Posted on 01/28/2008 11:30:36 AM PST by txzman
Popular imagination has the Great Depression opening with a bang in October 1929. We forget that even by December of that year, the market had no idea what was really in store. After a period of wild, bipolar volatility, stocks had taken two big tumbles (a 12.8% drop on Oct. 28 and an 11.7% fall the next day) while the top bankers and "captains of industry" rushed to shore up the market. By November, the Dow had hit its low for the year at 198, down from the giddy September high of 381.
But, the financial pundits and government leaders of the day insisted, the economy's fundamentals were still strong. Mass unemployment was, some months after the crash, still just something that went on in Germany and Britain. America was strong and merely needed a push to keep the financial markets from harming the broader economy.
With that in mind, Herbert Hoover -- only nine months into his presidency -- assembled leaders from the public and private sectors to create an economic-stimulus package. Among the measures, Time magazine reported at the time, was a promise from Congress to offer bipartisan support for a tax-cut package.
The proposal called for $160 million in tax relief -- only about $22 billion if adjusted against the gross domestic product at the time, and therefore much smaller than the plan under consideration here in 2008. Read Time's original coverage of the plan.
(Excerpt) Read more at marketwatch.com ...
Let us not forget the Smoot-Hawley-Hawkins tariffs, restrictions on free trade, Robinson-Patman and other anti-competitive statutes, Roosevelt and his great government expansionism, and the extremely tight money leading to long term deflation.
A couple of points...
1) The business cycle is normal and some ups and downs should be expected.
2) The supply of money has a huge effect on inflation and deflation (which is what happened in the Depression). The Fed biffed it in the Crash. See Friedmans’s Monetary History of the US for starters.
3) Showing compassion while actually doing economic damage isn’t hard to do, and sometimes is good politics. FDR’s policies didn’t stop the Depression, and in fact made it much worse than it needed to be. There is some debate as to whether or not this was cynical on his part (and/or that of his advisers). For instance, raising the price of labor by increasing taxation (e.g. Social Security) during a period of high unemployment is certifiably insane.
4)The current so-called “stimulus” package is nuts. If you really want to help business make government regulations less onerous. Cut the corporate tax rate (and you might even add revenues if Arthur Laffer is right [and he is btw]). Cut government spending so you can cut taxes. All simple stuff.
I remember 28 years ago when 4% unemployment and 6% fixed 30-year mortgages would have been an absolute dream of an economy.
Yeah, well, most of these gloom and doom stories in the MSM are more about election year politics than anything else.
Some interesting HH quotes:
“Any lack of confidence in the economic future or the basic strength of business in the United States is foolish.”
—Herbert Hoover
January 21, 1930
“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.”
—Washington dispatch
May 1, 1930
“During the past year you have carried the credit system of the nation safely through a most difficult crisis. In this success you have demonstrated not alone the soundness of the credit system, but also the capacity of the bankers in emergency.”
—Herbert Hoover, Address before the annual convention of The American Bankers Association, Cleveland
October 20, 1930
“Economic depression cannot be cured by legislative action or executive pronouncement.”
—Herbert Hoover, Message to Congress
June 15, 1931
“The depression has been deepened by events from abroad which are beyond the control either of our citizens or our government.”
—Herbert Hoover, Radio address at Fortress Monroe, Virginia
You mean like Bush and his great government expansionism? And the extremely tight money from the mortage market collapse? You’re not making me feel any better...
Good point. Sky is falling, women and children hurt the worst. Etc.
The most important thing that people don’t understand is that the Depression was a prolonged period of asset deflation - houses, farm land, etc.
Price deflations that start to feed on themselves (eg, a deflation in price levels causes lenders to cease lending, which causes more prices to drop because of withdrawn credit liquidity, which causes more credit liquidity to be withdrawn, etc) are beyond the reach of monetarism to stop. You can throw macro-liquidity into the economy and you won’t see a turn-around; the central bank is effectively pushing on a rope.
Witness the deflation in Japan starting in the early 90’s as real estate there collapsed. The BOJ eventually brought interest rates down to 0% (ie, take our money PLEASE), and it took about 15 years for their markets to finally turn around. In the meantime, hedge funds and large institutional investors invented the “carry trade” to borrow yen in Japan, convert it to US dollars and invest it here, so that liquidity helped inflate the US economy.
Everything you say about what worsened the Depression is true, but it all stems from a fundamental lack of understanding about deflations. Adding more liquidity to a deflation won’t cure it - what is needed is some way of making lenders make that liquidity available to investors and the business sector. Once the bankers start pulling in their horns, the Fed cannot force them to lend.
I remember, too. That was in the wake of Jimmy Carter's economic policies which Hillary and Obama, and, to a large extent, McCain, subscribe to. Lord help us.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.