Saturday, April 14, 2012

From the Lecture Hall: The History of Recessions

Part of what inspired me to write this blog is my ongoing frustrations with the GMU economics department. I'll write a more detailed post about this later, but for now I want to focus on a particular topic raised by my professor.

I'm taking Econ 306 (Intermediate Microeconomics) with Professor Walter Williams, who is a pretty well known economist and public intellectual throughout the nation. He is very intelligent and an excellent teacher. Nevertheless, I feel like I need to write about what he said to our class last week.

Here is a pretty good summary of what he told us:

"If you look at the history, from 1790 to 1920 the government did not respond to or took limited actions against recessions. These recessions would usually last from one to two years, and then naturally  resolve themselves. However, if you look at recessions following 1929, they lasted much longer when the government tried to stop them. In fact, during the depression in 1920, the Harding Administration did barely anything, and the following decade was famously known as the "roaring '20s". So according to that track record, the government has done far more harm than good when it gets involved during economic downturns."

There's a few problems that I have with this conclusion.

1. This analysis is incredibly simplistic and sounds like something a politician would say on the campaign trail, not what a professional economist would say to his students. How could you quantitatively measure the effects of government intervention on recessions by simply looking at which downturns last longer? If you think that government intervention doesn't help the economy, fine. But don't tell your students that by looking at a timeline, you're going to find out why. Economics is about empirical explanations! With proofs, numbers, and logic!

2. I could have easily said that by not acting in 1920, developments in the '20s set the foundation for the Great Depression. Did it? I don't know. But the logic is just the same.

3. The recessions of a pre-globalized, pre-industrialized, pre-Wall Street America must be different from the recessions of the 1900s. So wouldn't it make sense that government policy would have a different affect on each one? Or maybe "modern" recessions have bigger impacts?

A lot of my friends majoring in a math or science like to tell me how economics isn't a "real science." If professors teach their students like this, then they are right.

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