In yesterday's Washington Post, Amity Shlaes warns against asking Obama to emulate FDR.
And in yesterday's Boston Globe, Jeff Jacoby issues a similar and equally wise warning.
Stimulating Reading
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"Enlarging Washington's spending power will not enlarge the economy" – J. Jacoby
This is what millions of americans do not or do not want to understand.
If government could create value from thin air, it would have done so long ago and none of us would bother going to work in the morning as all our desires would come from (originate from) this magical entity known as "government".
All government is capable of, is moving property from one person to another.
Now, this very basic idea is not brain surgery and is familiar to the readers of this blog, BUT NO ONE ELSE GETS IT!
Here's one from the WSJ today by HAROLD L. COLE of UPENN and LEE E. OHANIAN of UCLA
How the Government Prolonged the Great Depression
http://online.wsj.com/article/SB123353276749137485.html
Isn't it strange how presidents are frequently measured by the state of the economy, yet Harding & Coolidge are almost universally derided while Roosevelt is considered a hero? Politics is a strange business.
Belief in government stimulus spending as a cure is akin to the belief in bleeding as a cure.
We've just witnessed the results of a multi-year government effort to stimulate an important part of the economy — the housing market. And Obama is so impressed with the success of that program, he wants to spread its benefits to the economy as a whole.
Here's a great way to stop unemployment! The government can hire every single unemployed persons. Take half of these newly employed people and have them each dig a hole and then the other half can come along and fill it in. That will be very stimulating to the economy won't it? WPA to 1,000th power!
The definition of 'fiscal stimulus' is to run a budget deficit–which the U.S. Government has done for many years. But listening to Obama, it is easy to come away with the impression that a budget deficit has never been tried before, that until now politicians have only known prudence and balanced budgets.
This is also stimulating reading:
“Make no mistake, tax cheaters cheat us all, and the IRS should enforce our laws to the letter.” Sen. Tom Daschle, Congressional Record, May 7, 1998, p. S4507.
BTW, Weren't the Democrat's in charge of both senate and the house from 1930s to 1995? with an extremely brief break in the late 40s? Who passed all those deregulation between 1980 and 1995? How many laws are we taking about, is there a count of laws that were repealed and new laws added between 1980 and 2008? I hate to say this, but is there any data on this deregulation?
I know of one congressman who voted against every single Reagan budget. Reagan had personally campaigned for this congressman in 1976 and 1978. This congressman had supported reagan's candidacy in 1976 and 1980, but didn't support him after his first term. that congressman's name is Ron Paul.
No, Amity Shlaes, FDR was NOT a great leader!
Forget about his poor economic policies. FDR was responsible for Executive Orders 9066 & 9102 in which persons of Japanese, German and Italian descent were forcefully imprisoned in American "internment" camps.
Indeed, Roosevelt was such a tyrant that he demanded that Latin American governments arrest and hand over their Japanese (and German and Italian) residents to American prison camps like Crystal City, Texas.
FDR was a tyrant, not a great leader, and any person who cherishes the precious liberty upon which politically centralized "leaders" have historically waged war knows that FDR was an abject failure.
–Pingry
No, Amity Shlaes, FDR was NOT a great leader!
Forget about his poor economic policies. FDR was responsible for Executive Orders 9066 & 9102 in which persons of Japanese, German and Italian descent were forcefully imprisoned in American "internment" camps.
Indeed, Roosevelt was such a tyrant that he demanded that Latin American governments arrest and hand over their Japanese (and German and Italian) residents to American prison camps like Crystal City, Texas.
FDR was a tyrant, not a great leader, and any person who cherishes the precious liberty upon which politically centralized "leaders" have historically waged war knows that FDR was an abject failure.
–Max Frank
Yep that some guy committed suicide in 1937 truly tells us of the failure of the New Deal. But it's interesting that if one suicide was a judge of FDR's failure as a proxy for public sentiment what about the fact that he won 2 more subsequentt elections by landslides.
But at least Ms. Shlaes came up with a fantastically original idea on how to get us out of this mess. Massive tax cuts for the wealthy and for corporations. Dang if only George W. Bush would have thought of this maybe we'd be in a lot better shape.
Gee, let’s blame deregulation. No, wait, let’s blame George Bush. No, wait, let’s blame the rich (whoever they are).
Whatever we do, let’s not address the underlying cause of most of this mess, and let’s actually create more of it:
How Government Prolonged the Depression
Great Mesa! Your link talks about the supposed reason the Depression was so long. How does that explain how we got into the mess in the first place?
It's all the guys fault who can't put your shattered vase perfectly back together… and in short order.
