I apologize for not blogging as much as I normally do, even as much as I would like, but am now on a vacation with my family in Florida and when the choice comes down to reading/writing about politics and spending time with my siblings or nibblings, well, I prefer the latter. You could kind of say it’s not really a choice.
Anyway, in between conversations about the merits of dump trucks with my youngest nephew, his Dad, the younger of my two brothers-in-law, and I have been debating economic policy with my sister’s husband defending the “macroeconomic” policies of the incumbent Administration. He recently shared with me this article from the Economist arguing that expansionist (i.e., big government policies) spared us a second Great Depression. I have read the article twice and, not having all the data at my fingertips, have only partially been able to refute it.
So, my bleg. Have any of you seen any articles/blog posts taking issue with said article (linked above). Also, I recall reading a recent blog post (with data similar to this one) showing how unemployment didn’t begin its steep upward ascent until after the Smoot-Hawley tariff and Hoover’s expansionist policies (that is, unemployment had remained relatively low for about a year after the market crash of 1929 which supposedly caused the Great Depression). Do any of you have a link to that post?
If you have any such information, please leave it in the comments or e-mail me.
And if I were to buy my brother-in-law a book that best summarizes libertarian economics, including an explanation for how market forces could have spared us the ravages of the New Deal, please let me know. I was thinking of getting him Henry Hazlitt’s Economics in One Lesson. Is there a better book out there?
He has been very civil in his discourse, eager to listen and ever ready to respond with arguments not innuendo. So, I want to encourage his interest — and hope to change his mind, hence wishing to provide information laid out by someone with a far greater understanding of economics than I.
First, Dan, ask him if he agrees that a “depression” or “recession” is a drop or contraction in GDP.
If he agrees, then ask him if he agrees that the massive run-up in real estate values during the housing bubble contributed to an increase in GDP.
If he says yes, then ask him if he feels those real estate values were justified, or if in fact they were overstated.
If he says yes again, then point out to him that his GDP figure is actually inflated and based on overstated asset values; therefore, if the market were to correct back to actual and meaningful asset values, GDP would by necessity contract, plunging us into a “recession” or “depression”.
And then ask him point blank: do you believe that the government should intervene and spend money to prop up overstated asset values in the name of avoiding a “recession” or “depression”?
And if he says yes, point out to him that that in essence means that government is forcing the productive to contribute additional unnecessary money to prop up these overstated asset values.
Furthermore, from a macroeconomic sense, since the government is artificially overvaluing assets and establishing that they cost more in currency than their actual value, the government is debasing the currency.
This is what the Krugman Keynesians don’t fundamentally understand — or believe they can spin away. Continuous, unbroken growth with no contractions is artificial — the economic equivalent of cancer. Bubbles have to pop in order for the system to right itself. In essence, what the Krugman Keynesians want is for government to artificially re-inflate bubbles using other peoples’ money.
Then you can be more direct. Ask him if, for instance, he intends that, when his kids get out on their own, he will set an arbitrary income for them and make up the difference between what they earn and that arbitrary income level. Is he willing to permanently subsidize his kids’ choices, or does he believe that they need to make decisions, including to cut back, as their incomes fluctuate?
Dan – I haven’t read the Economist piece (nor any fiskings of it), but based on your description, I expect that I could fisk it in a couple hours, maybe less. Let me know if I should get to that for you, maybe sometime this weekend.
As for a good intro to basic economic truth, Hazlitt is a fine choice, but I also like Peter and Andrew Schiff’s How an Economy Grows, and Why It Crashes. Your mileage may vary. Cinesnatch told me he tried it and didn’t connect with it, but I practically saw God, when I read it. It explains, from first principles and with cartoons 😉 , why production *must* precede consumption, why it is savings (not spending) which grows the economy, etc.
Bingo. And it was the very effort to achieve unbroken growth that made matters so much worse, guaranteeing an even bigger and more painful bust.
Exactly, 180 degrees wrong. Expansionist (i.e. big government) polices were the *cause* of the original Great Depression, that is, the economy’s non-recovery from the Recession of 1930. And today, they are the cause of our non-recovery from the Recession of 2008. And will cause us a yet greater disaster that is to come, when the “sovereign debt crisis” spreads from Europe, to Japan and the U.S.; “stay tuned”.
