Crisis and Growth in the Advanced Economies - Essay Example

Key Points Key Points Eichengreen in his article “Crisis and Growth in the Advanced Economies: What We know, What We Do not, and What We can Learn from the 1930s” made a distinct insight into the impact of the global financial crisis on the ability of advanced economies to generate medium and long term growth which have been severely affected by it and are continuing to struggle to pull themselves out of it by drawing evidence from the era of the Great Depression. The article presents three key points or reasons for the possibility of further slowdown in advanced economies which are discussed in this short paper.

Firstly, the article highlights that the financial distress impairs the ability of banks and other financial institutions to generate liquidity and thus, take a precautious approach to building risk profile of their loans. It becomes difficult for small businesses to get access to credit from these institutions which can be major contributors to the recovery of the US economy. Eichengreen (2011) is of the view that recent financial crisis is much more severe as compared to the Great Depression as it is likely to the growth rates of advanced economies as these economies are highly credit driven.

Secondly, the article highlights that there is a little evidence from the Great Depression suggesting that the increase in the public debt in the form of higher budget deficit and government borrowing actually contributes to the slowdown in the investment. Although, it is argued that over public debt leads to change in tax policies, and higher interest rates making investments unattractive but the evidences from the Great Depression period suggest that after it the public debt increased by more than double however, the interest rates were not high.

Thirdly, Eichengreen (2011) presented evidence from the Great Depression period that the slowdown in the economy actually created opportunities for businesses to take advantage from and reorganize themselves in a way that they are able to create more value in the period of recovery following the depressed conditions in the economy. However, one aspect of recovery that is more relevant to the recent crisis mentioned in the article is the slowdown in technology generation and implementation which can surely have greater implications for the current times.