The Great Depression — Resolved

The award for the clearest assignment of blame ever for the Great Depression goes to the abstract of this new NBER research paper:

What – or Who – Started the Great Depression?

Lee E. Ohanian

NBER Working Paper No. 15258
Issued in August 2009


Herbert Hoover. I develop a theory of labor market failure for the Great Depression based on Hoover’s industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.