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January 22, 2009

Continued debate over the New Deal

There have been many comparisons to our current economic situation and the Great Depression of the 1930s. There's also a debate over public policy and whether large public spending programs can lead us to an economic recovery. What lessons can we learn from the 1930s?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, we're still debating those lessons. There's a lot of debate in academic circles about what worked and what didn't work regarding government policy during the 1930s, during the Great Depression. Now, of course, the federal government did enact very large spending programs, particularly for public works. Nevertheless, at the end of the 1930s, economic production in the economy was still 25 percent lower than at the beginning of the decade. That is, the economy did not recover to any great means during the entire decade of the 1930s. Now some economists argue it wasn't because of the lack of effort on the spending side. It was because the government got involved in the labor markets, in terms of heavily regulating labor markets, and that did not allow wages to adjust to levels that would motivate employers to increase hiring. And many economists say that is the big, important factor behind the lack of an economic recovery during the 1930s. Indeed, we need to allow all prices, including wages, to adjust, perhaps downward, to, again, cause this revival of business spending and hiring."

Posted by Dave at January 22, 2009 08:00 AM