August 27, 2013


The Great Lesson from the Great Recession (MARK THOMA, 8/27/13, The Fiscal Times)
Federal Reserve Chair Ben Bernanke, a student of the Great Depression, famously vowed in 2002 at a conference celebrating Milton Friedman's 90th birthday that the Fed would not repeat the mistakes of the Great Depression, "You're right, we did it," he said, "We're very sorry. But thanks to you, we won't do it again." When the Great Recession hit, the Fed did, in fact, mostly avoid these mistakes. [...]

[T]he improved policy response from the Fed is not the only reason we avoided Great Depression type problems.

First, when the recession hit this time around, we had a much, much higher level of societal wealth, and hence a much larger cushion to absorb the shocks than we had during the Great Recession.

Second, and importantly, the presence of automatic stabilizers, particularly those that come in the form of social insurance programs, made a big difference to people hit by the recession. Programs such as unemployment compensation and food stamps that did not exist during the Great Depression played a large role in cushioning the blow for the millions and millions of people who lost jobs or were otherwise affected by the severe downturn in the economy.

Third, it's not as though the Fed created a miracle recovery. Even with the improved monetary policy during the recent downturn, the recession has still been very deep and very prolonged, and the end of our troubles, while perhaps in sight, is still far, far away. So while it's true that things could have been much worse, it does not appear to be the case that improved monetary policy avoids the severe problems associated with financial panics.

...bailout/stimulus money should have been used to pay off consumer debt and immigration amnesty should have been done immediately.

Posted by at August 27, 2013 8:18 PM

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