Would there have been financial armageddon had the bailouts (e.g. Auto, Bank, AIG) been refused by the President and Congress? I find it hard to believe that there would have been runs on the banks or social unrest if the bailouts were rejected.
The necessary reallocation of resources would have taken place at a much faster pace (and it’s not clear if they have taken place entirely or not; I’m sure that the bailouts and the Fed’s monetary expansion have caused even more malinvestment). I’m sure that the drop would have been much steeper, but the recession would have ended faster. It would be, no doubt, similar to comparing the 1921 recession with the 1929 recession (the 1921 recession was much steeper than that of 1929, but the 1929 recession was dragged on until 1932, by which time it had become much worse than 1921).
In one of the LvMI’s videos of Robert Murphy, he makes a good point that had no action been taken the government surely would have claimed that had they intervened the recession would have been over much faster than it was naturally. Maybe in the long-run it will be a victory for all free-market schools of thought, but you would have thought that was the case after the Great Depression (and, instead, the State grew in size and more people were comfortable with its enlargement). Even if it is a long-run victory, it will only come as a result of the suffering of millions of people, and I’m not sure that that really is a victory.
I wonder if the Second World War had anything to do with the post-war agrandizement of the State. In other words, it was not so much the Great Depression, but the Second World War and the “necessity” of the State to “save the world” from fascism and Hitler that turned people to the State, as opposed to away from it. In other words, I wonder if there had been no Second World War would the State really have been chastised for its poor preformance in “stimulating” the economy out of the Great Depression.