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Great Myths of the Great Depression
Universidad Autónoma de Centro América ^ | 1998 | Lawrence W. Reed

Posted on 07/22/2002 3:11:50 PM PDT by AdamSelene235

Great Myths of the Great Depression

Lawrence W. Reed

Many volumes have been written about the Great Depression and its impact on the lives of millions of Americans. Historians, economists, and politicians have all combed the wreckage searching for the "black box" that will reveal the cause of this legendary tragedy. Sadly, all too many of them decide to abandon their search, finding it easier perhaps to circulate a host of false and harmful conclusions about the events of seven decades ago.

How bad was the Great Depression? Over the four years from 1929 to 1933, production at the nation?s factories, mines, and utilities fell by more than half. People?s real disposable incomes dropped 28 percent. Stock prices collapsed to one-tenth of their precrash height. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933. One of every four workers was out of a job at the Depression?s nadir, and ugly rumors of revolt simmered for the first time since the Civil War.

Old myths never die; they just keep showing up in college economics and political science textbooks. Students today are frequently taught that unfettered free enterprise collapsed of its own weight in 1929, paving the way for a decade-long economic depression full of hardship and misery. President Herbert Hoover is presented as an advocate of "hands-off", or laissez-faire, economic policy, while his successor, Franklin Roosevelt, is the economic savior whose policies brought us recovery. This popular account of the Depression belongs in a book of fairy tales and not in a serious discussion of economic history, as a review of the facts demonstrates.

The Great, Great, Great, Great Depression

To properly understand the events of the time, it is appropriate to view the Great Depression as not one, but four consecutive depressions rolled into one. Professor Hans Sennholz has labeled these four "phases" as follows: the business cycle; the disintegration of the world economy; the New Deal; and the Wagner Act.[1]

The first phase explains why the crash of 1929 happened in the first place; the other three show how government intervention kept the economy in a stupor for over a decade.

Phase I: The Business Cycle

The Great Depression was not the country's first depression, though it proved to be the longest. The common thread woven through the several earlier debacles was disastrous manipulation of the money supply by government. For various reasons, government policies were adopted that ballooned the quantity of money and credit A boom resulted, followed later by a painful day of reckoning. None of America?s depressions prior to 1929, however, lasted more than four years and most of them were over in two. The Great Depression lasted for a dozen years because the government compounded its monetary errors with a series of harmful interventions.

Most monetary economists, particularly those of the "Austrian school", have observed the close relationship between money supply and economic activity. When government inflates the money and credit supply, interest rates at first fall. Businesses invest this "easy money" in new production projects and a boom takes place in capital goods. As the boom matures, business costs rise, interest rates readjust upward, and profits are squeezed. The easy-money effects thus wear off and the monetary authorities, fearing price inflation, slow the growth of or even contract the money supply. In either case, the manipulation is enough to knock out the shaky supports from underneath the economic house of cards.

One of the most thorough and meticulously documented accounts of the Fed?s inflationary actions prior to 1929 is America?s Great Depression by the late Murray Rothbard. Using a broad measure that includes currency, demand and time deposits, and other ingredients, Rothbard estimated that the Federal Reserve expanded the money supply by more than 60 percent from mid-1921 to mid-1929.[2] The flood of easy money drove interest rates down, pushed the stock market to dizzy heights, and gave birth to the "Roaring Twenties".

By early 1929, the Federal Reserve was taking the punch away from the party. It choked off the money supply, raised interest rates, and for the next three years presided over a money supply that shrank by 30 percent. This deflation following the inflation wrenched the economy from tremendous boom to colossal bust.

The "smart" money ?the Bernard Baruchs and the Joseph Kennedys who watched things like money supply? saw that the party was coming to an end before most other Americans did. Baruch actually began selling stocks and buying bonds and gold as early as 1928; Kennedy did likewise, commenting, "only a fool holds out for the top dollar".[3]

When the masses of investors eventually sensed the change in Fed policy, the stampede was underway. The stock market, after nearly two months of moderate decline, plunged on "Black Thursday" ?october 24, 1929? as the pessimistic view of large and knowledgeable investors spread.

The stock market crash was only a symptom ?not the cause? of the Great Depression: the market rose and fell in near synchronization with what the Fed was doing.

Phase II: Disintegration of the World Economy

If this crash had been like previous ones, the subsequent hard times might have ended in a year or two. But unprecedented political bungling instead prolonged the misery for twelve long years.

