Bankruptcies can theoretically create a long run recovery, but the bankruptcy process generally sets off a long wave of bankruptcies -- comparable to the way pressure from the cost savings of one bankrupt airline puts pressure on the next.
The last two major recoveries came neither from volunteerism more from an automatic stabilizer. The depression of the late 19th century ended by corporate consolidations, which reduced downward price pressure. The gold discoveries, which the monetarists credited with the recovery, may have contributed a bit of a speculative bounce to the recovery. The New Deal by itself did not seem to conquer the Great Depression -- although I realize that he did not have a real fiscal effect. Military spending seems more important. I believe that because economists are inclined to think about automatic processes little thought has been given to the consideration of recoveries from major depressions. The small sample that we have makes progress even more difficult. -- Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901
