I started making investments last year just before the coronavirus crash. At the time, it seemed the world might be headed towards another recession so I thought I should brush up on my periodical-informed knowledge of financial markets and how they respond to turbulence.
Hall of Mirrors summarizes and compares the Great Depression of the 1930s and the Great Recession of 2008. I lived through the latter economic upset and, as I had my own preconceptions about the crash, it was important to get an objective account of the crisis that would transcend platitudes and politics. What I wanted was an easily accessible and interesting analysis of the two crises.
I think Eichengreen’s account largely succeeds in breaking down both crises while providing enough colour to make the story engaging. I particularly appreciated how he was able to assess the central characters. The people he feels were in the right place at the right time such as FDR, Korekiyo Takahashi, Gordon Brown, and Bernanke are juxtaposed against the more unfortunately timed players like Heinrich Brüning, George Osbourne, Merkel, and George Papendreou. Although none of the above were entirely without merit or sin, Eichengreen clearly plays favorites in terms of their response to the challenges of their time.
Have I learned more about where I should make my investments? Not really but I do think after reading Hall of Mirrors that I have a somewhat better appreciation for economics and the multitude of forces at play. I plan to read more about FDR and Korekiyo Takahashi.
I come away from reading Hall of Mirrors with a few thoughts:
First, FDR’s policy of getting the government to “spend money when no one else had money left to spend” seems to be the gold standard for treating a crisis. However, the pressures on a government from devout fiscal conservatives nullify a meaningful response. The Tea Party’s push to balance the budget and the Obama administration’s capitulation to their demands prolonged the recovery in America in the same way that FDR’s attempts to balance the budget met with a double dip recession in 1938. Nobody wants to waste the opportunities that present themselves during a crisis and, given dwindling public patience, a chance for reform in both left and right directions is possible. Fiscal conservatism, where wasteful spending is cut, can only be easily implemented during a recession which ironically is the worst possible time for fiscal conservatism.
Second, a similar objective assessment of characters in the post-2005 world would prove for interesting analysis. On one hand, President Trump’s calls to end Dodd-Frank regulations echo similar calls to end Glass-Steagall, the erosion of which during the Great Moderation precipitated the lead up to the Great Recession. However, prompt stimulus action in early stages of coronavirus crash almost certainly avoided another global recession. Without a crash actually happening, economists may forgo a thorough assessment of these stimulus packages. However, the difference between 2008 and 2020 appears to be that national politics did not play as heavy a role due to coronavirus being recognized as a global problem. In contrast, poor lending and borrowing practices in 2008 bifurcated nations into fiscally prudent and imprudent camps. An analysis of the 1970s downturn may yet prove applicable for the early 2020s given that inflation during this episode inspired the hesitant early response to Lehman shock.
Third, my own visceral opinions regarding the 2008 recession seem to be largely vindicated. Of the individuals in the book, only Gordon Brown is held up as good example of leadership in the context of European crisis. The EU bungled its way through the Great Recession and its institutions were ill prepared and ill equipped to deal with economic collapse. Somewhat hauntingly in Eichengreen’s conclusion, they remain so to this day.
FDR’s speech addressing fiscal conversative feelings towards New Deal reforms: https://www.fdrlibrary.org/budget