Unemployment in 1930 averaged a mildly recessionary 8.9 percent, up from 3.2 percent in 1929. It shot up rapidly until peaking out at more than 25 percent in 1933. Until March 1933, these were the years of President Herbert Hoover-the man that anti-capitalists depict as a champion of noninterventionist, laissez-faire economics.

Did Hoover really subscribe to a "hands off the economy", free-market philosophy? His opponent in the 1932 elections, Franklin Roosevelt, didn?t think so. During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions of people on the dole. He accused the president of "reckless and extravagant" spending, of thinking "that we ought to center control of everything in Washington as rapidly as possible", and of presiding over "the greatest spending administration in peacetime in all of history". Roosevelt?s running mate, John Nance Garner, charged that Hoover was "leading the country down the path of socialism".[4] Contrary to the modern myth about Hoover, Roosevelt and Garner were absolutely right.

The crowning folly of the Hoover administration was the Smoot-Hawley Tariff, passed in june 1930. It came on top of the Fordney-McCumber Tariff of 1922, which had already put American agriculture in a tailspin during the preceding decade. The most protectionist legislation in U.S. history, Smoot-Hawley virtually closed the borders to foreign goods and ignited a vicious international trade war. Professor Barry Poulson notes that not only were 887 tariffs sharply increased, but the act broadened the list of dutiable commodities to 3,218 items as well.[5]

Officials in the administration and in Congress believed that raising trade barriers would force Americans to buy more goods made at home, which would solve the nagging unemployment problem. They ignored an important principle of international commerce: trade is ultimately a two-way street; if foreigners cannot sell their goods here, then they cannot earn the dollars they need to buy here.

Foreign companies and their workers were flattened by Smoot-Hawley?s steep tariff rates, and foreign governments soon retaliated with trade barriers of their own. With their ability to sell in the American market severely hampered, they curtailed their purchases of American goods. American agriculture was particularly hard hit. With a stroke of the presidential pen, farmers in this country lost nearly a third of their markets. Farm prices plummeted and tens of thousands of farmers went bankrupt. With the collapse of agriculture, rural banks failed in record numbers, dragging down hundreds of thousands of their customers.

Hoover dramatically increased government spending for subsidy and relief schemes. In the space of one year alone, from 1930 to 1931, the federal government's share of GNP increased by about one-third.

Hoover's agricultural bureaucracy doled out hundreds of millions of dollars to wheat and cotton farmers even as the new tariffs wiped out their markets. His Reconstruction Finance Corporation ladled out billions more in business subsidies. Commenting decades later on Hoover's administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt?s policies of the 1930s, explained, "We didn?t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started".[6]

To compound the folly of high tariffs and huge subsidies, Congress then passed and Hoover signed the Revenue Act of 1932. It doubled the income tax for most Americans; the top bracket more than doubled, going from 24 percent to 63 percent. Exemptions were lowered; the earned income credit was abolished; corporate and estate taxes were raised; new gift, gasoline, and auto taxes were imposed; and postal rates were sharply hiked.

Can any serious scholar observe the Hoover administration?s massive economic intervention and, with a straight face, pronounce the inevitably deleterious effects as the fault of free markets?

Phase III: The New Deal

Franklin Delano Roosevelt won the 1932 presidential election in a landslide, collecting 472 electoral votes to just 59 for the incumbent Herbert Hoover. The platform of the Democratic Party whose ticket Roosevelt headed declared, "We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power". It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency "to be preserved at all hazards", the removal of government from areas that belonged more appropriately to private enterprise, and an end to the "extravagance" of Hoover?s farm programs. This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered.

In the first year of the New Deal, Roosevelt proposed spending $10 billion while revenues were only $3 billion. Between 1933 and 1936, government expenditures rose by more than 83 percent. Federal debt skyrocketed by 73 percent.

Roosevelt secured passage of the Agricultural Adjustment Act (AAA), which levied a new tax on agricultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle. Federal agents oversaw the ugly spectacle of perfectly good fields of cotton, wheat, and corn being plowed under. Healthy cattle, sheep, and pigs by the millions were slaughtered and buried in mass graves.

Even if the AAA had helped farmers by curtailing supplies and raising prices, it could have done so only by hurting millions of others who had to pay those prices or make do with less to eat.

