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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 — 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.
Freddie Gray’s relatives arrived for the trial in the afternoon, after the prep-school kids had left. By their dress, they seemed to have just gotten off work in the medical and clerical fields. The family did not appear at ease in the courtroom. They winced and dropped their heads as William Porter and his fellow officer Zachary Novak testified to opening the doors of their police van last April and finding Freddie paralyzed, unresponsive, with mucus pooling at his mouth and nose. Four women and one man mournfully listened as the officers described needing to get gloves before they could touch him.
The first of six Baltimore police officers to be brought before the court for their treatment of Freddie Gray, a black twenty-five-year-old whose death in their custody was the immediate cause of the city’s uprising last spring, William Porter is young, black, and on trial. Here in this courtroom, in this city, in this nation, race and the future seem so intertwined as to be the same thing.
Average speed of Heinz ketchup, from the mouth of an upended bottle, in miles per year:
After studying the fall of 64,000 individual raindrops, scientists found that some small raindrops fall faster than they ought to.
The Playboy mansion in California was bought by the heir to the Twinkie fortune, and a New Mexico man set fire to his apartment to protest his neighbors’ loud lovemaking.
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“Matt was happy enough to sustain himself on the detritus of a world he saw as careening toward self-destruction, and equally happy to scam a government he despised. 'I’m glad everyone’s so wasteful,' he told me. 'It supports my lifestyle.'”