While there is disagreement among mainstream economists about the causes of the Great Depression, few would argue with the general picture that a series of policy errors turned an ordinary recession into over a decade of economic misery in the US and a few other countries.
Many of the errors were actions opposite to modern ideas. The Federal Reserve tightening rather than loosening monetary policy. Congress restricting rather than encouraging foreign trade. The Hoover administration raising taxes to reduce the deficit rather than spending for stimulus. The Roosevelt administration declaring war on the supply side by destroying crops and other resources and jailing people for cutting prices or working too hard.
These were not random responses. They resulted from non-economic thinking — seeing something bad and trying to force it in the good direction. Economists view most things as equilibrium results of other forces. Making something better usually requires tracing a causal chain, which is often long, to identify and fix the underlying problem.
The Fed was correct that the stock market was too high, with too much leverage, wrong to assume forcing it down by restricting leverage would help. Hoover was correct about government finances being out of control, wrong to increase taxes in response. Roosevelt was right that prices were too low and inventories too high; but destroying inventory and legislating higher prices made things worse.
Unfortunately, the discussion of economics in both op-eds and speeches by politicians today is no more logical than popular ideas of the 1920s and 1930s. People see inequality or inflation and propose government move things in the good direction, without doing the careful empirical and theoretical work necessary to know if they are addressing a root problem constructively or manipulating a symptom in a way that will backfire.
Some people, and I lean toward this camp, see the history of the Great Depression as a cautionary tale about overactive and overambitious government. Others view it as an experience that taught us what not to do, so the government can now manage the economy in constructive ways. The optimistic view, however, depends on people learning not just the specific mistakes of that era, but also the problem with illogical, unsupported policies masquerading as economics.
History textbooks need not include rational accounts of the causes of the Great Depression, but they should avoid peddling incoherent non-economics as fact. Say the Great Depression is unexplained, or its causes too complex and controversial to cover. Or include heterodox explanations rejected by modern economists, but define them clearly, provide consistent theory and reference empirical evidence. Or assign outside readings covering a range of opinion.
I would hope American history textbooks provide good coverage of the most important economic event of the 20th century, but I would be satisfied if they merely left out just-so stories claiming to be economic fact.
Aaron Brown is a former head of financial market research at AQR Capital Management. He is also an active crypto investor, and has venture capital investments and advisory ties with crypto firms.
This column was provided by Bloomberg Opinion.