Perhaps the most radical aspect of the New Deal was the National Industrial Recovery Act (NIRA), passed in June 1933, which set up the National Recovery Administration (NRA). Under the NIRA, most manufacturing industries were suddenly forced into government-mandated cartels. Codes that regulated prices and terms of sale briefly transformed much of the American economy into a fascist-style arrangement, while the NRA was financed by new taxes on the very industries it controlled. Some economists have estimated that the NRA boosted the cost of doing business by an average of 40 percent?not something a depressed economy needed for recovery.

Like Hoover before him, Roosevelt signed into law steep income tax rate increases for the high brackets and introduced a 5 percent withholding tax on corporate dividends. In fact, tax hikes became a favorite policy of the president?s for the next ten years, culminating in a top income tax rate of 94 percent during the last year of World War II. His alphabet agency commissars spent the public's tax money like it was so much bilge.

For example, Roosevelt?s public relief programs hired actors to give free shows and librarians to catalogue archives. The New Deal even paid researchers to study the history of the safety pin, hired 100 Washington workers to patrol the streets with balloons to frighten starlings away from public buildings, and put men on the public payroll to chase tumbleweeds on windy days.

Roosevelt created the Civil Works Administration in November 1933 and ended it in March 1934, though the unfinished projects were transferred to the Federal Emergency Relief Administration. Roosevelt had assured Congress in his State of the Union message that any new such program would be abolished within a year. "The federal government", said the President, "must and shall quit this business of relief. I am not willing that the vitality of our people be further stopped by the giving of cash, of market baskets, of a few bits of weekly work cutting grass, raking leaves, or picking up papers in the public parks".

But in 1935 the Works Progress Administration came along. It is known today as the very government program that gave rise to the new term, "boondoggle" because it "produced" a lot more than the 77,000 bridges and 116,000 buildings to which its advocates loved to point as evidence of its efficacy.[7] The stupefying roster of wasteful spending generated by these jobs programs represented a diversion of valuable resources to politically motivated and economically counterproductive purposes

The American economy was soon relieved of the burden of some of the New Deal?s excesses when the Supreme Court outlawed the NRA in 1935 and the AAA in 1936, earning Roosevelt?s eternal wrath and derision. Recognizing much of what Roosevelt did as unconstitutional, the "nine old men" of the Court also threw out other, more minor acts and programs which hindered recovery.

Freed from the worst of the New Deal, the economy showed some signs of life. Unemployment dropped to 18 percent in 1935, 14 percent in 1936, and even lower in 1937. But by 1938, it was back up to 20 percent as the economy slumped again. The stock market crashed nearly 50 percent between August 1937 and March 1938. The "economic stimulus" of Franklin Roosevelt?s New Deal had achieved a real "first": a depression within a depression!

Phase IV: The Wagner Act

The stage was set for the 1937-38 collapse with the passage of the National Labor Relations Act in 1935?better known as the Wagner Act and organized labor's "Magna Carta". To quote Hans Sennholz again:

This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board further perverted this law, which already afforded legal immunities and privileges to labor unions. The U.S. thereby abandoned a great achievement of Western civilization, equality under the law.[8]

Armed with these sweeping new powers, labor unions went on a militant organizing frenzy. Threats, boycotts, strikes, seizures of plants, and widespread violence pushed productivity down sharply and unemployment up dramatically. Membership in the nation's labor unions soared; by 1941 there were two and a half times as many Americans in unions as in 1935.

From the White House on the heels of the Wagner Act came a thunderous barrage of insults against business. Businessmen, Roosevelt fumed, were obstacles on the road to recovery. New strictures on the stock market were imposed. A tax on corporate retained earnings, called the "undistributed profits tax", was levied. "These soak-the-rich efforts", writes economist Robert Higgs, "left little doubt that the president and his administration intended to push through Congress everything they could to extract wealth from the high-income earners responsible for making the bulk of the nation?s decisions about private investment".[9]

Higgs draws a close connection between the level of private investment and the course of the American economy in the 1930s. The relentless assaults of the Roosevelt administration ?in both word and deed? against business, property, and free enterprise guaranteed that the capital needed to jumpstart the economy was either taxed away or forced into hiding. When Roosevelt took America to war in 1941, he eased up on his antibusiness agenda, but a great deal of the nation's capital was diverted into the war effort instead of into plant expansion or consumer goods. Not until both Roosevelt and the war were gone did investors feel confident enough to "set in motion the postwar investment boom that powered the economy?s return to sustained prosperity".[10]

Whither Free Enterprise?

