Posted on 01/10/2009 10:03:24 AM PST by Golddigger3
May 1939, Treasury Secretary Henry Morgenthau testified:
"We are spending more money than we have ever spent before, and it does not work. ... I want to see this country prosperous. 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 an enormous debt, to boot."
(Excerpt) Read more at humanevents.com ...
How do the pro-stimulus economist get past this?
I suppose one thing the pro-stimulus economist could say is that the government didn’t spend nearly enough for the positive effect to kick in. As a % of GNP, Great Depression spending was nowhere near what it is going to be now.
Obama has picked a “cause” with no thought as to the REAL result. After 4 years of raping “working americans”...the Dems will go back to their original “Bash Bush” game...
It is has nothing to do with what will work or what won’t. Its all about government stealing money and giving it to their friends and supporters. Period.
Just accept it. The mob have spoken and have authorized theft if they get part of the booty.
I understand that's the motivation for most of the politicians, but I'm trying to figure out the motive for the economists.
Morganthau was one of the chief proponents of the centrally planned economy the New Deal tried to implement.
Interestingly, FDR’s agricultural subsidies forced crops do be destroyed making the U.S. a net importer of food.
Actually it’s even worse:
FDR’s policies prolonged Depression by 7 years, UCLA economists calculate
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx
“Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.
After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.
“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”
In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.”
I think Rehnquist said something like “the alphabet soup of the New Deal was by today’s standards a clear broth.”
Here are the comparitive spending #’s for The Great Depression and today as provided by Pelham yesterday on another thread:
“If we were to match the percentage of government spending of 1936 we would have to cut spending by 2/3. If not more.
“Government spending as a percentage of GNP has averaged around 20% for most of the post-WWII era. In 1936 at the height of the New Deal government spending was 5% of the GNP. It was denounced for being ‘large’ because it was a larger percentage than what people were used to. And people expected austerity in government during hard times. In retrospect it is very small compared to what we have come to expect.
“WWII blew the lid off of government spending. Spending rose from the 5% of 1936 to 40% in 1944. One in ten Americans drew a government paycheck while wearing a uniform, and that doesn’t count the civilian government workforce. WWII was massive government spending that for a few years resulted in full employment, if you lived to enjoy it.
“Too many discussions about government bailouts, the New Deal, and WII give no perspective on the relative size of the spending at these different times. It makes it hard to develop an informed opinion.”
(See post 35 at http://www.freerepublic.com/focus/f-news/2161789/posts)
There’s no good way to rewrite history when it’s being spoken of contemporaneously.
While unemployment hit 10 percent in 1982 and Reagan lost 26 House seats, in 1983 the tax cuts kicked in.
From there on out, it was boom times until Reagan rode off into the sunset, having created 20 million new jobs. "
These facts are no surprise and the same approach would work now. So what's the difference now? The difference is that politicians see a tax cut and taking away money from them which they can turn around and use to buy their seat in the next election. And for reasons that escape me, the average US citizen thinks it's the gov't money to spend. Wake up, people...it's YOUR money they're spending. They don't have a damn thing without us. The public is so stupid they don't realize that a rising tide lifts all boats. Right now we need huge tax cuts across the board, but especially for the rich, since they are the ones who invest in this system. At the same time, slash corporate tax rates and not only will corporations stop leaving the US for less punitive countries, but you will see a surge in new business formation here, including firms from Europe and the Pacific Rim.
But, Obama and the liberals have convince the public that it is the evil businessman who's the culprit. Punish him because he is evil. Good idea, Obama, let's drive them all away and see how long you can keep this country alive...you idiot.
My opinion. We are going down. The election of OBAMA is the beginning of the end. I don’t think it will take a year to desroy the USA.
Nice find. How did you happen upon it?
Book Review
by Richard M. Ebeling, September 1995
The Collected Works of F.A. Hayek, Vol. 9: Contra Keynes and Cambridge, Essays and Correspondence, edited by Bruce Caldwell (Chicago: University of Chicago Press, 1995) 269 pages; $37.50.
In 1941, American economist Kenneth Boulding reviewed Friedrich A. Hayek’s The Pure Theory of Capital. He contrasted Hayek’s views with those of John Maynard Keynes, and observed: “Mr. Keynes’s economics of ... [the] short-run ... like Hitler’s, may be admirable in producing spectacular immediate successes. But we need Puritan economists like Dr. Hayek to point out the future penalties of spendthrift pleasures and to dangle us over the hell-fire of the long run.”
What Professor Boulding was referring to was that throughout most of the 1930s, Friedrich Hayek and John Maynard Keynes had been the two leading protagonists in a grand debate over the nature and causes of the Great Depression and the public policies likely to be most efficacious in bringing the depression to an end.
By the 1930s, Mr. Keynes was one of the most renowned economists of the English-speaking world. In 1919, he attained world fame with his book The Economic Consequences of the Peace, in which he criticized the harsh terms imposed upon Germany in the Treaty of Versailles. In the 1920s, as a teacher at Cambridge University, he was molding a new generation of young economists in his own image. Then in 1930, Mr. Keynes published a two-volume work, A Treatise on Money, which he hoped would establish his reputation not merely as an eloquent critic of contemporary public policy, but as one of the leading economic theorists of his day, it turned out to be a hope that was dashed under the methodical blows of a young Austrian economist, Friedrich A. Hayek.
In Vienna, Hayek was a member of the “Mises Circle,” a group of young Austrian economists who formed themselves around Ludwig von Mises. Mises had gained prominence with his book The Theory of Money and Credit (1912), in which he demonstrated that inflations and depressions had their origin in mismanagement of the money supply by government central banks. In 1926-1927, Mises had helped Hayek establish the Austrian Institute for Business Cycle Research, of which Hayek served as director and Mises as acting vice president. Through the institute’s monthly Bulletin, Hayek applied Mises’s “Austrian Theory of the Business Cycle” to analyze the distortive effects of European and American monetary policies, which lead to the start of the Great Depression in 1929.
