Boris Johnson invited a comparison that economists have been making since the start of the coronavirus crisis when he invoked Franklin D Roosevelt in his speech to the nation on Tuesday (June 30).
A biographer and admirer of Winston Churchill, it is not the first time the Prime Minister has spoken with a strong sense of history and sought to align himself with great leaders of past epochs.
Franklin D Roosevelt or FDR is one of the most revered political leaders of all time. He became US president in 1933 and initiated a massive public works and government investment programme, the New Deal, which took America out of its worst economic crisis and laid the groundwork for it to become the world’s largest and most successful economic superpower.
Announcing just £5 billion of new money during his address in the West Midlands, few people have taken Mr Johnson seriously that this is “a New Deal for the British people.”
FDR’s New Deal was worth an estimated 40 per cent of US GDP. Funding announced on Tuesday for investment in infrastructure equates to just 0.2 per cent of UK GDP.
However, the total value of the Government’s economic response to the coronavirus crisis could be as high as £600 billion over five years, which would be closer to New Deal levels of public spending.
Even if the Treasury does not reach Rooseveltian heights in the years to come, comparisons with the Great Depression and the policy responses to it are still worthy of consideration today.
Like our current crisis, the first signs of the trouble that was to beset the world economy in the 1930s were observed on Wall Street.
Following a collapse in stock market prices on the original Black Tuesday, October 29, 1929, the Dow Jones Industrial Average lost around a third of its value in a matter of weeks, not dissimilar to what happened to the FTSE100 back in March.
However, even when the Dow recovered in 1930, it was still 30 per cent below its September 1929 peak.
It is one of the most hotly contested questions in economics what turned the stock market crash into the worst recession in history, but the damage to the global economy was unlike anything seen before or since.
Between 1929 and 1932, worldwide GDP fell by an estimated 15 per cent. In the 2008/9 financial crisis, this figure was less than 1 per cent. The latest forecast for the coronavirus recession is for between a 6 and 8 per cent reduction this year, followed by a recovery in 2021.
One of the most dramatic effects of the Great Depression was the impact it had on the labour market. In the US where the crisis started, one in four Americans were unemployed by 1933.
The figure was closer to one in five here in the UK, but in the North East specifically, unemployment could have been as high as 70 per cent, with 90 per cent of shipbuilding projects curtailed because of the crisis.
Hunger marches broke out across the UK in the 1930s as unemployed workers struggled to feed their families. The 1936 Jarrow March lives forever in the memory of anyone who was born in the North East – it was caused by the Great Depression.
Another parallel between what’s happening now and what happened in the 1930s is that both were and are truly global economic crises.
The 2008/9 recession was global, but its impact was felt unevenly. China’s economy, for example, grew by more than 9 per cent in both 2008 and 2009. It contracted by 6.8 per cent in the first quarter of this year.
The coronavirus crisis is having a dramatic and transformational impact on every country in the world. The Great Depression was the same.
When FDR was elected President in 1933, he inherited a US economy where industrial production and foreign trade were 46 and 70 per cent lower than they had been in 1929 and where unemployment was 607 per cent higher.
He immediately got working on the recovery plan and in his first 100 days in office enacted more laws than any President has managed since.
The New Deal set out a benchmark for how ambitious government stimulus packages could be.
The public works element saw the construction of huge infrastructure projects such as the Lincoln Tunnel, the Overseas Highway and the Hoover and Fort Peck Dams.
New roads and highways were built right across the US, hundreds of thousands of the unemployed were put to work and the agricultural sector was brought back to life through price stabilisation and income support schemes.
The banking system, which lay in ruins after the stock market crash and collapse of the money supply that saw 5000 banks close, was recapitalised and reformed giving the Federal Reserve powers that have enabled it to act so forcefully in this crisis.
Though Boris Johnson’s stimulus package announced this week bore little resemblance to the New Deal he referenced in his remarks, it is right that it will take public spending of the kind FDR initiated in the 1930s to get us out of this crisis.
Both the scale of the economic collapse and the policy responses needed to address the coronavirus crisis are similar to events of almost a century ago. In that sense, history is repeating itself.