By Emily Kaiser
WASHINGTON, March 15 (Reuters) - The key architects of U.S. economic policy have spent much of their lives studying the mistakes blamed for the Great Depression, and they are determined not to repeat them.
For Federal Reserve Chairman Ben Bernanke and White House economic adviser Christina Romer, two leading scholars on what went wrong in the 1930s, the biggest lessons include: "Don't scrimp on revitalizing the economy;" and "Don't close the lending or spending taps until recovery is firmly in place."
That thinking may shed some light on why the United States has pushed so aggressively in the approach to next month's Group of 20 Summit for other countries to follow its lead in boosting government spending.
History may also help explain why U.S. calls for more cash have met a cool reception in Europe, where many officials contend that the primary focus should be on tightening regulation to prevent the next crisis rather than embarking on a big spending spree.
While Americans are still scarred by the experience of the 1930s, for many Europeans the lasting memory is of Germany's hyperinflation after World War One.
The consequence may be that U.S. policy errs on the side of doing too much, risking a bout of inflation, while Europe's response may be too tepid, which could lengthen the recession.
"The building is burning and the Europeans want to talk about installing a new set of sprinklers and smoke alarms so that this doesn't happen again," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.
"The Americans are saying, 'Wait a minute, let's put this fire out before we deal with how we're going to prevent the next one.'"
On Tuesday and Wednesday, the U.S. central bank's policy-setting committee will convene to try to figure out how best to buoy the economy when short-term interest rates are already near zero. The Bank of Japan, which meets on Wednesday, is in a similar position.
Both are expected to keep rates unchanged.
LESSONS OF 1937
World stock markets recovered from multiyear lows last week as investors detected tentative signs of stabilization. If that trend continues and investors grow confident that recovery is near, central bankers can expect more pressure to start weaning the economy from low interest rates.
Legendary investor Warren Buffett warned last week that today's easy money could eventually lead to inflation worse than in the 1970s era of stagflation.
"In economics there is no free lunch," Buffett said on CNBC television.
But the economic advisers surrounding President Barack Obama have made it clear they will keep the money flowing until they are certain the economy is healthy enough to stand on its own.
Romer, who chairs Obama's Council of Economic Advisers, hammered that point home in a speech last week.
When the U.S. economy started to pull out of recession in 1937, policy-makers turned their focus to cutting deficits and preventing inflation, moves that "effectively added two years to the Great Depression," she said.
"The 1937 episode is an important cautionary tale for modern policy-makers," Romer said. "At some point recovery will take on a life of its own... but we'll need to monitor the economy closely to be sure that the private sector is back in the saddle before government takes away its crucial lifeline."
How quickly the United States pulls back depends on which measures the White House watches to determine when it's safe. Economists still see economic growth resuming later this year, thanks in large part to government help, and consumer spending indeed perked up a bit in January and February.
The labor market may be much slower to recover, which is significant because Obama has touted saving or creating jobs as the primary intent of his $787 billion stimulus package. In the past two downturns, unemployment peaked more than a year after the recession officially ended.
If that pattern is repeated, it may be late 2010 before this administration feels comfortable letting up on fiscal support. By then, the inflation hawks may be circling. (Additional reporting by Herb Lash in New York; Editing by Dan Grebler)