Paul Krugman: A History Lesson for Scaremongers

Ah, Paris in the 1920s. It was the era of Ernest Hemingway and F. Scott Fitzgerald, Gertrude Stein and Alice B. Toklas, sovereign debt and stabilization. Wait, what?

O.K., I've written before about the notion that France in the 1920s offers the closest thing I can find in the historical record to a crisis of the kind the deficit scolds in the United States keep warning us about. We're not at all like Greece; we have our own currency, and our debts are in that currency. So we can't run out of cash, even if the bond vigilantes turn out to be real and lose faith in America. At worst, we're something like France in the 1920s, with its floating exchange rate and large wartime debt — except that our debt isn't nearly as bad as a share of gross domestic product, and we don't have the lingering gold-standard mentality that prevailed across the Western world back then.

So what actually happened to 1920s France?