By PAUL KRUGMAN
When the Great Depression struck,
many influential people argued that the government shouldn’t even try to
limit the damage. According to Herbert Hoover, Andrew Mellon, his
Treasury secretary, urged him to “Liquidate labor, liquidate stocks,
liquidate the farmers. … It will purge the rottenness out of the
system.” Don’t try to hasten recovery, warned the famous economist
Joseph Schumpeter, because “artificial stimulus leaves part of the work
of depressions undone.”
Like many economists, I used to quote
these past luminaries with a certain smugness. After all, modern
macroeconomics had shown how wrong they were, and we wouldn’t repeat the
mistakes of the 1930s, would we?
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