Thursday, February 12, 2009

Spending and the Great Depression

The stimulus debate has revealed some misunderstanding about the Great Depression, e.g.:
When Roosevelt did this, he put our country into a Great Depression. ... He tried to borrow and spend, he tried to use the Keynesian approach, and our country ended up in a Great Depression. That's just history. - US Rep. Steve Austria (R-OH)
A timely, useful corrective is supplied by Washington Post's Steven Mufson, who asked some economists:
But most mainstream economists say the lessons of the Depression, which didn't end until World War II spending kicked in, are different. They say New Deal spending programs instituted by President Franklin D. Roosevelt -- combined with moves to bolster the banking system, loosen monetary policy and end the gold standard -- did help put millions of people back to work. At the same time, they say that federal spending increases under Roosevelt before the war were modest compared with the size of the economy, and not a good test of stimulus spending.
Update (2/13): Bruce Bartlett offers an economically and historically literate conservative's interpretation of the lessons of the New Deal.

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