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Great Depression and Transformation

Great Depression and Transformation - THE GREAT DEPRESSION...

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THE GREAT DEPRESSION AND THE TRANSFORMATION OF LIBERALISM IN AMERICA March 9, 2010 COULD IT HAPPEN AGAIN? In October, 2008, America’s economy was in freefall, poised to take down much of the world’s economy with it. We had had stock market crashes, credit crunches, housing slumps, and inventory adjustments before. But not since the Great Depression had all of these come together. And never before had the storm clouds moved so quickly over the Atlantic and Pacific oceans, gathering strength as they went. Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy (2010) What does it mean to say that depression economics has returned? Essentially it means that for the first time in two generations, failures on the demand side of the economy—insufficient private spending to make use of the available productive capacity—have become the clear and present limitation on prosperity for a large part of the world. Paul Krugman, The Return of Depression Economics and the Crisis of 2008 (2009) DID THE DEPRESSION DESTROY CLASSICAL (LIBERAL) ECONOMICS? Adam Smith—Still standing, but wobbly. Had a place for govt, taxation, moral dimension. Jean-Baptiste Say—down for the count, but not till 1930s. Supply siders tried to resurrect later “Common sense” Laissez Faire economics—dead. Leading economists (Schumpeter) said do nothing. Micro, focused on explanation at firm level, not policy—little Nat’l income accounts Economic liberalism as then practiced was discredited around the world. N
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SAY’S LAW “…a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." A Treatise on Political Economy, 1803 . Or supply creates its own demand. (See Krugman) ANDREW MELLON, SECRETARY OF THE TREASURY, 1921-1932: CHAMPION OF THE RECEIVED ECNOMIC WISDOM “Mr. Mellon had only one formula: ‘Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, lead a more moral life.’” From The Memoirs of Herbert Hoover (1952).
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