The Great Depression is the single most important and useful event of study for economists. Yet, I cannot help but think we do not really understand what caused it and what cured it, and we never will.
This Sunday on This Week With George Stephanopoulos, the panel began discussing the economy with references to the Great Depression. George Will, a conservative, argued it was caused by a federal government who couldn't make up its mind on how to combat the depression. Consequently, businesses didn't know the "rules of the game" and therefore were reluctant to make investments. Paul Krugman, a liberal, argued it was because of a demand shock and the government simply needed to spend more or get more dollars in people's hands. Krugman argued businesses did not make investments because consumers were not buying anything.
I have noticed this trend among all economists. Their beliefs about the Great Depression can be predicted almost perfectly based on one variable: a dummy variable indicating whether they lean conservative. It is saddening that, because of this, it seems we can learn nothing from The Great Depression.
Note: Krugman is a great economist, but the fact that he possesses a Nobel Prize does not mean he necessarily knows more than George Will. George Will is more talented than the vast majority of Ph.D economists, despite the fact that he has a Ph.D in philosophy.
