Impoverished girls landing GA, US 1937 by Carl Mydans/ From MLC Photography and Music - Strobist Society
Gauti Eggertsson has a nice piece on the New York Fed blog about the great monetary/fiscal mistake of 1937, which sent the Great Depression into a second downward leg. As he notes, the underlying situation bore a significant resemblance to current events: unemployment still high (actually under 10 percent if measured by modern standards, so quite similar to now), but with rising prices thanks to commodity shocks.
Where I part with Gauti here is his assertion that modern economists won’t make the same mistake. The research staff at the NY Fed won’t; but the ECB very probably will, and the Board of Governors is under a lot of political pressure to raise rates.
We’ve learned a lot less these past 74 years than you might have imagined — or rather, we learned some stuff, but have spent the last few decades unlearning it.
Update: And here’s Lorenzo Bini Smaghi of the ECB insisting that yes, we do intend to repeat the mistake of 1937.
Where I part with Gauti here is his assertion that modern economists won’t make the same mistake. The research staff at the NY Fed won’t; but the ECB very probably will, and the Board of Governors is under a lot of political pressure to raise rates.
We’ve learned a lot less these past 74 years than you might have imagined — or rather, we learned some stuff, but have spent the last few decades unlearning it.
Update: And here’s Lorenzo Bini Smaghi of the ECB insisting that yes, we do intend to repeat the mistake of 1937.
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