Regular readers know since the acute phase of the Great Financial Crisis began in September 2008, I have been saying the programs put in place by those who lived through the Great Depression prevented another depression from happening again.

A decade later, Nobel prize winning Economist Paul Krugman confirmed I was right.

Instead of continuing to plunge as it did in 1930, by the summer of 2009 the world economy first stabilized, then began to recover. Meanwhile, financial markets also began to normalize; by late 2009 many measures of financial stress were more or less back to pre-crisis levels.

So the world financial system and the world economy failed to implode. Why?

We shouldn’t give policy-makers all of the credit here. Much of what went right, or at least failed to go wrong, reflected institutional changes since the 1930s. Shadow banking and wholesale funding markets were deeply stressed, but deposit insurance still protected a good part of the banking system from runs. There never was much discretionary fiscal stimulus, but the automatic stabilizers associated with large welfare states kicked in, well, automatically: spending was sustained by government transfers, while disposable income was buffered by falling tax receipts.

Please note, the programs put in place protected the real economy from a crisis in the financial system.  The programs also confined the crisis to the financial system where while it would be bad for bankers, it wouldn’t have damaged the real economy.