Thursday, July 30, 2009

Another view

Forbes has an interesting article with an alternative view of the Great Depression.

The thesis appears to be that the 1920s was a period of massive productivity improvements driven by electrification and the internal combustion engine. This resulted in falling prices, a growth in inequality and an explosion in executive compensation.

The depression in this view was due to the policy response to this;

The policy responses that created the most trouble in the 1920s and 1930s--that made the Depression "great"--were those that tried to undo the inevitable consequences of technological progress: trying to keep prices from falling, trying to keep wages high, and demonizing those who gained great wealth from the revolution in technology.

This view seems to be that the depression became great by the initial response to it, rather than it was great in and of itself. It is an interesting theory, one I probably don't subscribe to. However, the fact of productivity improvement as well as the expansion in capital markets probably does need to factor into any meaningful analysis.

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