Hayek was invited to deliver a series of lectures on money and the business cycle at the London School of Economics in February 1931, which were then published later that year as Prices and Production. In this work, Hayek presented his version and elaboration of Mises’s theory of booms and busts. The success of these lectures resulted in Hayek’s being offered a permanent position on the faculty of the LSE in autumn 1931.
He also had been asked to write a lengthy two-part review essay of Keynes’s A Treatise on Money, which appeared in the journal Economica in August 1931 and February 1932. But even before the second part of this review had appeared, Keynes angrily replied in the November 1931 issue of Economica, with an attack on Hayek’s Prices and Production, to which Hayek responded in the same issue. As editor of the Economiclournal, Keynes then assigned Hayek’s book to be reviewed by a young Italian economist named Piero Sraffa. Sraffa’s extremely critical review appeared in the March 1932 issue of the Economic Journal, with Hayek’s reply in the June 1932 issue.
For the first time, these reviews and responses have been brought together and now reprinted in the latest volume to appear in The Collected Works of F.A. Hayek: Contra Keynes and Cambridge. The volume also contains a portion of Hayek’s and Keynes’s personal correspondence, in which they continued their debate.
Two crucial questions separated Hayek and Keynes. Is the market economy stable and self-correcting in the face of some imbalances between supplies and demands, most especially in the relationship between savings and investment? And, how are economy-wide fluctuations in employment, output, and prices to be analyzed — with the tools of traditional market-price theory, or with a different and new set of theoretical tools, which under Keynes’s influence became standard, textbook “macroeconomics” theory?
Both in The Treatise on Money and in his later, more famous book, The General Theory of Employment, Interest and Money (1936), Keynes argued that there were strong forces at work in a market economy that could result in there occurring an imbalance between the savings decisions of one group of people and the investing decisions of another. If this happened, then all that some people had saved may not be invested by others. This, in turn, would result in a situation in which total spending on consumption items and investment activities might turn out to be less than the total costs of production that businessmen had incurred to bring various goods to market. With total business revenues earned being less than the total costs of production in the economy as a whole, resulting losses would act as an inducement for employers in general to cut back production and cut the number of workers they employed. Keynes believed that there was no assurance that the market, by itself, could return to a condition of full employment production. This led him to the idea that only government intervention to stimulate economic activity and create new “aggregate demand” could get an economy off the floor of a depression.
Hayek’s response was that Keynes, in a fundamental sense, had failed to fully understand the nature of the workings of a market economy and the role of the price mechanism. “[Keynes] was neither a highly trained economist nor even centrally concerned with the development of economics as a science,” Hayek said in one of his later essays.
Furthermore, Hayek argued, Keynes’s very approach of aggregating all the individual supplies and demands for a multitude of different types of goods into macro “totals” distorted any real understanding of the actual relationships in and between actual markets. “Mr. Keynes’ aggregates conceal the most fundamental mechanisms of change,” Hayek said in 1931.
In a complex market economy, it was one of the functions of the rate of interest — as the price for the exchange of goods across time — to bring the supply of savings into balance with the demand to borrow funds for investment purposes. Changes in the rate of interest (reflecting a change in savings) assured such a proper balance and guided potential investors into using those funds for investment projects involving a period of time consistent with the available savings needed to sustain them. Keynes’s argument that this was not the case led Hayek to state:
“Mr. Keynes’ assertion that there is no automatic mechanism in the economic system to keep the rate of saving and the rate of investing equal might with equal justification be extended to the more general contention that there is no automatic mechanism in the economic system to adapt production to any shift in demand. I begin to wonder whether Mr. Keynes has ever reflected upon the function of the rate of interest in ... society.”
If there occurred prolonged unemployment and industrial depression, Hayek argued, the cause was to be found in prices for goods and resources (including labor) being kept too high relative to the actual supply and demand conditions in various markets. The solution was a free, competitive process to bring prices and costs into proper balance, and with this a return to full employment. Keynes’s emphasis on aggregates hid all the actual pricing problems under the cover of macro “totals.”
Likewise, Keynes’s solution for the unemployment problem — increases in aggregate demand, through government deficit spending — was merely a short-run panacea that created the illusion of a return to prosperity, when in fact it was merely exacerbating the long-run difficulty of returning to a normal and stable market situation. Keynes’s inflationary cure to economic problems only set the stage for a later economic depression.
Only during the last fifteen or twenty years have economists started to free themselves from Keynes’s influence. These essays by Hayek, some written long ago, can help us understand how and why economic theory and policy went down a wrong path. And more important, they can assist us in having a better understanding of the actual nature of government-created inflationary processes and why they always generate the conditions for a future depression. Or as Professor Boulding had expressed it, Hayek reminds us of the long-run penalties of Keynesian-type short-run panaceas.
One definition of insanity is doing the same thing over and over and expecting a different outcome.
Both the bailouts of the Bush administration and Obamanation’s *stimulus* proposals are insane.
It’s amazing that Henry Morgenthau could be so honest back then. I wonder what happened to him because of those remarks.
Did you note:
"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."
Ha! We won’t see MTP quoting this.
I guess I'm cynical, but -- as whitedog57 says -- the idea is for the government to steal money from some folks, and give it to the friends and supporters of the government. A good many economists want to get some of that money (grants, speaking engagements, whatnot) and so they think it is in their best interest to be in the "friend and supporter" category.
Does anyone have a list of books and articles on Great Depression demonstrating failure of Keynes policies? It would be very useful in posting replies.
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