So why did economists change their mind?Â In both cases, NGDP signaled a problem.Â NGDP fell roughly in half during the early 1930s, which sure looks like tight money.Â NGDP growth averaged 11% during 1971-81, which sure looks like easy money. What do the first two cases have in common?Â In both cases, an economist focusing on interest rates would be unlikely to blame the Fed.Â Rates were very low in the 1930s, and hence money did not look tight.Â Rates rose sharply in the 1970s, and hence monetary policy did not look expansionary. But thanks to you, we won’t do it again.Ģ.Â In the 1960s and 1970s, most economists did not blame the Fed for the Great Inflation.Â A few decades later, most economists thought the Fed was to blame.Â (Ben Bernanke among them.)ģ.Â In the 2010s, most economists did not blame the Fed for the Great Recession.Â Market monetarists did.

I would like to say to Milton and Anna: Regarding the Great Depression. Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. By 2002, even Fed officials like Ben Bernanke acknowledged the Fed’s guilt:

In the 1930s and 1940s, almost all economists believed that the Great Depression was not caused by a tight money policy at the Fed.Â In the 1960s, Milton Friedman and Anna Schwartz convinced many economists that an excessively tight money policy was largely to blame for the Depression. In my new book entitled The Money Illusion, I argue that a tight money policy by the Fed in 2008-09 largely caused the Great Recession.Â I’d guess that 99% of economists don’t agree with me on that point.Â That makes me a contrarian.īut if I am a contrarian, it’s of a type that is quite common throughout history.Â Consider:ġ.

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