Tuesday, 1 September 2009

What - or Who - Started the Great Depression? (updated)

A new NBER Working Paper (No. 15258, issued in August 2009) by Lee E. Ohanian. The abstract reads
Herbert Hoover. I develop a theory of labor market failure for the Great Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.
Steve Horwitz comments at the Austrian Economists blog,
Not surprisingly, he's taking a beating in the left-oriented press (see an example from Salon here) from those who simply cannot imagine that Hoover was anything but Rush Limbaugh's spiritual ancestor. The fact that Hoover might have been a significant interventionist, many of whose policies foreshadowed the New Deal, is one their brains simply cannot accept, no matter how much evidence there is. Of course, the fact that Rothbard and Vedder/Gallaway have hammered this point before is not discussed at all.
Looks like this paper could ruffle a few feathers.

Update: Mark Perry comments here.

1 comment:

Peter Cresswell said...

I'd suggest Murray Rothbard's book 'America's Great Depression' shows unquestionably that Hoover's meddling turned what was a severe recession into a deep depression, but it also shows convincingly that what started the recession itself was The Fed's profligate expansion of easy credit in the three or so years before the crash.

And if that sounds like a familiar story, then it probably should.