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The 1930's are a world away

Commentator Will Wilkinson

TEXT OF COMMENTARY

Steve Chiotakis: We've heard it time and time again: this recession is unlike any other. Yet the temptation to compare it to past downturns, especially that one in the 30's, has proved difficult for pundits and policymakers to resist. Commentator Will Wilkinson thinks if we want to look for precedents, it's time to look beyond our borders.


Will Wilkinson: Our current economic downturn has brought to life old debates about the the Great Depression: What got us into it and what got us out of it? The role of the New Deal looms large. Did it deepen the Depression, as many economic historians now say? Or did it save capitalism from itself, like I learned in 6th grade social studies?

Let me tell you, people get really heated about this question. But hold on: Is this debate really relevant to our current crisis?

The U.S. 80 years ago is a strange and faraway land. When the Great Depression hit, there was no Social Security, there was no unemployment insurance, and Jim Crow was in full effect. There was no such thing as a mortgage-backed security, a collateralized debt obligation or a credit default swap. U.S. currency was backed by gold.

Financial systems all over the world have undergone a series of deep changes since the 1930's. Trying to draw current policy lessons from the Great Depression is sort of like coming up with a new strategy for the war in Afghanistan by studying the Normandy Invasion.

Our pundits' obsession with the Depression and the New Deal represents an all-too-typical American exceptionalism, as if only our history really matters. But an apt comparison requires similar institutions, not the same flag.

If we're going to fight over history, let's fight over the recent history of the 1990's Japanese and Swedish banking crises. Let's talk about the financial collapse of Argentina, from which it has only recently emerged. All those economies were more like America's is now than America's was way back when my grandpa was playing football in a sweater and a leather helmet.

So what lessons should we draw from the rather more germane recent experiences of countries with similar economies? Truth is, I don't know. Maybe I should work harder to find out. And maybe American opinion-makers should spend less time fighting over FDR's enduring legacy and more time learning from the rest of the world.

Chiotakis: Will Wilkinson is a fellow at the Cato Institute.

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That's funny, Mr. Wilkinson's comments about how the economy has changed since the 1930's sound ever so much like the arguments going around in 1999 when Congress repealed that left-over, ever-so-quaint bit of Depression era legislation called the Glass-Steagall Act. And look what happened after that.
By all means, let's learn some recent history lessons.

Lessons like? "I don't know," says Mr. Wilkenson, "maybe I should work harder to find out." And this goes out on the air?

As far as recent history goes, there are a lot of people who don't seem very interested in finding out what that history is, especially when it comes to appointing a congressional committee to look into the causes of the current financial crisis or empowering a Federal Investigative Task Force (as proposed by Sen. Byron Dorgan) to establish accountability.

Argentina didn't cause this mess, neither did Japan, neither did Sweden. Looking at what they did to crawl out of their ditch doesn't tell us anything about how we got into ours and that seems to be the point of the whole enterprise.

Although I might object to what extent we should compare this crisis to the depression era, I see his point. There is a lot to learn from others' mistakes. Our sense of being the only existing country in the planet could be hazardous to our well being. It fuels our hubris which is what brings down superpowers. I think we should expand our learning horizon and include other countries' crises into our discussions.

Provisionally accepting Wilkinson's premise that the 1930s are too far removed for comparison, let us return to the 1980s downturn. What was the role of Reagan's attack on government in the S&L crisis? Haven't we had a systematic attrition of the notion that financial institutions have a fiduciary responsibility since then?

This certainly seems the case with life and health insurance. All too many life insurers have demutualized, to the detriment of policy holders. Sixteen formerly not-for-profit Blues have privatized with a resultant doubling of overhead costs.

Do Cato libertarians believe that financial institutions have no responsibility for the interests of their clients?

One sign of the decline in the knowledge of history among the young is illustrated by their inability to find appropriate historical analogy, as illustrated in the jejune commentary by Mr. Wilkinson, Wednesday, April 8.

Coming up with a strategy for Afghanistan would benefit from an examination of the experience of the British there during the 19th century, in which the sole superpower of that time fought two wars, one of which ended in ignominious defeat, the other in uneasy truce.

Likewise, lessons can be drawn from the Great Depression and applied to this crisis. One set of lessons that policymakers had drawn long ago is that a social safety net lessens the human suffering of economic crisis. Unfortunately, Mr. Wilkinson's sponsors at Cato have devoted their careers to ignoring this lesson and tearing down the infrastructure our predecessors worked so hard to create.

Mr. Wilkinson would benefit from expanding his perspective, both in terms of time and of ideology, learning from human experience, rather making up facts to fit his worldview.

An answer to Will Wilkinson's comments about examining modern day economic crises (eg. Argentina, Japan, Sweden, etc)can be found in Paul Krugman's book "The Return of Depression Economics and the Crisis of 2008". Thus, to me, Wilkinson's comments seemed very out of touch with any new ideas.

...And now this - ditto on Mr Carlton's observations. For Mr Wilkinson's defense - how dare we compare the collapse of a bubble based in market manipulation and unfettered capitalism to today's market manipulation and unfettered capitalism. Both of which led to individual wealth being lost and the aftermath of that poverty - real or perceived.
Trickle down is what happens when a dog meets a fire hydrant.

Really, Steve. Did you say "pundint?"

There's much to object to in Will Wilkinson's latest screed, but allow me to point to one flagrant example of intellectual dishonesty:

"The role of the New Deal looms large. Did it deepen the Depression, as many economic historians now say? Or did it save capitalism from itself, like I learned in 6th grade social studies?"

The clear implication here is that people who know what they're talking about believe the former, while it's harried nonspecialist school teachers who believe the latter. There's one problem with that: the former statement is bonkers. Between 1933 and 1940 real GDP grew at a remarkable rate of 8 percent a year; unemployment, which stood at nearly 23 percent in 1933, was under 10 percent by 1940. No reasonable person would regard this record as evidence that the New Deal "made the Depression worse." Indeed, no economic historian who knows anything about the period does either--even though there's room for considerable debate over the reasons for the 1933 turnaround and over the pace of recovery. Essentially Wilkinson is using his MarketPlace megaphone to suggest to his listeners that a certain flat-earth version of 1930s economic history that's being heavily promoted by the American right wing is somehow cutting-edge economic history. It isn't. He should consider the possibility that his sixth-grade social studies teacher is more reliable on this subject than the "economic historians" he chooses--for purely ideological reasons--to listen to.

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