Posted on 12/16/2008 3:08:12 PM PST by Star Traveler
You said — “This crisis is being made worse with each passing day. Let’s stop feeding the beast and deal with the pain now, rather than destroying ourselves with an irreversible slide into socialism and tyranny.”
It’s like “pulling the plug” on a patient in the ICU. The patient needs drastic care and help. You “pull the plug” and you kill the patient...
That’s the way it is here...
You’re saying that you can “pull the plug” on the patient and he will live... LOL...
By Meg Sullivan | 8/10/2004 12:23:12 PM
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.
"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."
Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.
In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.
Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.
"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."
The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.
Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.
Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.
"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"
NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.
"Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."
Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted — albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.
The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.
NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.
Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.
"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."
A better analogy would be one where a patient is on life support and needs a new heart, so the doctors go out and kill healthy people until they find a matching donor. You don't abandon principles for short term gain; it only makes things worse in the long run. And I'm not at all convinced government interference will even bring us any short term gain.
” “I’ve abandoned free-market principles to save the free-market system,” Bush told CNN... “
“We had to DESTROY the village to SAVE the village...”
No, they dont have the courage for that. That would require hardship, sacrifice, and an ability to do the right thing.
They will just fire up the printing presses and inflate the debt away. Screwing over all the foreign treasury holders and every single responsible thrifty American citizen, rendering their savings worthless.
Bush and Cheney have people who have studied the Great Depression just as well. I’m sure they have a whole team of guys on it. They wouldn’t be saying this unless the situation was that severe and that dire. And that’s the way it is, according to both Bush and Cheney.
I can’t think that both of them have no one who knows a thing about the Great Depression... LOL...
They’ve got a whole team of people (probably a *city* full of people) — whereas we’ve got the Internet and websites... :-)
IOW, the more extreme the measures, the greater your level of support. After all, more extreme measures must be indicative of a more serious situation, right? Following your own logic, you will blindly support any actions.
It's more like giving an addict more heroin because he is experiencing symptoms of withdraw.
You said — “Once granted, how many times has the government rolled back its own authority?”
We’ve had wars where things were restricted, extreme measures were taken, people were limited in what they could do and what they could buy by government edict. And it all went away at the end of the war...
Obviously the “example” depends on which side you’re one... LOL...
If you ask Bush and Cheney, I’m sure they will use the “life support” example...
We’re not talking about wartime, we’re talking about socialism. How often are socialist measures reversed?
US President George W. Bush said in an interview Tuesday he was forced to sacrifice free market principles to save the economy from “collapse.”
Forced? By whom?
If you ask socialists, they will rationalize whatever it takes to prescribe some more socialism for whatever ails you.
By printing infinite amounts of money at zero percent?
First we seize the British Columbia Corridor, then we march into Poland. Meanwhile, we can burn money for heat this winter.
Kind of like the doctor that said, “I had to kill the patient to save him.”
LLS
Hank Paulson said the Economy was sound in 2007, and you still believe him? He will spew whatever garbage his job requires of him.
Abandoning free market ‘principles’ to save the ‘free market’?
Even to an Econ 101 student (which I was, TWICE!), that concept doesn’t make any sense.
You said — “We’re not talking about wartime, we’re talking about socialism. How often are socialist measures reversed?”
This is the wartime equivalent for the economy — the Great Depression...
One thing I can say about the measures that were taken before, some of them will actually soften the impact (for individuals) of the coming Great Depression as people are out of jobs and homeless. Many of these social services that we have now, were not in effect before. So, help some people... and that’s not entirely a bad idea when you’re talking about 25% unemployment (as it was from the last Great Depression). I remember reading several times (in the past) where a large portion of the families in this country are only one or two paychecks away from being homeless. If that is so, we’re gonna have a huge problem pretty soon...
When you’re dealing with a patient who is immediately under threat of dying, you take *whatever measures* are necessary to revive the patient. After the patient is revived and recovered — then — the patient can “go back to work”...
While the patient is dying, you don’t ask about his job... LOL...
Government institutions nationalizing private sector firms feed addictions to power equivalent to individual addictions to chemicals or pornography. The only beneficiaries are the patricians who dupe individuals into exchanging personal freedom for perception of material security. The final reckoning is only postponed, but loss of freedom is permanent.
The illusion central planning has value has been partially validated, because the U.S. has allowed the business cycle (driven to extremes by human arrogance and fear) to operate. Free market principles are not economic constructs, but absolutes sourced in human nature.
Proper government involvement means the Federal Reserve, in concert with Treasury and Justice, applies persuasion to private sector firms. Brutal persuasion, just short of torture as condemned by Geneva Conventions, enables private companies to discover programs for market clearing asset prices. They also form new companies absent flagging management and labor attributes.
Whatever financial cost the country must pay now to adhere to principle pales before the later cost incurred, if markets are forced to merely postpone consequences. True solutions reaffirm the inevitability of market forces countermanding human laws, and incorporating risk within all economic activities.
The framers of our Constitution had the intelligence and moral integrity to say this country will promote the general welfare. It did not say the Treasury Secretary would ensure protection of home values, college funds, retirement accounts, life savings, homeownership, corporate wealth, political careers, and union benefits.
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