New Lessons From The Great Depression

by Stuart Shapiro

Joseph Stiglitz, Nobel Prize-winning economist (who I’ve blogged about before), has a new article out about the causes of the Great Depression and the lessons for today’s continuing economic crisis.  The argument is too complex to capture here but he draws an analogy from the dislocation of agriculture in the 1910s and 1920s to the decline of manufacturing in the past few decades.  As for prescriptions, he emphasizes the need for government investment in infrastructure:

What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.

He also emphasizes the inability to solve our problems with monetary policy and that clearly the worst thing we could do now is cut back spending.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.