Bob Higgs, writing in yesterday’s Investor’s Business Daily , very nicely summarizes his research on the question of why the Great Depression lasted as long as it did, and why it is incorrect to say that it ended with WWII. Here are some key paragraphs:
In truth, however, the government did try to spend us out of the Depression, as it has tried to spend us out of downturns several times since. But careful analysis shows that hyperactive government policies complicate and prolong recovery, rather than trigger it.
After an economic bust, bad investments must be liquidated, so salvageable assets can be reallocated to their most valuable uses. If the government props up failed endeavors through bailouts and other programs, necessary readjustments of the economy’s capital structure are slowed or halted, and the toxic mistakes of the past become locked in place, obstructing recovery and hindering the creation of future wealth. The New Deal recovery efforts had exactly these effects, as do current government policies.
It was bad enough that Roosevelt’s recovery program expended billions of dollars willy-nilly with no sound economic logic. But the president and his subordinates made matters worse when, especially from 1935 on, they threatened private property rights by attacking private investors, calling them “economic royalists,” and pushing through policies attacking the very foundations of private enterprise.