Posted on 10/30/2009 7:18:23 AM PDT by SeekAndFind
Eighty years ago this week, the stock market crashed. Although it was more a symptom of the economy's underlying problems than a cause of the Great Depression, it is still considered the day the worst economic crisis in American history began.
I've always been curious about the Great Depression. In fact, I think I decided to study economics because of it. As a child, I remember asking father about its causes, and he told me that there wasn't enough money for people to spend. I asked where the money went, thinking that vast amounts of currency and coin couldn't have just disappeared. My father explained that most money is in the form of checking accounts, so when the banks failed, a lot of money did just vanish.
My father was not an economist, but somehow he had figured out an essential truth about the cause of the Great Depression that most economists didn't know at the time. I remember my high school history teacher saying that it happened because people suddenly stopped buying cars because the market was saturated; everybody who wanted one owned one.
My college professors weren't much more sophisticated. They talked about a lot of different things--the Smoot-Hawley tariff, the gold standard, international debts et al.--but beneath these specifics was an undercurrent of blame for capitalism itself. It was in its nature, they said, that it generated bubbles that created great hardship when they burst, as the stock market bubble of the 1920s had done in late October 1929.
The idea that capitalism caused the Great Depression was widely held among intellectuals and the general public for many decades. Indeed, there was widespread belief that capitalism bred secular stagnation; consequently, there was enormous fear that the Great Depression would simply start up again where it left off
(Excerpt) Read more at forbes.com ...
Nov 2008 and the election of a Saudi financed Islamo Marxist happened.
Time to buy more rice and ramen noodles
No.
This one is (much) worse.
In the 1930’s. America made things.
Now we BUY things. Once buying stops, we’re toast. We got nothing.
How’s that “free trade” thingy working out?...
And with the government getting ready to take a greater share of our paychecks through higher taxes and fees we won't be doing much buying. I'm willing to bet that even with FDRs 75% tax rate the government didn't burden people as much as today. They didn't have all the hidden taxes we have today which affect everyone , no FICA and income taxes kicked in at much higher levels of real income.
Thanks for the history lesson Bruce, but you could have applied that history into opposing the most anti-capitalist President of all time. We remember just a few months ago how you berated conservatives who criticized BO’s economic policies. Now your usefulness as a conservative economics advocate has pretty much expired. Good riddance to you!
bump
“The main differences between today’s crisis and the Great Depression is that the deflationary pressure is less than a third of what it was in the 1930s and policymakers today reacted much more swiftly and more appropriately than they did after 1929. Those who think the government should have done nothing risked turning the current downturn into another Great Depression. Thankfully, their advice was ignored.”
Still shilling for Obama.
ping for later
He’s shilling for Obama but the Republicans are equally guilty. Demopublicans and Republocrats are all statist scum.
Bruce Bartlett supports the idea that GOVERNMENT SHOULD DO SOMETHING, NOT NOTHING.
Read these excerpts from the article :
“Many conservatives still believe the government should have done nothing, or at least different things than it did, because it just made things worse. In particular, conservatives are highly critical of deficit spending during the Roosevelt administration.
Most economists do not accept the do-nothing theory. They believe that government must play an active role in stimulating growth when the economy is suffering from a large, sustained deflation. Government spending must compensate for the fall in private spending that results from a deflation—people and businesses will put off buying when they think prices will be lower in the future. Only when spending is again rising will monetary policy become effective; until then it is like pushing on a string to get money circulating and prices rising again.”
Bartlett also argues that the “Let’s-do-nothing-and-let-the-free-market-sort-itself-out” theory has been tried before and found wanting. See this paragraph :
“In the 1930s, there were a number of economists who argued strenuously for a do-nothing policy. But as the Great Depression dragged on and collapsed in 1937—when conservatives were successful in having the federal government slash the budget deficit (it fell from 5.5% of GDP in 1936 to 0% in 1938)—they lost credibility. Economists today generally believe that it was the unprecedented deficits resulting from World War II that actually ended the Great Depression.”
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“Unfortunately, the current crisis is caused by the same deflationary forces that caused the Great Depression. Monetarists dismiss this argument on the grounds that the money supply has not only not fallen, but in fact has risen sharply. At the end of September, the money supply (M2) was up by $523 billion over a year earlier—a substantial increase. For this reason, they dismiss the idea that government stimulus was necessary to get the economy moving again.
What my monetarist friends forget is that that the money supply impacts GDP through the velocity multiplier. Normally, it is around 1.9. But it fell to 1.86 in the third quarter of 2008, 1.76 in the fourth quarter, 1.7 in the first quarter of 2009 and 1.69 in the second quarter before rising a bit to 1.72 in the third quarter.
This may not sound like much, but a decline of 10% in the velocity ratio has exactly the same macroeconomic effect as a 10% decline in the money supply. If velocity were still at 1.9, third-quarter GDP would have been $15.8 trillion instead of $14.3 trillion. In other words, there would be no recession.”
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“The main differences between today’s crisis and the Great Depression is that the deflationary pressure is less than a third of what it was in the 1930s and policymakers today reacted much more swiftly and more appropriately than they did after 1929. Those who think the government should have done nothing risked turning the current downturn into another Great Depression. Thankfully, their advice was ignored.”
What he forgets to mention is that during the 20’s the Fed pumped out money like there was no tomorrow. This caused an asset bubble in the stock market. Then in 1929, they pulled the rug out from underneath the market and pop went the bubble. This concept of the elastic money supply is the problem. You can know how much things really cost or the true cost of money when the Fed is screwing with interest rates. And invariably they will set rates too high or too low and results won’t be pretty.
I guess Bartlett approves of inflation, the hidden tax. The Fed has taken a dollar that was basically worth in 1913 what it was in 1776 and turned it into a 4 cent dollar, using government statistics. Using the price of gold which is arguably manipulated, its worth less than 2 cents. How does debasing the currency make us wealthier, I would like an explanation of that theory, because after all that is what he is proposing.
Here is what the government could have done(and it doesn’t take a doctorate in economics to do this!). The GOVERNMENT SHOULD CUT TAXES ON BUSINESS AND MIDDLE INCOME FAMILIES AND CURTAILING UNNECESSARY SPENDING. That is doing something that is useful. Barlett should know of all people that you can’t spend your way out of recession. I guess he is in a race with Paul Krugman to see who could be the wackiest economist in America.
Hmmm! Interesting observation there Bruce. Could it be that most self-proclaimed intellectuals are "progressives?" Is it not possible that the general public's perspective on the Great Depression was shaped by the works of historians (also lefties looking to embellish FDR's legacy)?
Which is why the ‘recession’ of the Harding administration lasted what, a year?
People are infinitely smarter than government.
ping
What was tried, starting in 1933 was large amounts of socialism. What it did was kill the free market. What Obama is doing now, with his "600k" jobs is preventing the creation of sustainable jobs by the free market. The government is consuming resources that would be used by the private sector to create jobs. FDR was worse in many ways, especially by raising taxes on the "wealthy" (the job creators).
The article is full of red herrings like capitalism, "doing nothing", and the "necessity" of Keynesian policies.
:}
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