Don Boudreaux on the 1920-21 Depression

Don Boudreaux has an interesting post up on exports and the 1920-21 depression. He's trying to claim that Krugman's history is bad when Krugman says “Historically, [in] the aftermath [of large] financial crises countries recover by having a huge exchange-rate depreciation, which then leads to an export boom” because the 1920-21 depression itself was actually characterized by high exports, and the recovery and years subsequent to the downturn were characterized by low exports. First, I think this is kind of bad logic - and Don is buying into this whole "one downturn is basically the same as any other" thinking. But the 1920-21 depression was different from others.

Still, the coverage that Don provides is good. It's good that we talk about these historical episodes that most people don't talk about.

In the end, I think Don ends up supporting my position on 1920-21. It's kind of a nice "out of sample" test of my position, because I didn't even talk or think much about what was going on with trade at the time I was writing my article (which is revised and resubmitted and still pinging around the RAE I guess). To recap what I've said about it, the 1920-21 depression was caused by high interest rates and a supply shock. It was almost a perfect storm of characteristics that would render fiscal policy ineffective, and low and behold we didn't do fiscal policy and we ended up being fine and out of it relaively quickly. There are several points to make, but long story short - we did not have any demand deficiency.

Now - how would you expect exports to behave if you had a supply shock and no demand deficiency to speak of? Well to me, that sounds like a period where you'd expect to see high exports, right? Don suggests that was the case.

I wish being an economic historian was a surer job... I could definitely do that for the rest of my life. However, I feel like I should do real practical research to get a real practical job and write about this sort of stuff when I can.