Friday, March 13, 2009

Christy Romer kicks it old school

Check out her "Lessons from the Great Depression" here.

Here are the bullet points:

"One crucial lesson from the 1930s is that a small fiscal expansion has only small effects."

"A second key lesson from the 1930s is that monetary expansion can help to heal an economy even when interest rates are near zero."

"This discussion of fiscal and monetary policy in the 1930s leads me to a third lesson from the Great Depression: beware of cutting back on stimulus too soon."

"The fourth lesson we can draw from the recovery of the 1930s is that financial recovery and real recovery go together."

"The fifth lesson from the Great Depression is that worldwide expansionary policy shares the burdens and the benefits of recovery."

"The final lesson that I want to draw from the 1930s is perhaps the most crucial. A key feature of the Great Depression is that it did eventually end."

The whole thing is worth reading, interesting and well documented, but what ultimately stayed with me is how politicized it is, essentially trying to justify all the Administration's moves as being drawn from "the lessons of history". Also, I am not sure how the final lesson is supposed to be any sort of actual lesson or even source of comfort.

5 comments:

Anonymous said...

Only in politics could we have a situation like this, where every time we experience an economic downturn, the consensus reaction is to mimic the policies of the one downturn that turned into a decade long unmitigated disaster.
Just once, I'd like to wake up in a world where everyone asked, "What did they do on all the recessions that had strong recoveries?"

Anonymous said...

...lower taxes

Tudorman said...

The following is from the Veronique De Rugy's column in the April 2009 issue of Reason magazine:

Take the New Deal. According to the economists Christina Romer-chair of Obama's Council of Economic Advisers-and David Romer, New Deal spending did not pull the economy out of recession. In a 1992 Journal of Economic History paper, the Romers examined the role that aggregate demand stimulus played in ending the Great Depression. They concluded: 'A simple calculation indicates that nearly all of the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. Huge gold inflows in the mid- and late-1930's swelled the U.S. money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods.

The paper is gated. But, based on this, it appears she's "nuanced" her opinion a bit.

Anonymous said...

the consensus reaction is to mimic the policies of the one downturn that turned into a decade long unmitigated disaster.

Ya, cause it was the New Deal which CAUSED 25% unemployment and a total collapse of the world economy and financial system. Amazingly, TND managed to do this 3 years before it was actually started!

lowered taxes

Seems we've been doing that for 8 years...

Anonymous said...

"What did they do on all the recessions that had strong recoveries?"

Well all those recoveries had high marginal tax rates in effect... over 90% for a long time. So maybe we ought to do that?

Also, it never helps to have two hugely expensive and badly mismanaged wars on the ledger.