The problem is that there are several different lessons from the Great Depression. They are confusing when we conflate them. Especially in the US, the Great Depression is usually identified with the stock market crash of 1929. Economists have two simple macro-economic policy answers to that kind of collapse. The first is the lesson that John Maynard Keynes already taught in the 1930s – in the face of a collapse in private demand, there is a need for new public sector demand or for fiscal activism.
The second is the lesson above all drawn by Milton Friedman and Anna Schwartz in the 1960s. In their view, the Depression was the result of the Fed’s policy failure in the aftermath of 1929. There was a massive monetary contraction, which was responsible for the severity of the downturn. In the future, central banks should commit themselves to providing extra liquidity in such cases.
A 1931-type event requires micro-economic restructuring, not macro-economic stimulus and liquidity provision. It cannot be imposed from above by an all-wise planner but requires many businesses and individuals to change behaviour. The improvement of regulation, while a good idea, is better suited to avoiding future crises than dealing with a catastrophe that has already occurred.
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