My New Article on the Great Depression

Gauti Eggertsson uses a dynamic stochastic general equilibrium model in arguing that the period 1933 to 1937 represented recovery from the Great Depression, by virtue of regime change between the Hoover and Roosevelt administrations. He claims that the Hoover administration was defined by adherence to three “policy dogmas,” and that Roosevelt shifted expectations for the better by making credible commitments rejecting those dogmas. Eggertsson’s argument is wrong on several counts. He misrepresents Hoover’s economic policies, he mischaracterizes Roosevelt as “dogma-free” and committed to a clear alternative plan for recovery, and he misreads the economic consequences of Roosevelt’s policies. Eggertsson’s problems begin with his notion of “recovery,” wherein the economy’s progression from critical condition to prolonged infirmity is trumpeted as “recovery.” Eggertsson’s article is entitled “Great Expectations;” I have titled this piece “Great Apprehensions” because the Hoover-Roosevelt period needs to be seen a whole, in which the statist trend of policy and rhetoric created great uncertainty about the rules under which enterprise and investment would proceed. Moreover, Eggertsson’s narrative cutoff at 1937 is misleading and opportunistic, as the ensuing years are all part of the same prolonged apprehension and under-performance.