In a September 24 speech to the Federal Reserve Bank of Chicago, economic historian Christina Romer, also chair of US President Barack Obama's Council of Economic Advisers, compared the policy responses of the Bush and Obama administrations of 2008-09 to those of the Hoover and Roosevelt US administrations of 1929-36.
Romer's address, called "Back from the Brink", analysed why the financial meltdown has not led to a full repeat of the unmitigated disaster that was the Great Depression.
The triggering 2008-09 financial crisis was more extreme than in 1929. The stock market crashed further, and "household wealth" fell 17% between December 2007 and December 2008 — over five times the 1929 decline.
Also, the reaction of financial markets to the Lehman Brothers collapse was more panicky than their reaction to the September 1930 banking collapse.
In December 2008, the spread between BAA- and AAA-grade bonds (the market's assessment of the risk of investing in the lower-quality asset) reached 338 basis points (3.38%) as against 219 basis points in December 1930.
The financial crisis rapidly flowed through into production and employment. US gross domestic product fell at an annual rate of 6.4% in the first quarter of 2009, with monthly job losses reaching 741,000 in January). But an unemployment rate that is expected to peak around 10% remains far below the 25% reached in 1933.
Unlike the economic policy paralysis of 1929-33, the slide into economic Armageddon this time has been arrested by the Federal Reserve unleashing oceans of credit; by handing the banks whatever funds they needed to neutralise the toxic "assets" on their balance sheets; by deposit insurance; and through $787 billion in tax cuts and government spending increases (via the American Recovery and Reinvestment Act).
This last amounts to a "fiscal stimulus" of 2% of GDP in 2009 and 2.5% in 2010. Compare that with the biggest fiscal increase of the 1930s — 1.5% of GDP in 1936 under Roosevelt's New Deal.
Across the advanced capitalist world, a similar approach has been applied. Governments that acted earlier and on a larger scale better arrested the freefall of the economy.
Now what? Will recovery be short and sharp, long and slow, or will it even lead to a new nosedive into recession (as in 1937-38)?
The key issue, as always in capitalist economy, is what happens to private corporate investment. If the word "recovery" is to mean anything it faces a huge challenge — in the US alone, 6.9 million jobs have been lost since the peak of the business cycle in December 2007.
In the June quarter of 2009, the collapse in gross private domestic investment subtracted more than 3% from GDP, as it fell to three quarters its pre-crisis level. At the same time, the Obama administration stimulus package offset this collapse by only 1.33% of GDP.
Yet for a quick ("V-shaped") recovery to take place, it would require either a huge leap in private investment or an increased public fiscal stimulus package, or some combination of both.
Given the huge US budget deficit (and the "impossibility" of reducing this by taxing the corporations and the wealthy) it is difficult to imagine Obama implementing a second round of fiscal stimulus on the scale of the first package.
On the other hand, there's little reason to expect private corporations to rapidly boost investment spending — consumer demand is still weak and the capitalists' stock of machinery is operating well below normal capacity.
It's more unlikely, too, because US business has exploited the recession to restructure its workplaces and churn out product with less labour (productivity leapt by 6.6% in the June quarter, even as actual output continued to fall).
It's certainly not that the US corporations lack funds for productive investment: indeed, profit share during the present recession has been higher than in all recessions since the Great Depression, the result of the ruthless cost-cutting mentioned above.
The most likely prospect for the US would seem to be "jobless growth" — an economy that stagnates on the back of slowly rising private investment, and where the mass of poverty and misery that the recession has created festers and starts to undermine political support for Obama among working people and the poor.
It would be rash to draw any firm conclusions for the Australian economy and politics from this scenario, but in all the euphoria about Australia's looming return to growth as an economic province of China, the US factor will continue to be relevant and shouldn't be forgotten.
[Dick Nichols is a national co-convener of the Socialist Alliance. Written in a personal capacity.]