Scott Sumner: “It’s Complicated: The Great Depression in the US”

Yesterday I was surfing the internet for some information on events in 1937 – the year of the Recession in the Depression. While doing that I found a great lecture Scott Sumner did at Oxford Hayek Society in 2010.

Scott’s lecture basically is a wrap-up of his forthcoming book on the Great Depression. Scott tells me the book likely will be published later this year. I have had the pleasure and honor of reading a draft of the book. You all have have something to look forward to – it is a great book!

The thesis in Scott’s book is that the Great Depression in the US was a combination of two shocks. A negative demand shocks – excessive monetary tightening – and a series of negative supply shocks caused by Roosevelt’s New Deal policies particularly the National Industrial Recovery Act (NIRA) and the Wagner Act. His arguments are extremely convincing and I believe that you cannot understand the Great Depression without taking both these factors into account.

Scott does a great job showing that policy failure – both in the terms of monetary policy and labour market regulation – caused and prolonged the Great Depression. Hence, the Great Depression was not a result of an inherent instability of the capitalist system.

Unfortunately policy makers today seems to have learned little from history and as a result they are repeating many of the mistakes of the 1930s. Luckily we have not seen the same kind of mistakes on the supply side of the economy as in the 1930s, but in terms of monetary policy many policy makers seems to have learned very little.

I therefore hope that some of today’s policy makers would take a look at Scott’s lecture. You can watch it here.

Scott has kindly allowed me also to publish his PowerPoint presentation from the lecture. You can find the presentation here.

And for those who are interested in studying the disastrous labour market policies of the Rossevelt administration I strongly recommend the word of Richard Vedder and Lowell Gallaway – particularly their book “Out of Work”. Furthermore, I would recommend Steve Horwitz’s great work on President Hoover’s policy mistakes in the early years of the Great Depression.

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  1. I have trouble in looking only at money growth without also looking at credit growth. Runs on banks reversed credit growth in 1930-33, and huge accounting losses forced banks to reverse credit growth in 2008-10. I realize that adding credit growth is inelegant, but my gut says that in both cases, restoring growth would have been much easier had the banks not been forced to contract credit. Note that in 1987, the banks were generally OK and nothing happened.

  2. Hi. Might it be possible to get the slides as a pdf? That would be nice.

  3. Scott Sumner may be right but his thesis has its dangers. If one discounts the possibility that there is any inherent potential instabilities in capitalism, then one is robbed of the opportunity to make the adjustments needed to keep the machine rolling.

    Idealism is a form of blindness. Or, as Julie Andrews might have sung, “A little bit of cynicism helps the medicine go down”.

  4. TravisV

     /  June 4, 2013

    Phenomenal stuff!

    Here’s the paper that Sumner’s book will expand upon:

  1. Scott Sumner: “It’s Complicated: The Great Depression in the US” | The Market Monetarist | Gold, Stocks & Forex
  2. Poor Hoover! | Historinhas
  3. Why the US recovery is so weak — in two slides | AEIdeas

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