We have been hearing a lot lately about the parallels between the 1930s and today. And there are concerns about policy measures, such as raising taxes (and to some cutting spending), in the middle of a recovery which will set back any recovery. Personally, I have argued throughout the current discussion that our policy steps have consistently turned a market correction into an economy wide crisis, and nothing in terms of argument or evidence has persuaded me to the opposite of that position yet. There is so much regime uncertainty caused by the policy steps of the past two administrations, and such bad policies followed that distort incentives and confuse the economic signals actors rely on in making decisions that it is a miracle that our situation is not worse. And I would stress that there is a significant difference between cutting public expenditures and raising taxes on individuals and businesses; cutting wasteful government spending is a good, taking money out of the hands of individuals is a bad. Recovery requires government to get lean and out of the way, and individuals to pursue opportunities for mutual gain through trade and wealth creating entrepreneurial ventures.
But the purpose of this post is not to debate my position, but instead to provide a link to the discussion that took place in the early 1930s in competing letters in the Times of London from the two different sides on "fiscal stimulus". Download Cambridge_vs._LSE,_1932 The debate continues ...
HT: Richard Ebeling.