What - or Who - Started the Great Depression?
Herbert Hoover. I develop a theory of labor market failure for the Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation/low nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.
I thank Monique Ebel, Robert Himmelberg, David Levine, Nelson Lichtenstein, Fab- rizio Perri, Albrecht Ritschl, Jean-Laurent Rosenthal, and Rob Shimer for helpful discus- sions. Very special thanks to Bob Lucas, Ed Prescott, Nancy Stokey, and two referees for detailed comments on earlier drafts of this paper, and to Hal Cole for joint work on the topic of union hold-up. Giang Ho, David Lagakos, Ruy Lama, and Paulina Restrepo provided excellent research assistance. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the National Bureau of Economic Research.
Ohanian, Lee E., 2009. "What - or who - started the great depression?," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2310-2335, November. citation courtesy of