What is wrong (and right) with Joe Stiglitz’s analysis of the Great Depression? Click here for Part 1. Click here for Part 2.
Yet for all the problems with the Stiglitz theory of the Great Depression and the Long Recession, there is some useful wisdom as well.
Stiglitz is framing a critique–not only of the Friedman/Schwartz theory of the Depression–but also of the neo-Keynesian theory of today’s economic problems.
The neo-Keynesian view of the current situation (expressed most pungently by Paul Krugman) goes something like this:
The US economy has been hit by a financial crisis, not an economic crisis. The crisis has deprived consumers of the cash and credit to buy goods and services. Aggregate demand has slumped, and so therefore has employment. If government stepped in as a substitute buyer of goods and services, demand would revive – perhaps as rapidly as a mere “matter of months,” as Paul Krugman boldly stated in a recent blogpost.
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