Monday, August 31, 2009

Worst Argument Ever

UCLA economist Lee Ohanian blames Herbert Hoover for the Great Depression---because he was too generous to workers.

I develop a theory of labor market failure for the Great Depression based on Hoover’s industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.

Right, because workers making money and therefore buying things are irrelevant to the economy. Moreover, Ohanian completely ignores the social realities of 1930s America. Half of Europe was choosing totalitarian regimes and many people in the United States were looking at those options too. This argument, as are the arguments of economists way too often, is completely disconnected from historical context and actual life at the time. In addition, the lesson one might draw from this is that Ohanian also thinks the govenrment should do nothing for the unemployed or working-class in general today, which would be total political disaster, leading to social upheaval and who knows what result.

Absolutely asinine.