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  • Brad DeLong Gives Credit to Bush and Obama Administrations for Avoiding Larger Economic Turmoil

    Brad DeLong has been sharply critical of politicians(and members of the media, and some fellow economists). And if he ran the country, he would have done things differently than those in power over the last couple of years. For example, he writes at Project Syndicate and on his blog , he would have let Lehman Brothers and AIG fail. And he would have nationalized Fannie Mae and Freddie Mac. But even as he disagrees with those moves taken or not taken, he gives the Bush and Obama Administrations passing grades for their work in economic policy over the last 30 months: Thus it is worth stepping back and asking: What would the economy look like today if policymakers had acceded to the populist demand of no support to the bankers? What would the economy look like today if Congressional Republican opposition to the Troubled Asset Relief Program (TARP) program had won the day? What would the economy have looked like today had Senators Nelson, Snowe, and company done to Obama's discretionary deficit-spending plan what their predecessors did to Clinton's in 1993 and blocked it? The only point of reference is the Great Depression itself. That is the only time in more than a century when (a) a financial crisis caused a widespread, lengthy, and prolonged reinforcing chain of bank failures, and (b) the government by and large washed its hands--neither intervened on a large scale itself nor passed the baton to a consortium of private banks (usually, in the U.S., headed by Morgan) to support the system as a whole. It is now 19 months after Bear Stearns failed and was taken over by JP MorganChase, with the assistance of up to $30 billion of Federal Reserve money on March 16, 2008. Industrial production now stands 14% below its peak in 2007. By contrast, 19 months after the Bank of United States, with 450,000 depositors, failed on December 11, 1930 – the first major bank collapse in New York since the Knickerbocker Trust failure during the panic and depression of 1907 – industrial production, according to the Federal Reserve index, was 54% below its 1929 peak. Read What Would Have Happened If World Governments Had Washed Their Hands of the Financial Crisis? here .

  • Christina Romer Shares Lessons from The Great Depression

    When Council of Economics Advisers chair Christina Romer has studied the Great Depression in her work as a professor at UC-Berkeley. Yesterday, she drew on that past experience in a speech at the Brookings Institution, in which she talked about lessons that she and others working with and in the Obama Administration should take from the Great Depression, and from the Roosevelt Administration's response. While she took care to point out that the economic crises of today, as "severe" as they are, do not reach the "truly horrific conditions the previous generation of Americans endured and eventually triumphed over," her speech centered on the parrallels that do exist between then and now: This similarity of causes between the Depression and today's recession means that President Obama begins his presidency and his drive for recovery with many of the same challenges that Franklin Roosevelt faced in 1933. Our consumers and businesses are in no mood to spend or invest; our financial institutions are severely strained and hesitant to lend; short-term interest rates are effectively zero, leaving little room for conventional monetary policy; and world demand provides little hope for lifting the economy. Yet, the United States did recover from the Great Depression. Romer then laid out 6 lessons from the Great Depression that apply to today: 1) A small fiscal expansion has only small effects. 2) Monetary expansion can help to heal an economy even when interest rates are near zero. 3) Beware of cutting back on stimulus too soon. 4) Financial recovery and real recovery go together. 5) Worldwide expansionary policy shares the burdens and the benefits of recovery. 6) The final lesson: A key feature of the Great Depression is that it did eventually end. For details on the above lessons, read Romer's speech here .