Andrew Wilson has an excellent article over at the Wall Street Journal today on Five Myths About the Great Depression. He states:
The current financial crisis has revived powerful misconceptions about the Great Depression. Those who misinterpret the past are all too likely to repeat the exact same mistakes that made the Great Depression so deep and devastating.
Here is perhaps the most pervasive myth:
Enlightened government pulled the nation out of the worst downturn in its history and came to the rescue of capitalism through rigorous regulation and government oversight.
To the contrary, the Hoover and Roosevelt administrations — in disregarding market signals at every turn — were jointly responsible for turning a panic into the worst depression of modern times. As late as 1938, after almost a decade of governmental “pump priming,” almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation. But that was not an even trade-off. As the root cause of a great deal of mismanagement and inefficiency, government was responsible for a lost decade of economic growth.
Why is this important?
With the vitality of U.S. and world economies at stake, it is essential that the decisions of the coming months are shaped by the right lessons — not the myths — of the Great Depression.
For two really helpful books on the Great Depression, I would recommend FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression and Bernanke’s Essays on the Great Depression.