

Was the Great Depression a monetary phenomenon? - Anon84
http://krugman.blogs.nytimes.com/2008/11/28/was-the-great-depression-a-monetary-phenomenon/

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bokonist
The graph Krugman shows is monetary _base_ \- ie actual green Federal Reserve
notes. Unforunately, most of the U.S. money supply is not in the form of
federal reserve notes, but in the form of credit ( savings accounts, money
market funds, etc). Note that in the first graph the monetary base starts at
$850 billion. At this time the U.S. national debt was around $8 trillion.
Perhaps Krugman would like to explain how the U.S. government could owe 8
trillion dollar bills, when only 850 billion dollars exist in the world.

The basic cause of both the depression and our current crisis is maturity
mismatching - ie treating a collection of long term loans as short term
deposits. The trouble is that when people want to redeem their deposits, the
money is not there, as it has been loaned out. This causes a bank run and a
sharp contraction of credit, which bankrupts both households and businesses.

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albertni
I understand that Paul Krugman (the author of the article) didn't try to claim
more than that the thesis of the Monetary History has just taken a hit, and
that the target audience of the news item might not have the attention span
for a longer more details argument. However, this kind of blog post
encapsulates some of what frustrates me about economics, and in particular,
economists.

Just from my fairly uneducated (in economics) viewpoint, this is what
Krugman's post basically looks like.

a) The Fed has been much more aggressive about expanding the monetary base the
last few years than from the start of the Great Depression through 1933. b)
This doesn't seem to be working.

Problem is - there's no explanation whatsoever for why such an action may or
may not help. There's no explanation for why it's legitimate to compare mid
1929 through early 1933 to late 2003 through late 2008. After all, there were
CLEARLY some problems with the economy by the end of 1929, whereas I don't
really think you could say it was anything like that in late 2003 (sure didn't
seem that way to me). There's no explanation for why we should assume that the
multitude of other variables (such as the collective behavior of society in
1929 versus that of 2008) that affect a situation like this, don't affect it
enough that we can imply that we can look at Federal expansion of the monetary
base as draw conclusions like we normally do about an isolated variable in a
scientific environment. I'm sure Krugman doesn't think it's an isolated
variable, but the whole thing is written in a way that kind of implies that.
Plus, this is all just speculation as of this moment - while we are in the
midst of a mini-depression at the moment, we are a long ways away from it
being comparable to the Great Depression. While we're getting closer to that
point, it's probably still premature to say that Federal efforts thus far have
been wholly unsuccessful. All we basically know is that aggressively expanding
the monetary base is not a one shot magic bullet that can singlehandedly
prevent an economic downturn.

Ugh, reminds me of my mini-minor (a Humanities thing at my school) in
economics, which I regret choosing to this very day, especially in that the
blog gives me a taste of what could be a compelling, well thought out
argument, but never gets there.

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kqr2
Krugman writes:

 _I think the thesis of the Monetary History has just taken a hit._

However, Anna Schwartz, one of the authors of the _Monetary History_ tome has
already stated publicly that she thinks that Bernanke is fighting the "last
war" (i.e. the Great Depression)

<http://www.dailypaul.com/node/69560>

~~~
Prrometheus
One of my least favorite things about Krugman is how he mixes in unsupported
political demagoguery with good economic arguments, and doesn't bother to
distinguish between the two. He gives you a few solid facts and arguments and
then skips to his preferred policies, while skipping many steps in between, as
if to say "if you believe these good points, then you must agree with my
conclusion", even though that is not the case.

