Saturday, December 20, 2008

How to turn a Recession into a Depression

An interesting article can be found at The Bear's Lair:

How recessions become Great Depressions

The author Martin Hutchinson looks at what was different about the recessions of 1921, 1947 and 1981 which were relatively mild and short, and compares what happened then to the Great Depression of 1929. From those comparisons, he then looks at our situation today and offers advice on the responses which will have the best chance of avoiding a depression and of keeping today's down-turn relatively mild and short.

Hopefully, the highly destructive effect of the Smoot-Hawley tariff are well understood won't be repeated, but without a correct understanding of the causes of the business cycle, other similarly harmful tactics by Congress and the Executive office could easily be enacted. As Robert Trasinski (TIA Daily, subscription required) points out, cap-and-trade could become the new Smoot-Hawley.

For even even further understanding of the economic events of the Great Depression, I recommend listening to the latest interview posted on EconTalk. Here's the description:

Robert Higgs, of the Independent Institute, talks with EconTalk host Russ Roberts about the Great Depression, the New Deal, and the effect of World War II on the American economy. Using survey results, financial data, and the pattern of investment in the 1930s, Higgs argues that New Deal policies created a climate of uncertainty that prolonged the Great Depression. Using consumption data, he argues that prosperity did not return during wartime, but rather after the war when government intervention in the economy subsided.

For a slightly different take, you might want to also listen to the interview with Rauchway:

Eric Rauchway of the University of California at Davis and the author of The Great Depression and the New Deal: A Very Short Introduction, talks with EconTalk host Russ Roberts about the 1920s and the lead-up to the Great Depression, Hoover's policies, and the New Deal. They discuss which policies remained after the recovery and what we might learn today from the policies of the past.

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