Your snark on deregulation can't be taken seriously by anyone claiming to be objective. From loosed lending standards , to unregulated financial products and ratings agencies with massive conflicts interest lax regulation NOT the government was the reason AIG had trillions of dollars worth of crap the infested everyones retirement accounts that where thought to be relatively placed in safe investments. The government did not force AIG and others to make these massively irresponsible decisions. Wall Street has cost the average investor as much as they likely pay iin taxes over 5- 10 years or more.
Again, Mr Muir, if I try to explain the error of your thinking, will you respond, or, as usual, just ignore what you cannot answer?
*looks out the back door of the Cafe and sees Mierduck stuffing straw into a shirt and a pair of pants*
DG,
I think Mierduck's about ready to comment.
If that was not a rhetorical question, then I would suggest that you study Austrian Business Cycle THeory. Hayek & Mises were among the few economists who were warning about an impending meltdown back in 1928. John Maynard Keynes was so aware of the "mess", that he lost himself a personal fortune in the crash of 1929.
BTW, I will ask you a non-rhetorical question, what was the specific fiscal policies of the harding administration that prevented the sharpest 1 year deflation ever recorded in American history fro becoming a great depression? Yes I am talking about the really short depression of 1921, so short that so few people have heard about it.
Oil Shock, was it?
"Don't do something, just stand there."
No, no, muirgeo prefers the "progressive" interpretation of those events because he is "progressive" and we can't expect much depth of economic thought on that front.
Oil Shock, was it?
"Don't do something, just stand there."
Posted by: Jesse Rouse | Feb 2, 2009 11:21:04 PM
Don't throw gasoline into the fire, in the name of doing "something"
Throw money in the hole, America's money hole.
What It Feels Like To Be A Libertarian by John Hasnas
dg lesvic asked:
Again, Mr Muir, if I try to explain the error of your thinking, will you respond, or, as usual, just ignore what you cannot answer?
Have you ever gotten an intelligent response from this entity? I understand your benevolent desire to explain and educate; but the problem is that what you are dealing with here is NOT "the error of your thinking" — what you are dealing with is what long ago replaced "their thinking": namely, the swallowed-whole and memorized leftist talking points that are regurgitated on cue, much as a parrot squawks when someone enters the room.
A very wise man said, “You cannot reason a person out of a position he did not reason himself into in the first place.” However, I fully understand your desire to try. There are, after all, others reading these comments who may NOT be impervious to reason and who may be influenced by your efforts.
Oil Shock brings up a really good point:
BTW, I will ask you a non-rhetorical question, what was the specific fiscal policies of the Harding administration that prevented the sharpest 1 year deflation ever recorded in American history fro becoming a great depression? Yes I am talking about the really short depression of 1921, so short that so few people have heard about it.
Economist and Objectivist George Reisman makes the point that by not intervening and by allowing both wages and prices to fall, the deflation of 1921 proved to be remarkably short.
Reisman’s point is mathematically simple and unrefutable. If the money supply contracts from “X” to “½ X”, then if both wages and prices are allowed to fall to ½ their previous levels, the lower monetary base can support the same level of economic transactions as before. Labor’s wages will be lower but their purchasing power will be unchanged because of the fall in prices. Businesses will experience lower profits but the purchasing power of those profits will be the unchanged for the same reason: lower prices.
In the Great Depression, however, first Hoover and then Roosevelt fought to keep both wages and prices from falling. Hence, a one year contraction became a decadal disaster.
Michael how bad were the consumer debt defaults in 1921? Today a sharp and deep deflation would mean bankruptcy for a whole lot of potential revolutionaries.
Kevin, I don't know the answer to your question about 1921. But Reisman pretty much agrees with you that deflation today would be very dangerous.
He has a very illuminating article on it here: LINK
Kevin,
You wrote,
"Michael how bad were the consumer debt defaults in 1921? Today a sharp and deep deflation would mean bankruptcy for a whole lot of potential revolutionaries."
Does that mean we should make things worse, bring on more bankruptcies, and create more revolutionaries?
Isn't this kind of fallacious, to suppose that "revolutionaries" are always driven to revolution by their material condition? It's kind of in the same boat with the idea that poverty causes terrorism. Both ideas sound reasonable, make for great propaganda, and are thoroughly contradicted by empirical evidence where it exists.
Here's a bit on the backgrounds of terrorists.
As for revolutionaries being motivated by personal financial concerns, that certainly doesn't seem to be the case with the Americans of the 1770s(though I've argued with people that "revolution" shouldn't be used of our war for independence), the Russians of 1917, or the Chinese under Mao (late Republican China did have hyperinflation, which would generally have the opposite effect of deflation, which is alleged here to exacerbate revolutions.)
