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Friday, June 12, 2009

The worst economy since the Great Depression

Justification for the stimulus package and numerous bailouts centered on the historic nature of the economic collapse and the need for government action on the scale of the Great Depression. Really?

The U.S. economy shrunk by a quarter in the first three years of the 1930's, largely in response to government action. Our recent economic woes, while severe, grew out of problems in the financial sector, not from fundamental weakness in the economy. We'll leave aside for now how much responsibility for those problems should be placed on politicians interfering in the housing sector. The data shows us that the recent contraction is nowhere near the scale of the Great Depression, and won't be unless we enact policies as foolish as Smoot-Hawley.

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