Marginal Revolution edges ahead
…. with the high quality of their posts on the Great Depression debate. MR’s Alex Tabarrok et al really get into the topics.
I see that at the Atlantic Megan McArdle’s discussion includes some queries on the importance of Higgsian regime uncertainty. This is the theory that says the very discretion that Roosevelt derived from his landslide in 1936 scared markets. They just didn’t know what the president would do next.
For me the most convincing part of the regime uncertainty argument for the later 1930s is that the people of the time believed it.
To wit, an example from a headline in the New York Times of Oct 23, 1937:
Capital ‘Strikes’ Laid to Tax Laws; W. O’Neil, Head of General Tires, Says They Explain Present Business Uncertainties; Cites Labor Agitation
Amity,
As a regular user of Brad Setser’s blog I was pleasantly surprised to see your work, which is very topical. It is always interesting to see American political economists who depend on teaching and writing for their livelihood, struggle with the twin, contradictory beliefs US academics seem to have: government intervention tends to increasingly illiberal economic institutions and democratic forces result in some form of gvt intervention in times of widespread economic hardship. The Higgsian argument appears to institutionalize this by asuming that regime uncertainty (I would say aggregate uncertainty about the government’s policy repertoire and choice from that repertoire) reduces economic growth, or rather, cyclical recovery. I have yet to read Higg’s works (an omission) but from what I read about his work, the uncertainty phenomenon would centainly have an effect on business investment, if only on the way financiers would evaluate projects. Still, I think that prolonged affairs like the US Great Depression are problematic mainly in a situation where the median voter is en employee under severe budget constraints. If one looks at cycles in earlier periods with a much restricted franchise in Britain (the US was for most of that period under strong mercantilistic policies which would distort both the shape and effect of economic cycles considerably), government policy would have been far more (classically) liberal and effective. Unfortunately, there is a tension between popular democracy and economic efficiency..