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Let's Not Repeat the Mistakes of the 1930s

Fourteen prominent economists, including ex-assistant chair of the Fed Alan Binder and Nobel Laureate Joseph Stiglitz, have signed a manifesto calling for more government spending and tax cuts to fight the recession.  Read it here.

The group calls for aggressive fiscal action:

As in the 1930s, the economy is suffering a sharp decline in aggregate demand and loss of business confidence. Long experience shows that monetary policy may not be enough, particularly in deep slumps, as Keynes noted.

The same theme is expressed in an article by Harvard history professor Niall Ferguson.  But you would think Ferguson is writing about something completely different.  He sees the problem as not one of liquidity but one of confidence.  Fear of deficit induced inflation destroys confidence is his bottom line.

The remedy for such fears must be the kind of policy regime-change Prof Sargent identified 30 years ago, and which the Thatcher and Reagan governments successfully implemented. Then, as today, the choice was not between stimulus and austerity. It was between policies that boost private-sector confidence and those that kill it.

So let's not repeat the mistakes of the 1930s, but which mistakes?

Disclosure: No stocks mentioned.