Remedies For The Global Crisis

Economic history offers many cautionary episodes, but none quite so striking as the one pictured here: Beginning in 1929, the value of world trade started to contract until, four years later, it amounted to a mere one-third of what it had been. An unlucky constellation of global events--deflation in commodity prices, the October stock market crash, and bank failures in the U.S. and Europe--had set the global economy on its downward course. But it was a series of policy mistakes--too-tight money, competitive devaluations, new and onerous tariff barriers--that plunged the world into depression and made the struggle for recovery so long and painful. Ever since, generations of economists and policymakers have vowed that never again would world trade implode and output shrink as happened in the 1930s.

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