Tuesday, June 12, 2007

How the Great Depression Ended

A lot of right-wingers like to say that the Great Depression was prolonged and worsened by the New Deal, contrary to popular belief. They hate keynesianism and hate the idea that the Great Depression could have been repaired by government intervention. I've been reading Ayn Rand's Capitalism: The Unknown Ideal and that book provides an interesting explanation of how the Great Depression ended.

"How was the problem of the depression finally 'solved'? By the favorite expedient of all statists in times of emergency: a war."

So World War II was an "expedient" of the "statists"?

I'm still looking into whether the the New Deal really made the depression worse or not and haven't made up my mind, but I did find this interesting survey. It asked economists and economic historians to evaluate the statement, "Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression." 51% of the economists disagreed and 74% of the historians disagreed. So we know what the consensus is.

Even if the Great Depression was not solved by the New Deal, it certainly was solved by government intervention. Keynesianism, the belief that government turn downs can be reversed by money introduced by the government into the economy, was very effective in ending the depression, regardless of what the righties like to believe. FDR did massive amounts of deficit spending to put government money into the economy via defense contractors and other industrial routes to priduce weapons and supplies for the war effort.

Even Milton Friedman, hardly a critic of the free market believed that the depression could have been prevented if the Federal Reserve had done more to prevent it. (The Rand book says they did too much by keeping interest rates artificially low.)

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