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Friedman: Two Great Depressions

Posted on Sunday, May 24, 2009 at 2:19 pm

david-friedman.jpgDavid Friedman: In its simplest form, targuing that since we had the New Deal and the economy eventually recovered the New Deal was a success, is like arguing that if the doctor bleeds the patient and the patient eventually recovers, that means that the treatment was a success. We can do a little better than that by looking at a different Great Depression—the one that didn’t happen. From 1920 to 1921, the consumer price index fell by 10.8%, more than in any year of the Great Depression; it fell another 2.3% in the next year. Unemployment rose to about its 1931 level. Looking just at that data, it’s obviously the start of a depression. Harding did what Hoover is supposed to have done, reducing taxes and government expenditure. By 1923 the recession was over. It was the Great Depression that didn’t happen. See here.

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