depression%20myths

depression%20myths - Mackinac Center for Public Policy |...

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Great Myths of the Great Depression by Lawrence W. Reed “HERBERT HOOVER believed government should play no role in the economy.” “GOVERNMENT PROGRAMS helped lower unemployment by putting many Americans to work.” “FRANKLIN ROOSEVELT’S ‘New Deal’ saved America from the failure of free-market capitalism.” These and other myths are dispelled by the facts in this essay by economist Lawrence W. Reed
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s tudents today are often given a skewed account of the Great Depression of 1929-1941 that condemns free- market capitalism as the cause of, and promotes government intervention as the solution to, the economic hardships of the era. In this essay based on a popular lecture, Mackinac Center for Public Policy President Lawrence Reed debunks the conventional view and traces the central role that poor government policy played in fostering this legendary catastrophe. sive economic contractions could occur at any moment, without warning, without cause. That fear has been exploited ever since as the major justification for virtually unlimited federal intervention in economic affairs.” 1 Old myths never die; they just keep showing up in economics and political science textbooks. With only an occasional exception, it is there you will find what may be the twentieth century’s greatest myth: Capitalism and the free-mar- ket economy were responsible for the Great Depression, and only govern- ment intervention brought about America’s economic recovery. A MODERN FAIRy TALE According to this simplistic per- spective, an important pillar of cap- italism, the stock market, crashed and dragged America into depres- sion. President Herbert Hoover, an advocate of “hands-off,” or laissez- faire , economic policy, refused to use the power of government and conditions worsened as a result. It was up to Hoover’s successor, Franklin Delano Roosevelt, to ride in on the white horse of gov- ernment intervention and steer the nation toward recovery. The apparent lesson to be drawn is that capitalism cannot be trusted; government needs to take an active role in the economy to save us from inevitable decline. But those who propagate this ver- sion of history might just as well top off their remarks by saying, “And Goldilocks found her way out of the forest, Dorothy made it from Oz back to Kansas, and Little Red Riding Hood won the New York State Lottery.” The popular account of the Depression as outlined above belongs in a book of fairy tales and not in a serious discussion of eco- nomic history. THE GREAT, GREAT, GREAT,GREAT DEPRESSION To properly understand the events of the time, it is factually appropri- ate to view the Great Depression as not one, but four consecutive downturns rolled into one. These four “phases” are: 2 I. Monetary Policy and the Business Cycle II. The Disintegration of the World Economy III. The New Deal IV. The Wagner Act Great Myths of the Great Depression by Lawrence W. Reed THE GREAT DEPRESSION devastated every part of America, even its smallest towns .
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