Interventions Breed Interventions – Bank On It

This is a great letter to the editor from Don Boudreaux:

18 July 2009

Editor, The New York Times
620 Eighth Avenue
New York, NY 10018

To the Editor:

Discussing today’s proposed increase in federal financial regulation, Paul Krugman describes “the creation of federal deposit insurance in the 1930s” as marking “the last time there was a comparable expansion of the financial safety net” (“The Joy of Sachs,” July 18).

Mr. Krugman’s history is half-baked.  U.S. bank insolvencies in the 1930s resulted from restrictions on branch banking.  Canada, which had no such restrictions, suffered not a single bank run during the Depression.  And our northern neighbor had no deposit insurance until the 1960s.  So the very safety that Mr. Krugman suggests can be, and was, created only by deposit insurance was itself earlier undermined by misguided government regulations restricting branch banking.

Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030


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