NYTimes.com Video: 'Lesson' from 1930s is that Government is the Solution

November 7th, 2008 2:31 PM

"The government is doing what it can. They've learned the lessons of the 30s. And the lesson of the 30s was to put ideology aside and do whatever you can to bail it out," New York Times Chief Financial Correspondent Floyd Norris said in an Oct. 8 video on the publication's Web site entitled "Echoes from a Dismal Past."

"I agree with you," economics reporter Louis Uchitelle said, also pointing out that it took two years before the government really "stepped in and acted" during the Depression - referring to Franklin Roosevelt's action.

Norris said one of the first lessons of the 1930s was that bailing banks out would "limit the damage of the financial crisis."

"If you go back just two or three years ago, you had this powerful argument that government was the problem. So there is emerging from this an understanding that markets and government are married whether they like it or not," Uchitelle said.

Despite the reporters' assertions that the lesson from the 1930s was that government should have a big presence in markets, there are experts who say that market intervention actually made the situation worse.

In 2004, economists at the University of California, Los Angeles (UCLA), studied the policies of President Franklin Roosevelt's New Deal and determined his policies prolonged the Depression by seven years.

Harold L. Cole and Lee E. Ohanian blamed anti-free market measures for the slow recovery in an article published in the August 2004 issue of the Journal of Political Economy.

"[Roosevelt] came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies," Cole said in a press release dated Aug. 10, 2004.