Hall of Mirrors

Barry Eichengreen, 512 pages, $29.95

Economists usually work with large samples of data, so they are in a bind when it comes to depressions: There simply haven't been enough to yield patterns. When the world stood on the precipice in 2008, its leaders had only the 1930s as a template.

Today, they congratulate themselves on having avoided another Great Depression. Were they right to? Barry Eichengreen argues no. Their reading of the 1930s, he writes, is incomplete, often erroneous and has led them to settle for weak or no growth and for too-timid financial reform.

Eichengreen, of the University of California, Berkeley, re-creates the past century's two great episodes of financial instability with compelling portraits of bankers, policymakers and accessible theoretical explanations. His retelling of America's and Europe's recent crisis adds little to earlier accounts, but his version of the 1930s is rich with detail and myth-busting insights.

Today's officials did learn some important lessons from the 1930s. Ben Bernanke, chairman of the Fed and himself a Great Depression scholar, was quick to lend to Europe when its banks were in desperate need of dollars. Most rich countries enacted fiscal stimuli.

But in responding so well to the initial instability, "success thus became the mother of failure," Eichengreen charges. Within a couple of years, the United States, Britain and Europe had all pivoted from stimulus to austerity. Unlike their forebears, they couldn't blame the gold standard. Rather, officials were motivated by misplaced fear of bond-market vigilantes, desire for a smaller state or, in Europe's case, an insistence that profligate governments tighten belts in exchange for support.

Eichengreen wisely acknowledges that history has many, often conflicting, narratives that make it an imperfect guide to the present. This guarantees that when the next crisis hits, the world will find new mistakes to make.