Matt Yglesias

Depression Chart

Apropos of Paul Krugman’s demolition of George Will’s argument about the Great Depression, Brad DeLong offers a chart:

There you have it. This is far from saying that every detail of the New Deal regulatory agenda was the right thing to do then or would be the right thing to do now. But the monetary expansion associated with the New Deal helped the economy, and the attempted return to orthodoxy hurt.

Strong Fundamentals

Eric Rauchway reflects on Herbert Hoover’s October 25, 1929 proclamation that “The fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis.”

Hoover worked to get businessmen to respond to the crisis by herding them into conferences and urging them to cooperate. He backed immigration restriction and a cut in the capital-gains tax. He quarreled with the unemployment figures from the Bureau of Labor Statistics. None of it worked, and yet Hoover insisted on the soundness of fundamentals, blaming the continuing crisis on whiners: “The income of a large part of our people is not reduced by the depression,” he said, “but is affected by unnecessary fears and pessimism.” He urged his fellow countrymen to count on “the magnificent working of the Federal Reserve system and the inherently sound condition of the banks.”

But the banks were not inherently sound; they depended on the unsound foundation of 1920s lending. After the crash, the president said the fundamentals were strong, but American consumers said, in effect, well, we’ll see, and their credit-driven buying slowed. Purchases of consumer durables in 1930 were about 20 percent lower than they were in 1929. Less purchasing meant less selling and more layoffs, which meant still less purchasing and soon more defaulting. The banks began to fail. Meanwhile, the “magnificent working of the Federal Reserve” did not stop the bank failures, which increased to sickening levels as Hoover’s term ground on and the reality of the Depression became undeniable.

Now of course to actually get down to the depths of the Depression required some policy blunders that I think it’s extremely unlikely anyone in the contemporary United States will undertake. But there is an undeniable commonality to the off-the-shelf conservative policy prescriptions here.