Plain Sense Economics

Greg Mankiw published this article in the October 26 New York Times. From the opening few paragraphs -

But when Olivier Blanchard, the I.M.F.’s chief economist, was asked about the possibility of the world sinking into another Great Depression, he reassuringly replied that the chance was “nearly nil.” He added, “We’ve learned a few things in 80 years.”

Yes, we have. But have we learned what caused the Depression of the 1930s? Most important, have we learned enough to avoid doing the same thing again?

In a week or so we’ll look at the Great Depression in my Principles of Macroeconomics class. Just as geologists study earthquakes, economists and policy makers need to understand the Depression.

Mankiw places more emphasis on Roosevelt’s regulation of markets as a force that turned an ordinary recession into a depression. Bernanke points to the collapse of the banking system and the sharp reduction in money as the main culprit. Either way, these discussions are instructive.