P.S. NDT: Long bonds are still holding up, but it feels wrong to me, or like another bubble. I’m looking for ways to short them. Gold has possibly topped out in real terms (e.g. its purchasing power vs. other commodities, real estate, etc.)… but not in nominal terms; the Fed and the ECB have both been printing money like mad while telling the world they aren’t, and they will do so even more, when the next big recessionary/deflationary wave hits.
So close, yet so far.
Consider giving him a copy of this: http://www.amazon.com/Forgotten-Man-History-Great-Depression/dp/0066211700. It shows how the Great Depression has been largely mythologized by “progressives” in order to make it appear that only more and bigger government brought an end to the depression, when if fact it prolonged and deepened it. That’s why what we call the “Great Depression” was over in a couple years in Europe, unlike here.
Here’s one for $1.99. This is a very concise, clear history of modern economic theory and practice.
http://www.amazon.com/Return-Great-Depression-ebook/dp/B004OR1NS8/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1325291389&sr=1-1
Book: Basic Economics by Thomas Sowell.
Second the recommendation by SoCalRobert. Should be required reading in high school.
The prevailing theory I saw from UCLA economists was that FDR’s price controls and pro-labor stances actually prolonged the depression. See here:
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx
It is my understanding that one of the major contributors to high unemployment was Roosevelt’s decision impose wage controls. This prevented employers from reducing wages as their business activity declined and so forced them to lay workers off rather than cut pay. There was a study on the subject of Roosevelt’s policies by UCLA and the conclusion was that Roosevelt actually extended the Great Depression by some 7 years or so.
Here’s the press release on the study.
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx
Dan,
I have no suggested links, but I do have one important suggestion.
In the years since the “great depression” we have fiddled the system until there is no parity between the what constitutes “unemployment” in the 1930’s and at different points in the years up to now. The same is true for “poverty” and “inflation” and GDP, and on and on.
I realize that economists have some sort of method of accounting for all of this, but I have not seen any book of unified formula for making the conversions. That is to say, economic “statistics” are still fiddled liberally in process by which they are derived.
Clearly, Andrea Mitchell (married to a great economics guru) does not have the brainpower to make her political economic comparisons in her head. Yet she does.
My suggestion is that you undertake to waste your time by looking for the one source to answer the Keynesians. They “believe” what they think they know and yet they are not able to explain how you can spend your way out of debt as a practical solution to curing the debt.
I think you are best served by creating your own list of critical thinking questions and asking the Keynesian acolyte to convince you that you need a better education in Keynesian ideology. They can’t handle that. You will find they very quickly shift the topic (goalposts?), name call and ignore facts. They have to. Whether you care to catch them at that is your call. After all, important personal relationships are at stake.
I have a brother-in-law who needles me. I answer: “Is that right?” He may choose to guess whether I am challenging his assertion or having a mini-epiphany. Eventually, when he has draped his stuff all over the atmosphere, I ask a simple question like “how do you tax the country into prosperity?” The simpler the better, because it calls for a concise answer that has only one choice. Meanwhile, he has so many assertions clouding the air that he risks defeat by not being prepared to answer just a simple question. If necessary, you can ask him to expand on the entire line of laundry he dragged out in the process. Keynesians can not handle a ready student who has probing questions.
I read today that five of the top ten Forbes 500 are Fannie Mae, GE, Berkshie Hathaway, GM, and Bank of America. All of these companies are so intertwined with the government (both literally and “too big to fail) that you are forced to think: fascism. Corporate interests indecipherable from state interests, as it were. These are the the supposed “forces” that the gnarly occupiers oppose. Yet, they have never fingered any of these five in their attacks on the amorphous “1%” because all five are pets of Obama and liberals in particular.
If you know just a little about these five entities and where they stand financially and how they are tied to government, I believe you can maneuver any esoteric discussion into a reality based, practical debate.
No Keynesian is about to support and honor fascism or anything like it. It is also very useful to have a little background on Goldman-Sachs and their revolving door relationship with federal government finance. After all, if you are a Keynesian, you have to be aware of the players and the playing field. I would also posit that you have to be supportive of the interlocking directorates of government financial power and (in this case) Goldman-Sachs.
