Studying The Depression Is Probably Pointless

How much can we learn from 80-year old economic history? Probably not much. As Eric Falkenstein notes, the Great Depression was just one single event. Examining it, he says, is like a doctor trying to diagnose a patient, after only having seen one other patient in his career, who happened to have pneumonia.

The easiest case in point: Chairman Bernanke spent a career studying the great depression, and he was sure that the one lesson to take away was that the government should step in and provide liquidity to the banks. Alas, as Anna Schwartz has pointed out, he assumed a solvency crisis was merely a crisis of confidence (as it was during the depression) so instead, his actions have propped up firms and investors that deserved otherwise.

It’s also why debates over the New Deal are pretty meaningless. Matthew Yglessias favourably quotes a piece that accuses the Republicans of being Hooverites. Others slam the New Deal for prolonging the Depression, and use that as proof that the stimulus will probably fail.

Unfortunately, it’s all pretty much useless. In 1000 years, after we’ve had another 15 depressions, come back, and history will be much more of a guide.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at