Thursday, August 18, 2011

He Yadda Yaddad the worst part

Matt Yglesias has a strange post about monetary policy in Nazi Germany.  It plays off the again topical issue of FDR's monetary policy in the New Deal era but the reader is left with the distinct impression that the story of 1930s German economic policy is two monetary wheezes (a parallel currency and then gold seizures in Austria and Czechoslovakia) from which it was just a hop, skip, and jump to the war effort finally getting the economy to full employment.

But what's strange is to propound so authoritatively about Nazi economic policy and never mention fiscal policy, which is where all the action was.  Here's a review by Alex Harrowell of Adam Tooze's excellent book on the topic that lays it all out: monetary policy didn't have a whole lot to do with Germany's 1930s "boom" which was in fact a ruthless military-industrial buildup financed by suppression of consumption and propaganda-boosted labor supply.  Monetary policy was just the increasingly desperate leak-plugging operation on the side, as Nazi economic lunacy ran into the mundane problems of all economic lunacy -- shortages and repressed inflation, not least of foreign currency.   Only in Rick Perry's fantasy world does this tell us anything about the American policy dilemmas today.

UPDATE 13 SEPTEMBER: Yglesias returns to the topic:

In broader terms, the policies of Adolf Hitler were far inferior to those of his predecessors in Germany. But the Nazi regime, under the leadership of Hjalmar Schacht, implemented highly effective monetary policies ...

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