George B and Tim in MT, great minds think alike. I had tracked down that study as well. Will make sure to share it with my brother-in-law. Thanks for the reminder of a smart study!
FDR’s own Treasury Secretary, from Henry Morgenthau’s diary:
“We have tried spending money. We are spending more than we have ever spent before and it does not work. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot.”
Quoted in The Journal of Economic History, Vol. 43, No. 2 (Jun., 1983), pp. 487–493, esp. p 488
Eric Hines
Hoover started it. FDR just kept it going. Prior to Hoover, the private sector pretty much handled economic downturns and they generally lasted shorter periods than with government intervention.
Why anybody would think a bunch of clowns, who probably can’t figure out how to put on a pot of coffee, ought to be fixing the economic mess they created is beyond me.
Yes, that is two of the ways in which FDR prevented economic adjustment, growth and recovery. There are more. Basically, Hoover’s and FDR’s administrations together were one giant, extended war on the economy’s production/trade/supply side.
(continued) a War On Capitalism, if you will.
Freudian slip on your sister’s “wife”?
[LOL! Since fixed. Don’t know how he’d react that appellation! Thanks for catching that. Perils of blogging in haste while on vacation. And if it was a Freudian slip, well, then, what does it mean? Or what does it say about my mental process? 🙂 –Dan]
Yes, I agree with one of the other commenters, “The Forgotten Man” by Amity Schlaes is a great book that shows the folly of expanding gubamint. And yes, protective tarriffs that were put in place by Hoover (steel) really did harm the economy.
TGC:
the great irony is that, according to “progressives,” Hoover was a LAISSEZ-FAIRE capitalist who allowed big business to rule the day. However, FDR actually ran against Hoover as a SOCIALIST, and way too inclined to intervene in the economy. The moment he got elected, however, FDR was Hoover on steroids. There’s a lot of misinformation and misconceptions out there about the Great Depression. Another good read that clears it up is “New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America,” by Burton W. Folsom.
#20 Oh I know. The last book I read (can’t get into reading much lately) was the Politically Incorrect Guide to The Great Depression. Other than that, I read Mark Levin’s last book, which was gifted to me, and that’s about it. Would love to read Sowell’s Basic Economics but neither have the time nor the money, as a poor (technical) college student.
Keynesians believe that if you go heavily into debt to put on a jolly good party, you somehow just grew your economy.
That’s really it. Sure, they dress it up in language about “stimulating aggregate demand” and and “multiplier effects” (which disappear as a society gets more indebted) and “liquidity traps”, but it’s all nonsense. Going into debt, to fund government spending to create a phony appearance of good times while redistributing wealth (to themselves among others) is, at the end of the day, what they want.
With clever circular reasoning, Keynesians count the debt-based government spending as GDP. They say “Look! GDP went up, when we increased debt-based government spending! So we were right! We should do it more!” But the spending that they’re talking about is unsustainable. Because it’s based on going into debt, not on anything real, like (say) production.
When the sane people get together and say “We can’t afford all this debt-based government spending, it’s too much, we have to cut back”, the Keynesians say “You’re hurting GDP! You want a depression!” Again, they cleverly rigged the game by counting their debt-based government spending *as* GDP. Naturally, if you cut the one, then you appear to be cutting the other.
It’s a racket… with a grain of truth. IF we pervert our economy into a phony one based on government deficit spending, and IF we then cut back on government deficit spending, the phony parts of the economy that had been propped up by the government deficit spending will suffer at first.
Suppose the Keynesians bleat enough to overrule the sane people and keep the debt-based government spending going, like Obama did. Then they just saved the phony parts of the economy – the parts propped up by debt-based government spending. They call it “saving us from a depression”. But all they did was ‘save’ us from having to go through the painful symptoms of a disciplined path of real recovery from the very great harm they’ve inflicted.
We’re like an alcoholic who desperately needs to quit, and the Keynesians keep pushing alcohol in our faces to ‘save’ us from the withdrawal symptoms and depression of actually quitting, actually getting our lives back in order, etc.