GLOBE AND MAIL: Move quickly, be decisive
The early response by the politicians to the onset of the Depression was denial. "In the 1930s, there was a reluctance to intervene … the thought that this was a temporary adjustment," said Bill Waiser, a professor of history at the University of Saskatchewan. The two prime ministers who governed during the Depression era, Mackenzie King and R.B. Bennett, at times used the constitution to argue that unemployment and relief were provincial matters — there was no national unemployment insurance scheme — and Ottawa initially threw only meagre, "temporary" support to them, Prof. Waiser said.
In the United States, there was a similar lack of urgency. Far from the hustling fix-it man that is Henry Paulson, the Treasury Secretary at the time, Andre Mellon, was "a passionate advocate of inaction" on most matters of economic policy, John Kenneth Galbraith wrote in The Great Crash, 1929. Meanwhile, President Herbert Hoover was caught between those who wanted action, and those who held tight to the traditional conservative view that the government should always balance its budget (or at least try) and let economic nature take its course.
And where was the U.S. Federal Reserve during this? It "sat on its hands," said David Laidler, an economic historian from the University of Western Ontario. Nominal interest rates dropped as the contraction took hold, but because of massive deflation — prices dropped 24 per cent between 1929 and 1933 — real interest rates were far too high. Unlike today, the Fed of the 1930s wasn't nearly as aggressive in buying securities in order to get cash into bankers' hands — "pushing liquidity into the system," in central bank jargon. Interest rate policy was wobbly. In 1931, with the economy still in a deep funk, the Reserve Bank of New York raised interest rates twice in the space of a week, to stem an outflow of gold and protect the dollar amid fears the U.S. would drop the gold standard (as the U.K. had just done).
A number of academics who've studied the era — including Ben Bernanke, the world's most important central banker — have said the severity of the downturn was made worse by the Fed's foot-dragging and its blunders. Certainly, the lesson has stuck with Mr. Bernanke. In 2002, at economist Milton Friedman's 90th birthday, he gave a speech in which he joked: "I would like to say to Milton … regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
"The speed of the response today is infinitely faster than it was in the Great Depression," Prof. Laidler said. The Depression’s History Lessons >>> By Derek DeCloet | October 11, 2008
Wikipedia: The Great Depression >>>
The Dawning of a New Dark Age (Paperback – Canada) >>>
The Dawning of a New Dark Age (Hardback – Canada) >>>
