The Great Depression of the 1930s was made worse than it needed to be because European governments prioritized balanced budgets and stable currencies over putting people back to work and putting money into circulation.
As Matthew Yglesias noted—
In Germany, for example, the [ruling socialist] SPD took the view, roughly speaking, that capitalism was an inherently flawed system and the Depression just proved that. But short of a revolution and a total transformation of the political universe, there was just nothing to be done to alleviate unemployment.
Similarly, in 1929 Ramsay MacDonald’s Labour Party swept into power in the United Kingdom and proceeded to … enact spending cuts necessary to keep the country on the gold standard. As this led to left-wing defections, MacDonald eventually made up lost ground by forming a coalition with Conservatives that eventually ended up being mostly backed by conservative MPs.
Sweden was an exception where the local social democrats took bold steps to bolster employment. But mostly it was left to other parties with less worthy overall agendas — Hitler, for example — to step in and say that if the rules of the game led to prolonged spells of mass unemployment then the rules of the game had to be changed.
Brad DeLong, an economist at UC Berkeley, said that he used to joke that governments would never again make the mistakes that prolonged the Great Depression, but instead would make new mistakes. Now he admits he was wrong. Governments are making the same old mistakes.
Europe’s governments are held back by fear of fiscal imbalance and undermining the Euro standard, just as they once were held back for fear of undermining the gold standard. But, as in the 1930s, there are nationalist parties waiting in the wings to do the things that the mainstream parties fear to do.
The European public may well turn to parties such as the United Kingdom Independence Party, the National Front in France or the neo-Nazi Golden Dawn party in Greece. As far as that goes, similar movements will arise in the United States if Democrats and Republicans fail to act.
Depression’s Advocates by J. Bradford DeLong for Project Syndicate.
I don’t want to go back there by Matthew Yglesias for Vox.com.