Posted on 12/06/2022 8:06:09 PM PST by SeekAndFind
In the teeth of the Depression, Treasury secretary Andrew Mellon famously told President Herbert Hoover to “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate”—in other words, to resist bailing out any industry through state intervention. This was a tough sell even in those days, and of course Hoover succumbed to politics and took the opposite approach, greatly and needlessly damaging the US economy for decades to come.
Less often quoted are Mellon’s follow-up words to Hoover: Liquidation would “purge the rottenness out of the system,” so “people will work harder” and “live a more moral life.”
Mellon, having lived most of his life in an America without a central bank, understood economic recessions as necessary cures rather than ills to be avoided. But he also understood the human price that would be paid in the aftermath of a period of phony economic prosperity. Only hard work and personal sacrifice, person by person and town by town, could get America out of its economic mess. Fiscal and monetary policy would provide no free lunch, as millions of Americans learned the hard way in the 1930s.
Fast-forward to 2022, and it’s hard to imagine Janet Yellen calling for liquidation or telling Americans to improve their moral fiber. Nobody votes for austerity or personal responsibility, and any politician or bureaucrat or central banker who even suggests it is doomed today.
Yet this mythology of austerity persists, that a stingy federal Treasury and reticent central bank don’t intervene enough in economic crises. Consider this howler from Paul Krugman back in 2011, apparently delivered with a straight face: “One thing is clear: Mellon-style liquidationism is now the official doctrine of the G.O.P.” Keep in mind he wrote this several years into the most “extraordinary” monetary intervention in the history of the world—one which ultimately saw the US Fed purchase several trillions’ worth of Treasury debt from the “market”! Yet for Krugman, it is never enough.
As the bruising midterm elections recently demonstrated, America is a deeply unserious country. A serious political discussion at the federal level would center on existential structural problems of war and peace, debt and the dollar, and entitlements. But these issues can be addressed only by real austerity and real pain. So instead, we distract and divert ourselves worrying about whether Donald Trump should be allowed on Twitter. We argue over flu viruses, guns, transgenderism, climate, and abortion (none of which the federal government has the slightest jurisdiction over) rather than the material standard of living we will leave our grandchildren.
This is possible only because millions of Americans, maybe a majority, are simply economics deniers. They either don’t believe economic laws exist or think economics can be overcome by legislation, regulation, or central bank actions. And there are plenty of deniers among the ranks of professional economists! The profession does itself no favors when it cheerleads for politics, providing an intellectual veneer for interventionism. Human nature makes us want to believe untrue things, but economics should help disabuse Americans of political fantasies.
Let’s face it: the US is not a free-market economy because we don’t much believe in markets, despite our lip service. Most Americans, and virtually all political, media, academic, corporate, and banking elites, believe economic intervention (fiscal and monetary stimulus) form the basis of our economy—not production and saving.
So, what would a serious America do to correct our disastrous economic path? This may seem like an academic or rhetorical question, but it’s worth laying out the actual steps necessary to build a real economy rather than a fake one dependent on monetary or fiscal interventionism. As Dr. Mark Thornton recently explained, these steps may be conceptually simple even as they are wildly beyond political imagination today:
a wholesale adoption of laissez-faire economic doctrine by national politicians;
immediate deep tax and regulatory reductions;
immediate sharp reductions in government spending at every level (leaving federal spending well below federal revenue);
rigorous entitlement cuts, using some combination of means testing and raising age eligibility for both Social Security and Medicare;
rigorous defense spending cuts of at least 50 percent, combined with a radically reduced US military footprint overseas;
cessation of new debt issuance by the US Treasury;
cessation of active monetary “policy” by the Federal Reserve Bank, meaning no intervention with respect to the money supply, interest rates, or credit and debt markets (including US Treasurys);
a radical reduction in the Fed’s balance sheet by letting existing Treasurys mature and roll off;
an entirely hands-off approach allowing the US dollar to float freely relative to other currencies and commodities;
an express policy against bailouts or subsidies of any kind to any industry or company, regardless of the severity of an economic downturn;
allowing troubled industries or companies, no matter how big, to fail—through bankruptcy and asset sales; investor losses; and firing boards, management, and employees when restructuring is possible;
actively encouraging business and individuals to save (through market/floating interest rates);
elimination of any price ceilings or floors on prices, wages, and profits;
elimination of any unemployment subsidies to individuals, along with abolition of minimum wage laws; and finally,
the immediate sale of federal land and other assets to reduce debt service on the $31 trillion in Treasury obligations and to restore worldwide confidence in the US economy.
