Hopeless

I was making this argument to a socialist friend, who pointed me to this graph of GDP in the period:
http://upload.wikimedia.org/wikipedia/commons/d/da/Gdp20-40.jpg
and was basically saying it showed the New Deal at least did no harm.
Unemployment figures notwithstanding, how would Ms. Schlaes, or you, answer a hostile question about this graph?

The graph also does not show the counter factual, which, of course, does not exist.

Bill Bonner has an inimitable writing style. He is all doom and gloom, and humorous at the same time. Here is a snippet of an essay I read a couple of years ago. Found it very hilarious. Bonner is the author of "Empire of Debt: Rise of an Epic Financial Crisis", and "Financial Reckoning Day: Surviving the Soft Depression of the 21st Century".

In the early 20th century, John Maynard Keynes came up with a new idea about economics. The politicians loved it; Keynes explained how they could meddle in private affairs on a grand scale – and, of course, make things better. Keynes argued that a government could take the edge off a business recession by making more credit available when money got tight…and by spending itself to make up for the lack of spending on the part of consumers and businessmen. Keynes suggested, whimsically, hiding bottles of cash all around town, where boys might find them, spend the money, and revive the economy.

The new idea caught on. Soon economists were advising all major governments about how to implement the new “ism.” It did not seem to bother anyone that the new system was a fraud. Where would this new money come from? And what made anyone think that the economists’ judgment of whether it made sense to spend or save was better than individuals? All the Keynesians had done was to substitute their own guesses for the private, personal, economic opinions of millions of ordinary citizens. They had resorted to what Franz Oppenheimer called “political means,” instead of allowing normal “economic means” to take their own course.

The economists wanted what everyone else wants – power, prestige, women (except for Keynes himself, who preferred men). And there are only two ways to get what you want in life, dear reader. There are honest means, and dishonest ones. There are economic means, and there are political means. There is persuasion…and there is force. There are civilized ways…and barbaric ones. The economist is a harmless crank as long as he is just peeping through the window. That is what we do here at The Daily Reckoning. But when he undertakes to get people to do what he wants – either by offering them money that is not his own…by defrauding them with artificially low interest rates…or by printing up money that is not backed by something of real value (such as gold)…he has crossed over the dark side. He has moved to political means to get what he wants. He has become a jackass.

Keynesian improvements were applied in the ‘20s – when Fed governor Ben Strong decided to give the economy a little “coup de whiskey” – and later in the ‘30s when the stockmarket was recovering from the hangover. The results were predictably disastrous. And along came other economists with their own bad ideas. Rare was the man, like Robert Lucas or Murray Rothbard, who pointed out that you could not really improve economic results with political means. If a national assembly could make people rich simply by passing laws, we would all be billionaires, because assemblies have passed a multitude of laws and seem capable of enacting any piece of legislation brought before them. If laws could make people wealthy, some assembly somewhere would have found the magic edicts – simply by chance.

According to the prevailing Keynesian dogma, consumption is the main form of spending in the economic system, while saving is mere nonspending and thus a "leakage" from the spending stream.

I suppose most spending is "investment" from someone's perspective. After all, the same dollar I spend on the consumption of food is first my employer's investment in my labor.

Regardless, Keynes never said that saving and investment are "mere nonspending" or "'leakage' from the spending stream". He spends two chapters defining "saving and investment" in The General Theory and defines the terms more or less as Reisman does, so I have no idea what Reisman is talking about.

Keynes argued that a government could take the edge off a business recession by making more credit available when money got tight…

A business recession occurs when productive resources organized unprofitably disassociate from the unprofitable organizations and float around in the sea of liquid capital until they interact and bond with more profitable organizations that can make more productive use of them. Credit is often part of this reorganization and well it should be.

This reorganization is precisely what we want, but simply extending credit does not guarantee a profitable organization. We don't want to guarantee yields by substituting entitlement to tax revenue for the yield of credit that hasn't resulted in profitable organization. Some credit will always fail in this way. We must expect these failures. The solution to this problem is another liquidation of resources followed another recrystalization catalyzed be creditors.

Financial organizations extending credit unprofitably must also dissolve and reorganize. We're not trying to prevent this liquidation to protect established entitlements. The corporate officers now entitled to extend credit want to keep their offices despite their failure to profit. We instead want their organizations to dissolve, and we want their resources to join other organizations or to form new organizations to extend credit.

Unemployment figures notwithstanding, how would Ms. Schlaes, or you, answer a hostile question about this graph?

Here's how I would answer it: Something is fishy with that graph. I collected a similar graph available here:

http://www.studybuddy.org/picture.asp?picture=39

First point: Anyone claiming to adjust for inflation that far back should know that the adjusted values should be taken with a grain of salt.

Second point: The graph from your friend shows the economy to have recovered its 1929 peak as early as 1937. According to my graph, it didn't recover that point until 1941. I got my numbers from BEA.

So it comes down to whether you believe the dollar was worth more in 1937 than in 1929.

Here's a graph that tries to capture the century from 1910, but the depression-era numbers are too small to show up:
http://www.studybuddy.org/picture.asp?picture=155

I suppose most spending is "investment" from someone's perspective. After all, the same dollar I spend on the consumption of food is first my employer's investment in my labor.

Labor costs are not an employers investment.

Politics.

Just watched the most TV I have in years by watching the so-called presidential debate.

How the fuck did America wind up with two yahoos like Obama and McCain as the only two realistic prospect for president for the next four years?

We are in serious trouble.

For many entrepreneurs, their labor is the main investment.

Agreed. They often require credit, like home mortgages. Employers often require shorter term credit to pay employees. I have no problem with extending them credit. I do have a problem with entitling unprofitable organizations to repay their credit with tax revenue, particularly when these organizations are in the business of extending credit themselves. Failure or downsizing of these organizations is not a systemic catastrophe.

Cupertino, CA 95014″ rel=”nofollow”>What caused the crisis

Most of this video is true. Of course a lot of the blame belongs to the Fed and Bush administration as well. But it is a very interesting video on CRA.

Sorry for the bad link in the earlier post.

Here it is

Are those our only two options, FDR style or Reagan style? If all you have is a false dichotomy, no wonder the same cycle is repeating itself.

That's like unpacking your suitcase by adding more clothes.

Really, George, I'm almost literally on the edge of my seat waiting to hear you explain this one. Don't disappoint me. Let's hear it.

Albatross -

Being Irish, it pains me to say this, but: I believe you have unfairly maligned Cromwell.