Tuesday, November 4, 2008

5 Myths about the Great Depression

A nice article in the WSJ today on the Great Depression. Nothing terribly deep, but a good summary of the time period. Some excerpts: (Myths are underlined)

- Herbert Hoover, elected president in 1928, was a doctrinaire, laissez-faire, look-the-other way Republican who clung to the idea that markets were basically self-correcting. The truth is more illuminating. Far from a free-market idealist, Hoover was an ardent believer in government intervention to support incomes and employment. This is critical to understanding the origins of the Great Depression. Franklin Roosevelt didn't reverse course upon moving into the White House in 1933; he went further down the path that Hoover had blazed over the previous four years. That was the path to disaster.

- Enlightened government pulled the nation out of the worst downturn in its history and came to the rescue of capitalism through rigorous regulation and government oversight. To the contrary, the Hoover and Roosevelt administrations -- in disregarding market signals at every turn -- were jointly responsible for turning a panic into the worst depression of modern times. As late as 1938, after almost a decade of governmental "pump priming," almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation.

In the same way, George Bush is often painted as a free-market ideologue. This is a gross exaggeration. Bush has a thought pattern I see most often with people with MBAs. They believe in markets and supply-side economics, but their understanding is superficial. When you get into the smaller details they believe in numerous limitations on personal freedom.

No comments: