Tuesday, March 10, 2009

Lessons From the Past

Yesterday, Christina Romer, the chair of the President's Council of Economic Advisors, gave an interesting speech at the Brookings Institution.  The crux of the speech was to compare what happened during the Great Depression to what is happening now.  This is clearly something that has been on most people's minds as our economy has worsened over the past six months.  Mrs. Romer's basic thesis is that during the early years of the Depression, 1930 -1932, the US government failed to take the steps necessary to change the course of the economy, in particular there was not deficit spending or any monetary expansion.  Interestingly for me, I just finished reading the book Lords of Finance, which traces the history of monetary policy from WWI through the Depression.  The book ultimately comes to the same conclusion as Mrs. Romer. During the early years of the depression, the government insisted on running a balanced budget and the Federal Reserve was more concerned with maintaining the gold standard than providing liquidity to a falling economy.  It was only after both of these policies were reversed, starting in 1933, that the economy began to recover.  

We are currently working on a video presentation that looks more closely at what we can learn from past periods in economic history.  It will hopefully be posted here tomorrow.