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Perhaps that is a dog-bites-man headline. But Rochester alumnus Lee Ohanian demonstrates that it wasn’t exactly his dedication to radical, anarchic, laissez-faire capitalism that did it:

I develop a theory of labor market failure for the Great 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 and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.

Protecting industry and fixing wages used to be considered statist industrial policy, but I guess in 2009 that counts as “the market” run wild.

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