crisis may be useful to find inspiration for the present.
Some lessons have already been learnt. Central banks responded timidly in 1929 – some even resort to tightening monetary policy worsening general economic conditions. Nowadays, they have decided to pump liquidity into the system and approve stimulus packages.
There is another aspect, however, which should be taken into account when examining the political strategies adopted at the time of the Great Depression – a feature of the most known among these, the New Deal.
The New Deal involved government’s intervention in the economy to provide relief from the Depression and inspire trust and hope in people.
Advocates of economic classical theory have often contested the significance of the keynesian strategy of intervention, inferring that economy has a tendency of its own to recover in the long run. But even if that were the case, it does not take into account the positive effect of restoring people’s hope and trust. Obsessed with data, ratings, spread and balance of payments, economic and political analysts are likely to forget that people do not behave as homo economicus; economy is strongly connected with behavior, thought and action of common people, their trust in institutions and welfare and their hopes for the future.
Actions as the institution of a Works Progress Administration, a Civilian Conservation Corp program, or a Social Security Act, have been part of the New Deal: they were all ways to foster growth and restore hope among the most disadvantaged people in the country by employing and sustaining the largest possible number of them.
Eu leaders should remember it, when dealing with Member Countries in trouble, unemployment, poverty, and the future of people.