OK, so one big gripe I have with the way that economics is taught is that emphasis has always been on just doing a bunch of math, writing proofs, etc., with no realization that most economists' views on any economic issue are in fact decided, not by any model, but by said economists political views, sex, race, and social position. Economists merely use models to argue for their preconceived political views, often which were developed in high school or before.
Hence, when evaluating someone's argument (or one's own), it is always appropriate to evaluate their (your) biases.
So, I just reread chapter 7 of Friedman & Schwartz's Monetary History of the US in which they argue that the Fed alone could have prevented the Great Depression. Now, that's an almost impossible claim to prove or disprove (Schwartz & Bordo claim to prove it in another paper), but what worried me is that much of the Chapter almost sounds like a white-washing of Hoover and the role of conservative economic ideology during the crisis, both of which, quite clearly, deserve central blame. Why am I worried about this? Because, if I'm not reading Friedman & Schwartz incorrectly, they spend more time blaming FDR for the Great Depression in Ch. 7 than they spend blaming Hoover!!! Now, they never say such a thing, and if they did, it would be crazy, but nevertheless it's a case of having their biases on full display. Blaming FDR for the third banking crisis without blaming Hoover (who, btw, was still President, and who could much more easily have stopped it) is just plain nuts. Crazy. Delusional.
It should be added, though, to Friedman's credit, that he is not nearly as crazy as many conservatives -- both economists and politicians -- who want to balance the budget today while in a recession. He points out that it's just hard to understand why anyone wanted to balance the budget during the Great Depression except that that was just the funny mentality of the period.
And I'm not sure yet which way I come down on the issue -- I don't know nearly enough about it and I feel it's just one of those really difficult questions which in the end is not that important. The Fed wasn't nearly as independent at the time and things CERTAINLY would have gone much better had Hoover gone off of gold sooner, had Hoover stepped in to stop the banking crisis like FDR did immediately after taking office, and had Hoover not convinced himself he had to balance the budget at all costs. And the Fed was extremely aggressive in cutting the discount rate at the start of the crisis -- it just wasn't enough...
Tuesday: Case-Shiller House Prices
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