This, ladies and gentlemen, is what a real program of austerity looks like. That these actions are politically unfeasible—complete nonstarters—shows how politics dominates economics in America. The profession charged with explaining how no free lunch is possible instead mostly operates as a handmaiden to the state and its bosses. But politics won’t fix this, and we won’t vote our way out of trouble.
The best path forward is at the state and local levels, attempting to build regional economies with less fragility in the face of the warring, borrowing, spending, and devaluing mania of Uncle Sam.
Mellon was wrong because he didn’t understand the non-linear dynamics of a central bank/fiat currency based system. Only Irving Fisher did at that time and he was not ignored, but merely told he was wrong...by people who didn’t understand his math.
The older crowd came from the world of money panics and metals based currency. Different rules.
America is like a beaten wife....Too eager to believe in more chances to get it right...UNTIL THE DAY SHE IS ALMOST BEATEN TO DEATH...THEN SHE BEGINS HER CLIMB OUT OF MISERY
Our citizenry is 45+% baboon.
They can’t think of anything other than getting their hoofs painted.
A 10% tarff on ALL imported goods primarily to promote domestic industry and to raise revenue and make social security solvent.
And WHO is the enemy to kill?
Bkmk
With 210 trillion in on and off the books debt this nation is doomed, personally think and trending that way that a total collapse is just around the corner.
Perhaps it’s rhetorical ?
As long as I get my share of Social Security why should I give a damn about the future of the country? After all, I’ll be gone sooner than later.
And, by the way, thanks for the very low tax rates during my working career, couldn’t have afforded the boat and the addition to my house if I were taxed at the amount needed for the country to have a balanced budget.
(the above is pretty much a summary of what some here say, and why we’re all hosed)
Funny how Mellon spoke about the connection to morality
hard money, hard morality
fiat money, fiat morality.
Richard Cantillon proved three centuries ago that printed, fiat money accrues power to those who issue the money. In the 21st century that means that a woke government with a printing press will fund their political cronies and 1000 social-engineering schemes.
Fix that, and everything else conservatives desire will fall into place.
Raising tax rates LOWERS tax revenues.
I am hoping for the best, but truth is, we have been set up for the potential for some really serious bad times while the people are living in some false, manufactured bizzaro world view that has no grasp of reality.
Reality is a bitch that does not like to be denied and is she harsh on deniers.
Americans today would cringe hearing John F. Kennedy talk about going to the moon:
“We choose to go to the moon in this decade and do the other things, not because they’re easy, BUT BECAUSE THEY ARE HARD!”
The last five words would have modern America running for the exits.
A Path Out of the Trade and Savings Trap
https://americanaffairsjournal.org/2017/08/path-trade-savings-trap/
How about this country fix its immigration, refugee and citizenship problem
I’m betting a lot of the economic issues will take care of themselves.
Looks likes a recipe for national suicide.
“The cure cannot be worse than the disease”
—DJT, March 2020
I’m a practicing capitalist since the age of 16. It always bothered me that the economy was a political component.
“Raising tax rates LOWERS tax revenues.”
Going from 0 to 1% INCREASES revenue. Likewise, going from 1% to 2% almost certainly will also increase revenue. But going from 40% to 95% will almost certainly DECREASE revenue.
So there is some tipping point regarding tax rate changes and their effect on revenue. And it also depends on which taxes. If the lower incomes bulk of a specific tax, than an increase in rates, in most cases, will raise revenue. Take the federal gas tax for example - 18.4 cents per gallon today. Increase it by $1.00, and it sure as hell will generate more revenue, FAR MORE revenue. Same for a consumption tax.
Bottom line, we COULD have paid for the goodies we demanded, but chose not to.
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