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The Retreat of Macroeconomic Policy

BERKELEY – One disturbing thing about studying economic history is how things that happen in the present change the past – or at least our understanding of the past. For decades, I have confidently taught my students about the rise of governments that take on responsibility for the state of the economy. But the political reaction to the Great Recession has changed the way we should think about this issue.

Governments before World War I – and even more so before WWII – did not embrace the mission of minimizing unemployment during economic downturns. There were three reasons, all of which vanished by the end of WWII.