Is history now repeating itself? Not necessarily: the welfare state in the Western world, for instance, is much better endowed today than it was in the Roaring Twenties. This has proven beneficial in the COVID-19 crisis, as this is likely to cushion potential adverse impacts despite the increase in public debt. Moreover, central bankers already applied the lessons learned from 1929 to the great financial crisis of 2008-9 by slashing interest rates or holding them low instead of raising them at the worst possible moment as was done in 1929. Finally, the vital financial sector is more strictly regulated today, and banks’ balance sheets are much more resilient than they were in the aftermath of World War I. And yet there are parallels between the Roaring Twenties and today, or in the words of Mark Twain, “history doesn’t repeat itself, but it often rhymes.”
So, what’s rhyming these days? To me, quite clearly, it’s the growing disequilibriums. Prominent mention should be given here to widening imbalances in the distribution of income and wealth within Western industrialized countries and between developed and emerging-market countries. Financial repression caused by sustained negative interest rates is steadily eroding the middle class, the backbone of every society. A similar situation was observable in the Roaring Twenties, which were “roaring” really only for a small minority. Back then as well, there were many more losers than winners. The digitalized economy is admittedly giving rise to a lot of exciting jobs these days, but they are being overshadowed by newly created poor-paying ones in online retailing logistics, for example. A new lower class could come into being, this time in the service sector rather than on the assembly line. Moreover, the structure of global value chains is increasingly coming under criticism. A potential deglobalization process would further exacerbate worldwide economic disparities. And finally, it’s questionable whether “Generation COVID”, i.e. young people currently in education or training, will have good chances in the job market of the future.