Attention Scott Sumner: Did you know the Great Depression was a worldwide problem?

There’s a new book by Scott Sumner with the title, The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression. As is all too frequent, the view is restricted to the United States, where the Great Depression was prolonged by something like a decade until the 1940s because of Roosevelt and the New Deal. Australia reached its trough in 1932 and the UK and most of the world in 1933. The true lessons to be learned are found by not looking at the US. This is the blurb found at the link to the book.

Economic historians have made great progress in unraveling the causes of the Great Depression, but not until Scott Sumner came along has anyone explained the multitude of twists and turns the economy took. In The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression, Sumner offers his magnum opus—the ?rst book to comprehensively explain both monetary and non-monetary causes of that cataclysm.

Drawing on ?nancial market data and contemporaneous news stories, Sumner shows that the Great Depression is ultimately a story of incredibly bad policymaking—by central bankers, legislators, and two presidents—especially mistakes related to monetary policy and wage rates. He also shows that macroeconomic thought has long been captive to a false narrative, which continues to misguide policymakers in their quixotic quest to promote robust and sustainable economic growth.

The Midas Paradox is a landmark treatise that solves mysteries that have long perplexed economic historians and corrects misconceptions about the true causes, consequences, and cures of macroeconomic instability. Like Milton Friedman and Anna J. Schwartz’s A Monetary History of the United States, 1867–1960, it is one of those rare books destined to shape future research and debate on the subject.

With economics, it’s a “can’t-do attitude” that overwhelmingly works best. Leave it to the market is the answer, although there are some things governments can do. Making adjustment easier, diminishing regulation, pulling back on public spending and easing credit conditions are classical elements in a recovery program. None of these were followed by the US while all of these were followed by Australia and the UK. That’s why our economies recovered and the American economy didn’t. These are the lessons that ought to have been learned but the solipsistic approach to economic policy by American economists, where only the US economy is examined, means that the actual lessons that ought to have been learned never are. Keynes may have been British but it is Samuelson who spread the disease across the globe.

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4 Responses to Attention Scott Sumner: Did you know the Great Depression was a worldwide problem?

  1. Pyrmonter says:


    Friedman and Schwartz famously pointed out that it wasn’t a worldwide phenomenon. China – which was on silver not gold – didn’t enter recession until 1931, well after all the advanced economies linked on the gold-exchange had done so. F + S this was a sign of monetary contagion. A modern interpretation would probably emphasize capital markets and trade flows.

  2. Bob Campbell says:

    It’s only in the last few years that I’ve started to realise that the USA was not the free market capitalist society I’d always thought.

  3. Rafe says:

    Bob the New Deal in the 1930s was the great turning point. Downhill all the way from there.

  4. Pyrmonter says:

    Rafe … I’d be tempted to move the turn a generation further back, to the growth of the “progressives”. They shut down a good deal of traditional corruption – they were the ones who suppressed Tamany Hall – but also embraced “scientific government”. From their work sprang good sanitation; but also anti-miscegenation laws and attempts (largely disavowed as unconstitutional by the US Supreme Court) to regulate labour hours, rates and the like.

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