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Sumner Scott . The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression . Oakland, CA : Independent Institute , 2015. xv + 507 pp. ISBN 9-781598-131505, $37.95 (cloth).
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The causes of the Great Depression remain an active debate between historians and economists. Often fueling that debate, which can expand to include what ended the Depression, is current policy debates on finance and labor policies. What is the appropriate response to a financial downturn? Starting in the 1930s, policy makers and scholars have examined a variety of causes that include, but are not limited to, World War I and the economics of the Treaty of Versailles, the policies of 1920s Republican administrations in the United States, new Wall Street practices, Herbert Hoover's policies, and Franklin Roosevelt's New Deal. The debate often includes the money supply, central banking policy, and international trade, and can take on partisan and ideological dimensions. This was especially true after the financial panic of 2007-08. During a financial crisis, what, if anything, should the government do?
Scott Sumner has stepped into this debate with The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression. It is the culmination of decades of work on the Depression. Sumner, as he recounts in the book and on social media, started blogging in an attempt to correct what he considered the wrong response to the financial crisis that followed the collapse of the housing bubble. Policy makers, he argued, had learned the wrong lessons from history. Sumner argued that the Federal Reserve Board should have changed its target to increase nominal GDP, rather than continue its traditional focus on inflation rate. He believed that twenty-first-century policy makers were repeating the mistakes that created the Great Depression, prompting him to return...