Tuesday, April 7, 2009
Are the "Generals" Remembering History or Fighting the Last War?
The current economic and financial crisis has generated a lot of discussion about previous recessions as well as the Great Depression. Clearly, the approach taken by the federal government and many prominent economists is to take from Keynes the idea of government spending as a stimulus and replacement for reduced consumer spending and reduced business investment. There has been a lot of work over the past decades devoted to understanding the causes of the Great Depression and possible remedies. In this sense, people seem to be paying attention to the adage from George Santayana, "Those who cannot remember the past are condemned to repeat it." Yet, each crisis is different in the sense that the institutional structure of the economy is different, the international setting is different, and technology is different. It is often said that generals have a tendency to, "fight the last war." If we consider the post-World War II recessions as "police actions," then we may be fighting the last war rather than remembering history.