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Comment by yummyfajitas | Hacker News Reader

"If we don't do what I want it will be the Great Depression" is an unfalsifiable claim with little evidence to back it up.

The main evidence it has supporting it is the a "post hoc, ergo propter hoc" claim (there was a bank crisis before the great depression). But this ignores a huge number of other factors which also contributed to the GD - massive ecological disaster, huge drops in trade caused by Smoot-Hawley et al, new anti-competitive laws and onerous regulations, new technology making millions of workers obsolete.

The claim that a banking crisis caused the GD is popular mainly because banks are easy to model. It's kind of the economic equivalent of looking for your keys near the streetlamp rather than in the dark alley where you lost them.

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The overwhelming cause for the Great Depression was tight monetary policy, and trying to let the market "sort it out" without providing any stimulus (e.g., QEs). When you have a highly illiquid economy with no spending or consumption, you get no growth; that factor prolonged the Depression. That conclusion is supported by economists across the aisle, from Paul Krugman to Milton Friedman, to everyone else in between -- including all living Nobel Laureates in Economics. That premise is the Fed's main justification for the recent QEs.

The government did not try to let the market sort it out. That is simply revisionist history.

Please go read up on the New Deal as well as the Hoover administration (Hoover doubled the budget deficit in an attempt to spur recovery, resulting in FDR calling him a Socialist during the election campaign).

That's absolutely untrue and intellectually dishonest. The Feds, as indicated by Friedman and Krugman, were tight with the money supply. Because money wasn't flowing, the economy wasn't running. Please go and read the causes for The Great Depression on any economist's website (or even Wikipedia).

http://en.m.wikipedia.org/wiki/Causes_of_the_Great_Depressio...

I didn't dispute that the feds were tight with the money supply. I disputed the claim they tried to let the market sort it out. They didn't.

Among other things (since you want to take a 100% Keynesian view), the government created sticky nominal wages and prices (with minimum wages and price floors). Hey, remember why Keynesian economics claims we need to print money?

This is getting a little absurd. First, I'm specifically referring to the Feds in its tight control of the money supply during the Depression. They restricted the money supply. If you have another term for what the Feds did (note the difference between the Feds and the federal government), then so be it.

Loose monetary policy during a drought is not just supported by Keynesians (who really emphasize more expansionary fiscal policy), and is definitely not a 100% Keynesian view. Monetarists, for instance, support it widely. As do other economists. Friedman supported it, as does Bernanke, Greenspan, Summers, Mankiw, et al. To claim that an expansionary monetary policy is 100% Keynesian is just absurd and distorts the positions of other economists.

Let me repeat: I didn't dispute the existence of tight monetary policy. I disputed that the federal government tried to let the market sort it out. Also, when you said "Feds", I assumed you meant people in the Federal Government (including the Federal Reserve, but not limited to it). Typically the Federal Reserve is simply shortened to "the Fed".

Lastly, if you read your own link (to the Wikipedia article on causes of the GD), you'll discover that there are many proposed explanations (including, for example, protectionism).

That's it for me.

Never mentioned is the fact that the government had a fixed exchange rate for gold, yet was inflating the dollar from 1914 on. By 1929, the dollar had nearly halved in value, yet there was the same exchange rate for gold. What this essentially means is you could double your money by exchanging cash for bullion.

This precipitated a run on exchanging dollars for gold, a run that continued to collapse banks until FDR suspended exchanging dollars for gold.

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