Thread by @heimbergecon

It’s totally wrong to draw the lesson from history that you have to push for “drastic anti-inflation“ policy to counteract a rise of the Nazis. Nazi rise in Germany in early 1930s happened when there was DEFLATION, worsened by fiscal austerity. Thread /1

https://twitter.com/AmityShlaes/status/1348139241159712768

In 1928, the Nazis had 2.6% of the votes in Germany; in 1932, they had 37.4%. Most people – across the political spectrum – don’t know that Nazi rise happened in an environment of mass unemployment and DEFLATION. /2

hertie-school.org/fileadmin/user…

Hyperinflation in Germany stopped in 1923 after the currency reform. And the real problem as the Nazis gained strength was the severe recession with deflationary pressures. Brüning’s emergency decrees introduced tax hikes and spending cuts, with devastating economic effects. /3

Fiscal austerity increased unemployment, led to social suffering and unrest. Hitler realised by the end of 1931 at the latest that Brüning's austerity policy would "help his party to victory and thus end the illusions of the present system." /4

Analysis of data from four elections between 1930 and 1933 shows that voters in areas more affected by spending cuts and tax increases gave significantly more votes to the National Socialists, supporting Hitler’s rise. /5

voxeu.org/article/fiscal…

If you want to draw lessons from this historical episode, it should probably be:

1. Governments incapable of fighting unemployment create the breeding ground for political radicalisation.
2. Be very careful in designing international arrangements (reparation payments). /end