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The course to audit this semester at Berkeley would be Brad DeLong’s Econ 115. He’s been drilling down on the Great Depression and doing his best to extract lessons that are useful for our current circumstances. In particular, DeLong’s October 1 lecture “The Industrial Financial Business Cycle and the Great Depression” (which can be downloaded here) is worth a gander. It includes a review of the attitudes that leading economists of the Depression Era (including von Hayek and Schumpeter) developed in real time, and how this affected the situation.
At its nadir, the Depression was collective insanity. Workers were idle because firms would not hire them to work their machines; firms would
not hire workers to work machines because they saw no market for goods; and there was no market for goods because workers had no incomes to
spend. Orwell’s account of the Depression in Britain, The Road to Wigan Pier, speaks of “several hundred men risk[ing] their lives and several hundred women scrabbl[ing] in the mud for hours… searching eagerly for tiny chips of coal in slagheaps so they could heat their homes.” For them, this arduously-
gained “free” coal was “more important almost than food.” All around them the machinery they had previously used to mine in five minutes more than they could gather in a day stood idle.
DeLong highlights the historical lessons that were unlearned by leading economists of the day. He takes us on an excursion, courtesy E.M. Forster, of Britain’s financial crisis of 1825—peaked, as DeLong highlights, by a series of episodes that parallel America’s rollercoaster ride in the last decade—in which the Bank of England intervened aggressively to avert a catastrophe. DeLong summarizes:
Since 1825, the first rule in a financial crisis has been for the government to rescue the banking system—to try to prevent or moderate or offset the
collapse of risk tolerance. And it was this rule that was broken in the Great Depression. And that is why the Great Depression was so great.
The core of the lecture describes the analyses of leading lights of the Austrian school and applied by President Hoover. The view that prevailed was that of “liquidationists,” like von Hayek, who asserted that the Depression was unavoidable: there was only the choice between Depression now or still harsher Depression later. “Curiously, the Great Depression was pretty much the only time that the ‘liquidationist’ view carried the day.”
DeLong’s piece helps us understand the remarkable consensus that existed among economists in favor of a bailout in the last quarter of the Bush presidency, and it gives us a strong feel for the risks of the “do nothing” attitude of bailout critics on the right. These are high-stakes decisions on which the lives and fortunes of hundreds of millions hang. In the time of tea-bag histrionics, it’s a pleasure to read a calm, literate rehearsal of the major issues and the options available.
More from Scott Horton:
Conversation — August 5, 2016, 12:08 pm
Sidney Blumenthal on the origins of the Republican Party, the fallout from Clinton’s emails, and his new biography of Abraham Lincoln
Conversation — March 30, 2016, 3:44 pm
Joseph Hickman discusses his new book, The Burn Pits, which tells the story of thousands of U.S. soldiers who, after returning from Iraq and Afghanistan, have developed rare cancers and respiratory diseases.
Years ago, I lived in Montana, a land of purple sunsets, clear streams, and snowflakes the size of silver dollars drifting through the cold air. There were no speed limits and you could legally drive drunk. My small apartment in Missoula had little privacy. In order to write, I rented an off-season fishing cabin on Rock Creek, a one-room place with a bed and a bureau. I lacked the budget for a desk. My idea was to remove a sliding door from a closet in my apartment and place it over a couple of hastily cobbled-together sawhorses.
Amount by which a typical good-looking U.S. worker will out-earn a typical ugly one over a lifetime:
A Japanese inventor unveiled a new invisibility cloak that uses a material made of thousands of tiny beads called “retro-reflectum.”
A couple at a Cracker Barrel restaurant in Greenville, South Carolina, left their waitress a note telling her “the woman’s place is in the home,” in lieu of a tip.
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"She never thanked me, never looked at me—melted away into the miserable night, in the strangest manner I ever saw. I have seen many strange things, but not one that has left a deeper impression on my memory than the dull impassive way in which that worn-out heap of misery took that piece of money, and was lost."