Get Ready for a Lost Decade: Bad times don't produce good policy

The Wall Street Journal ^ | December 24, 2008 | Holman W. Jenkins Jr.

[2ndDivisionVet]

How many times have you heard that we've learned the lessons of the Great Depression and won't repeat the same mistakes?

That statement is a bit of a false promise, since there was only one Great Depression, and many, many steps were taken and not taken, with no chance to rerun the experiment over and over to figure out what worked, or would have worked, and what didn't.

Letting hundreds of banks collapse, destroying savings and confidence, is one mistake we won't make again. But many want to insist, without evidence, that more government spending would have ended the depression. That's the direction the Obama administration is taking. Others say government did not do enough to restore business confidence, or did too much to damage it, piling on taxes, regulation and labor unions. This at least is firmer ground. Plenty of evidence from history shows that actions hostile to business tend to be related to an absence of prosperity.

But more important than these talismanic assurances about what we've learned from the Great Depression is the mistake in assuming that, even if we had a coherent view of what should be done, coherent polices would therefore be implemented.

This has little relation to how policy is made in a democracy.

Policy is always bad to a degree, but long periods of prosperity tend to be self-reinforcing since powerful interests are born with the means and motive to preserve the status quo. That status quo may really be a contributor to prosperity, such as regulatory restraint and moderate tax rates. That status quo may in some respects be ill-advised, such as excessive subsidy to housing debt.

[2ndDivisionVet]

Good, as far as it goes.

[MES401067]

And whats sad is the good times haven’t produced any lately either.

[rellimpank]

—bflr-

[stevem]

Who owns the Wall Street Journal these days?

Obviously, the Great Depression ended the day Hirohito and Togo created a DESPERATE need for 15,000,000 low paid workers. I don't think we can caount on that again. The next time such a need is created it will be due to the elimination of many of these workers in a vaporization.

I believe most of the bazillions of dollars wiped out in the last coupld of months had little to do with real wealth. I believe it was the bursting of an artificial bubble. Since it was artificial, the bursting was inevitable. The question was: when?

I believe recreating this artificial wealth, or any part of it using some "float" mechanism is insane. We have to ask if our ponzi scheme leaders are any different than one Mr. Madoff?

[TwelveOfTwenty]

That's a good point. The housing bubble brought on by cheap money, borrowing against equity from over-priced houses to finance $5000.00 TV’s, the US auto industry, Madoff, deficit spending, borrowing money from China for stimulus checks to buy products that are now mostly made in China, there's just no end to what we did wrong.

[freekitty]

As then as now; we have a lot of crooks.

[TwelveOfTwenty]

Many were crooks, but others just blundered into this mess. The Big 3 in the late 70’s and 80’s comes to mind.

[alloysteel]

And why wouldn’t we repeat the same mistakes that led up to the Great Depression?

We are poised to descend into Great Depression II, which will make the original look like a rainy Sunday afternoon at the park. We are ENTERING this one with our military forces already engaged, with a much more extended credit obligation and future unfunded commitments to be filled, and artificially handicapping ourselves through limits on where and how much energy may be extracted and used in this country. Add to that a widespread belief that everything is “Bush’s fault”, and there is a built-in scapegoat that finally gets history off Herbert Hoover’s back.

America is SO screwed.

[Libloather]

...there was only one Great Depression...

"I don't know what was so great about the Depression, but that's the name they give it." Nancy Pelosi, September 29, 2008.

[Misterioso]

What nobody seems to take into account is the huge number of semi-transients that are unproductive due to drug abuse earlier in their lives. Couple that with a defunded welfare population and we are looking at a very unstable society. “Unrest” is inevitable, especially when the “disturbances” get wall-to-wall video on your wide screen.

[gusopol3]

I don't know what was so great about the Depression

it apparently was great for Democrats, they've either been in charge or diddling Republicans along ever since.

[TonyStark]

Like the politicians who are in the process of reducing our gross national product to ZERO, this article has nothing of value to offer.

Here's the lesson of Depression I - We should have stuck to the Constitution's admonition about Congress having the power to coin money, and should have never allowed the creation of the "Federal Reserve". Oh, and someone should have executed FDR for high crimes against the Constitution.

Here's the first lesson of Depression II - Term limits are not optional, lawyers must be prevented from ever holding office for any term, and the Democrat party needs to be treated like the Nazis were during mop up operations after Berlin fell.

The unfortunate thing is that with the incoming coup, in 4 years there isn't going to be any country to instruct with these lessons.

[2ndDivisionVet]

The Federal reserve was created in 1913, under the Woodrow Wilson administration, not in the thities when FDR began his reign and the depression roared. http://en.wikipedia.org/wiki/Federal_Reserve

[TonyStark]

The Federal reserve was created in 1913, under the Woodrow Wilson administration, not in the thities when FDR began his reign and the depression roared. http://en.wikipedia.org/wiki/Federal_Reserve

I know that. My point was that the lesson was made manifestly clear that the creation of the Fed in 1913 was a terrible mistake which allowed the extension of a moderate recession into Depression I. FDR's destruction of the Constitution is likewise still proving the seriousness of his posthumous crimes with every annual Federal budget.

BTW, Merry Christmas!

[RochesterFan]

I believe most of the bazillions of dollars wiped out in the last coupld of months had little to do with real wealth. I believe it was the bursting of an artificial bubble. Since it was artificial, the bursting was inevitable. The question was: when?

I think you would greatly enjoy this article by Karl Denninger. Mr. Denninger also posts the chart below, that provides some of the answers you seek.

[ccmay]

While that chart is indeed disturbing, the kind of debt held by consumers in the 20's and 30's tended to be much shorter-term. Our debt servicing burden is not as great now because repayments are spread out over a longer term.

That said, it's still much too high and should return to 1990 levels.

-ccm

[highpockets]

into account is the huge number of semi-transients that

What percentage of the population falls into this category?

How does one spot the "semi-transients"?

[MES401067]

And that’s just the tip.

[Misterioso]

Meth freaks and crack heads that alternate between being on the street and finding temporary housing find ways to survive (panhandling and burglary) when the welfare money runs out. Your hometown might be different. I live in Los Angeles and they are not hard to spot. As far as the percentage goes, I can’t hazard a guess but it is significant enough to worry about.

[dennisw]

Good one