The Great Depression was deeper and longer than it should have been for a variety of reasons, some already mentioned here. Trade dried up, thanks to our congress foolishly raising tariffs via the infamous Smoot-Hawley bill. The 1929 stock market crash was more symbol than cause of the economic contraction that followed it. A factor not yet mentioned is contraction of the money supply, stressed by no less a conservative than Milton Friedman. The Fed at that time did not know of its own power to stimulate the economy, and failed to use monetary policy properly. As a result, prices and wages fell precipitously; confidence was so low that even people and businesses with money hoarded what thay had and investment and consumer spending just dried up. This crowd psychology is what I worry about today, as people could panic and create runs on banks, food stores, etc. Bernanke is a student of the Great Depression, and seems determined to avoid “paralysis by analysis” by acting preemptively and forcefully.
