Bryan Caplan  

Economic Illiterates of the Great Depression

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According to my paper on the idea trap, economic downturns reduce economic literacy. Just when people need their economic common sense the most, they open their hearts to the crackpots. Perhaps the best example is the Great Depression, when every breed of nut got his fifteen minutes of fame. The Economist's Apprentice has just shined her spotlight on one of the worst, Father Coughlin:

His possession of something resembling a coherent monetary policy seems almost accidental given his economic illiteracy. Although he struggled with the little economics that he had in school, he felt confident enough to espouse a laundry list of crazy economic views. For example, he supported the proposed Frazier-Lemke bill, which would have the federal government purchase outstanding farm mortgages by printing billions of dollars in paper money. This would seem consistent with his desire for cheap money, but he actually argued this would not be inflationary because the new money would be backed by the mortgages. Like many others during the time, he believed that the government propping up wages would ease the economy out of recession.

An amazing thing about Coughlin is that as media demagogue, he was able to convince many listeners that he was an expert in monetary policy. At least early in his career, he even convinced quite a few senators and congressman, who petitioned that Coughlin be appointed as a U.S. delegate to the London Economic Conference. Later, he lost his reputation for economic expertise, as his rhetoric degenerated to anti-semitic conspiracy theories...

When I count my blessings, one of them is that I missed the Great Depression. The quality of economic thought is so much higher today that even our one-year-olds can run circles around the talking heads of the 30's.


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TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/328
The author at The Club for Growth Blog in a related article titled Monday's Daily News writes:
    Costly Highway Bill Deserves Bush’s Veto - Club for Growth Legislators Find Death, Taxes Unavoidable - AR Dem-Gazette Before Race, Angle Puts Face Before Voters - Reno GJ Passing Up Highway Pork - Bill Steigerwald, PTR Congress Feeds Again -... [Tracked on August 8, 2005 9:14 AM]
The author at Jim's blog in a related article titled stupidity and poverty writes:
    And then they blamed everything falling apart not on breaking their policy of sound money and laissez faire, but on their former policy of sound money and laissez faire. [Tracked on August 18, 2005 12:28 PM]
COMMENTS (6 to date)
Chris R writes:

I've been wondering about this one too; maybe here's another way to think of things. If things are going well, then people should be happy with whatever policy is shown to work. By the fact that it works, it's perceived to be good policy. If things go badly, people would rationally conclude that current policy is bad and try to change it. But, that gives no guidance as to what good policy would look like. In the search for good policy, politicians or citizens might muck things up even further.

If this is the case, we should be thankful that we didn't take an Argentine route in the 1930s. It may also lead to the possibility of self-fulfilling crises; even if the underlying policy were sound, policymakers would be pressured to change course when things go wrong.

This, of course, assumes that institutional development is a trial-and-error discovery process rather than a direct optimization process. It's easy to break good institutions, hard to build them.

spencer writes:

Good article. I've always thought the biggest problems arise when you get dashed rising expectations. As long as people have no hope they remain docile. But if you raise hopes, and then dash them is when you get big disruptions to the social fabric.

Of course all those people who beleive that the reason communism fell was Reagan telling Khrushchev to tear down this wall will not like your thinking.

Seems that Coughlin's ideas on wages weren't any worse than the Roosevelt Administration's, and his monetary policy would have been significantly better than what the Fed did.

dsquared writes:

So he believed in the real bills doctrine and advocated a wage subsidy as a stimulus policy for a depression economy? I'm with Patrick on this one; though I have no particular regard for Coughlin I don't see why this marks him out as an "economic illiterate".

Since "the talking heads of the 1930s" included FA Hayek, JM Keynes and AC Pigou, I put it to you that a) one year olds cannot run circles around them and b) the quality of economic thought is not higher today than it was then.

Dewey Munson writes:
IWhen I count my blessings, one of them is that I missed the Great Depression.

Illiterate? I can't imagine a true economist not interested in a tanked stock market, 25% unemployment.

Perhaps a year or two of unemployment would increase your literacy.

Chris Bolts writes:

[quote]Since "the talking heads of the 1930s" included FA Hayek, JM Keynes and AC Pigou, I put it to you that a) one year olds cannot run circles around them and b) the quality of economic thought is not higher today than it was then.[/quote]

I think he means that there are more people literate in economics today, not that everyone alive today can match Keynes, Hayek, Pigou et al.

As far as Coughlin's view, I don't know if printing a bunch of money en masse would've been that much better than restricting it as the Fed had done. Certainly you have to think that just bailing out farms by printing billions of dollars in money and expecting the mortgages that the government had backed them is just plain silly...

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