The Economy

[Jester]

How do you know that the interference in the economy of 2008/2009, is not akin to what the government did in 1933?

If you listen to the Krugman side of the argument (he is not alone, but is the public face) what the government is doing now (and should be doing more of) is what FDR kind of did in the New Deal, but not enough: spend money to kickstart the economy, and save balancing the budget for a time when doing so will not slow down recovery. In the Krugman story, one only need to look at the GDP and employment figures: GDP bottomed out in 1933, and rose quite dramatically in the years that followed, along with employment. The exception is during 1937, when FDR tried to balance the budget, causing the recovery to temporarily reverse.

Or, graphically:



It seems tough to me to argue that the 1933 plan was a mistake, considering the shape of the graph. Friedman, Mankiw and Taylor would no doubt disagree. And counterfactuals are hard to argue with: who really knows what would have happened had alternate policies been pursued? We can predict using one theory or another, but the evidence is from the results of the implemented policies, not alternate ones.

So, no, I don't know whether it's akin to what the government did in 1933, but then, there is no scholarly consensus about what the government did in 1933, nor what it should have done.

Well, there is one thing that there's more or less consensus on, Austrians aside: during the great depression, the Fed should have increased the money supply, and instead, they decreased it. That's Friedman for you: Inflation would have been good, too bad they didn't do that. :D

-Jester