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Forget the 30s, the 1870s is the depression that informs NOW

Written by Ashwin Rattan Saturday, 18 August 2012 20:21
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Today a lot of people are looking to economic history for help in understanding the current world economic situation and the options open to us.

 

(This includes economists, many of whom have finally rediscovered an interest in economic history.)

 

Most of this attention is being paid to the Great Depression of the 1930s.

 

However, it is worth pointing out the important ways in which the present situation differs from that of the 1930s.

 

Many observers (most notably Paul Krugman) argue that we are presently in a classic liquidity trap, where monetary policy has no purchase on the real world economy.

 

The main evidence for this is that despite massive expansion of the basic money supply by the Federal Reserve and other central banks, there has not been the kind of inflation that many had predicted.

 

The argument is that this situation is similar to the one Keynes identified in the early 1930s and that therefore the same policy response—fiscal stimulus—is appropriate.

 

To read the full article, click here.

 

(H/T to old college bud Dr. Graham Brownlow for spotting article).

Last modified on Saturday, 18 August 2012 20:34

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