The Americans revolted because London tried to revoke their de facto autonomy.
The Russian Communist leadership disproportionately came from fairly well-off intellectual circles, not the working class. Though they certainly used real or imagined financial problems in their propaganda, they weren't themselves concerned.
Does that mean we should make things worse, bring on more bankruptcies, and create more revolutionaries?
No. I was just raising the point that a large scale deflation would bankrupt a lot of people. Add that to the fact that the deflation would be seen as a wealth transfer to wealthy lenders and the fact that many of the now bankrupt people don't have a job, and you have got a big group of angry folks with little to lose, lots of time on their hands, and a laundry list of grievances with the system. Without opining on whether that's good or bad, I think most would agree that states seek to avoid this outcome, which is why I was curious about how it played out in 1921.
Isn't this kind of fallacious, to suppose that "revolutionaries" are always driven to revolution by their material condition?
I suppose it is, but nobody here supposed that. States manage to possibilities when dealing with threats to their existence, so "not always" is cold comfort usually inadequate to shape their choices. But again, nobody made that supposition.
I think Kevin that one should remember that such adjustment would not occur over night. Wages would tend to ease down, or most likely stay static for most people, while the change in prices would also be slow, but probably a little faster since prices are much less sticky than wages. I doubt there would be much more or less discomfort and joblessness than a recession/depression would produce otherwise.
Ahh…upon re-reading I realize I saw the fallacy of a universal conclusion from a particular premise when it wasn't there. My mistake.
I think a better example of a large scale deflation would be the Depression itself.
Also I've been curious for a while to find some good reading of the 1921 recession. Not sure if Friedman or anyone else studied it in detail.
Michael Smith above has it right,
I.e. absence of logic & reasoning ability, which this person consistently and embarrassingly continually displays.
But, since the village idiot hasn’t responded (& won’t, because it can’t) to very insightful challenges, here’s a little background on the “deregulation" point:
Closing the Gap: A Guide to Equal Opportunity Lending
Now, in financial circles, when regulatory and quasi-regulatory bodies, like the Fed in the above link, say "jump," financial institutions ask "how high?" which is exactly what happened in this case, as banks and lending institutions were "encouraged" [read: threatened with discriminatory legal action for non-compliance] to relax their lending standards, which warped the traditional loan and mortgage model.
The driving factor behind much of the housing mess was directly caused by government.
Let us not forget the inflation machine which is the root of bubbles.
Correct, but much of the inflationary effect of this bubble was self-reinforcing, once banks discovered they had financial incentive to literally "look the other way."
From the guide:
Credit History: Policies regarding applicants with no credit history
or problem credit history should be reviewed. Lack of credit history should
not be seen as a negative factor.
Also from the guide:
Did You Know?
Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject
a financial institution to civil liability for actual and punitive damages in individual or class
actions. Liability for punitive damages can be as much as $10,000 in individual actions
and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions.
Regulation B
Equal Credit
Opportunity
12 CFR
202.14(b)
Incidentally, the entire premise of this “study” was based on fake and/or faulty loan statistics.
Your government at work. Now Barney Frank wants to "fix" the problem he caused.
From America's Great Depresssion by Murray Rothbard, Pp 167, 168:
"Laissez-faire was, roughly, the traditional policy in American depressions before 1929. The laissez faire precedent was set in America's first great depression, 1819, when the federal government's only act was to ease terms of payment for its own land debtors. President Van Buren also set a staunch laissez-faire course in the Panic of 1837. Subsequent federal governments followed a similar path, the chief sinners being state governments which periodically permitted insolvent banks to continue in operation without paying their obligations. In the 1920-1921 depression, government intervened to a greater extent, but wage rates were permitted to fall, and government expenditures and taxes were reduced. And this depression was over in one year — in what Dr. Benjamin M. Anderson has called 'our last natural recovery to full employment.'"
Laissez faire, then, was the policy dictated both by sound theory and by historical precedent. But in 1929 the sound course was rudely brushed aside. Led by President Hoover, the government embarked on what Anderson has accurately called the 'Hoover New Deal.' For if we define 'New Deal' as an anti-depression program marked by extensive governmental economic planning and intervention — including bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending (e.g., subsidies to unemployment and public works) — Herbert Clark Hoover must be considered the founder of the New Deal in America. Hoover, from the very start of the depression, set his course unerringly toward the violation of all the laissez faire canons. As a consequence, he left office with the economy at the depths of an unprecedented depression, with no recovery in sight after three and a half years, and with unemployment at the terrible and unprecedented rate of 25 per cent of the labor force…Roosevelt, in large part, merely elaborated the policies laid down by his predecessor."