Economists have finally shown why the Great Depression continued for so long. It was government policy: specifically, FDR's policies that interfered with the free market, just as many of us suspected all along.
That article is from 2004 and was largely refuted in 2011: http://krugman.blogs.nytimes.com/2011/0
The second link, near the bottom, does say that Cole and Ohanian weren't completely wrong: "They properly criticize New Deal policies that slowed down the spectacular recovery from April to July 1933 to almost a crawl. [...] The aborted recovery was a tragedy for the American economy and for the world, but the premature end of (or extended pause in) the recovery tells us nothing about whether an economy can recover from a depression with no increase in aggregate demand."
As usual, Krugman is clueless or purposefully misleading, as is his source in this case. That "The answer is almost certainly that FDR forced his misguided National Industrial Recovery Act through Congress in June ... forcing up nominal wages in the face of high unemployment ... and cartelizing large swaths of the American economy, [which] shut down the recovery that was still gaining momentum," as DeLong says in your second link and Krugman seems to agree with in the first, is exactly the main point in the Cole/Ohanian paper, so DeLong and Krugman admit they agree with 90% of the paper - and with 100% of my post, since New Deal policies like NIRA were interferences with the free market.
In order to find a point of alleged disagreement, DeLong has to mistake Cole and Ohanian's comment about the government's "boosting aggregate demand" not ending the depression as being about the economy's "increasing aggregate demand" having nothing to do about any part of the recovery. In fact, Cole and Ohanian completely agree that increasing aggregate demand is necessary; in fact at my link you'll see that their point was that the key problem with FDR's policies was that "demand stalled" as a result, causing the gross national to remain 27 percent below where it would have been without those policies. Government boosted its purchases, but that "boosting" of demand just displaced private consumer demand through the mechanism of inflation, with the net result that there was no increase in overall aggregate demand. If anything, Cole and Ohanian place even greater importance of aggregate demand than DeLong and Krugman do - it's just that Cole and Ohanian recognize that aggregate demand includes expenditures by private individuals, something Krugman at least tends to forget.
Now, to be fair, Krugman and DeLong were only addressing a 2011 editorial, and not the original 2004 paper, so even they likely didn't think they were refuting the paper. The can nitpick about exactly when the 'trough' occurred, but at most they are arguing that FDR's policies only prolonged the Great Depression by 6.5 years instead of 7 years.
Edited at 2013-12-19 08:27 am (UTC)