The American Spectator

Paul Krugman, not surprisingly, compares the current financial crisis to the Great Depression. Gosh, if I had a dime for every time a liberal commentator invokes the Depression, I could probably afford Bear Stearns myself. Krugman perpetuates the canard that the “banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure” and that’s what turned an ordinary recession into a Depression. But in reality, what worsened and prolonged the Depression was government interference in the economy through regulation, protectionist trade policies, higher taxes, and mismanagement by a Federal Reserve Board that actually contracted the money supply in the early years of the crisis (see Milton Friedman’s Monetary History of the United States and Amity Shlaes’s The Forgotten Man for more). With all of that said, as I wrote on Tuesday, the fact that the Fed rescued Bear Stearns ultimately with taxpayer money, makes it easier for Krugman to argue that we need preemptive regulations.