On the eve of America?s entry into World War II and twelve years after the stock market crash of Black Thursday, ten million Americans were jobless. Roosevelt had pledged in 1932 to end the crisis, but it persisted two presidential terms and countless interventions later.

Along with the horror of World War II came a revival of trade with American?s allies. The war?s destruction of people and resources did not help the U.S. economy, but this renewed trade did. More important, the Truman administration that followed Roosevelt was decidedly less eager to berate and bludgeon private investors, and as a result, those investors came back into the economy to fuel a powerful postwar boom.

The genesis of the Great Depression lay in the inflationary monetary policies of the U.S. government in the 1920s. It was prolonged and exacerbated by a litany of political missteps: trade-crushing tariffs, incentive ?sapping taxes, mind? numbing controls on production and competition, senseless destruction of crops and cattle, and coercive labor laws, to recount just a few. It was not the free market that produced twelve years of agony; rather, it was political bungling on a scale as grand as there ever was.


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Given steel subsidies, agricultural subsidies, and a looming GSE hyperinflationary real estate bubble, this seemed timely.
1 posted on 07/22/2002 3:11:50 PM PDT by AdamSelene235
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To: AdamSelene235
So, is Bush Hoover or Roosevelt?
2 posted on 07/22/2002 3:23:31 PM PDT by Vladiator
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To: AdamSelene235
The Great, Great, Great, Great Depression

There are those who would say that this period was simply a Cycle Degree correction and what we are currently facing is a Super Cycle Degree correction. Hope not!

3 posted on 07/22/2002 3:28:32 PM PDT by TightSqueeze
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To: AdamSelene235
Take off those rose-colored glasses! ;^)
4 posted on 07/22/2002 3:28:35 PM PDT by headsonpikes
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To: Vladiator
So, is Bush Hoover or Roosevelt?

Bush's policies much like Hoovers implicitly endorse Socialism while wearing the cloak of free market capitalism.

This sets us up for an explicitly Socialist president who will claim that Bush's reliance on "free markets" has failed.

5 posted on 07/22/2002 3:28:58 PM PDT by AdamSelene235
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To: AdamSelene235
bump...
6 posted on 07/22/2002 3:29:00 PM PDT by vannrox
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To: AdamSelene235
So...the old myths are to be replaced with some of the new myths stated here.
7 posted on 07/22/2002 3:34:58 PM PDT by RLK
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To: AdamSelene235
Great info, thanks for posting.
8 posted on 07/22/2002 3:36:20 PM PDT by ThinkDifferent
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To: AdamSelene235
bump for later reading. This seems to be interesting.
9 posted on 07/22/2002 3:36:20 PM PDT by SoDak
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To: Vladiator
So, is Bush Hoover or Roosevelt?

-------------------

Neither. He's Howdy Doody.

10 posted on 07/22/2002 3:36:48 PM PDT by RLK
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To: AdamSelene235
While Roosevelt did not cause the Great Depression, he was not the economic miracle worker that historians (academics) make him out to be.

Here's a question, and you only get one guess...

What developed country/economy was the LAST to recover from the Depression?

We basically didn't get out of it until WWII bootstrapped up out.
11 posted on 07/22/2002 3:41:40 PM PDT by Cousin Eddie
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To: AdamSelene235
Very timely and eerily similar to today indeed. One omission was FDR's war on gold.
12 posted on 07/22/2002 3:46:01 PM PDT by StockAyatollah
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To: AdamSelene235
Well, I can tell where Reed is coming from - more Libertarian economic fanstasy land.

"Why, if we don't impose any tarriffs, nobody else will!" Yeah, in your dreams, Reed.

America is the market everybody else wants into and they should pay for the privilege. America was most prosperous and funded government Constitutionally with tarriffs and excises for 100+ years and dreamers like this guy dredge up their boogeyman of Smoot-Hawley every time they want to con people into their utopian view of things. Libertarian style "free-trade" (particularly among nations) is contrary to human nature and I wish they'd just grow up and put a lid on it.

Other than that, his criticisms of the Fed & Roosevelt aren't stong enough.

13 posted on 07/22/2002 3:46:34 PM PDT by agitator
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To: AdamSelene235
Rothbard estimated that the Federal Reserve expanded the money supply by more than 60 percent from mid-1921 to mid-1929.[2]

Also known as "debasing the coinage", a crime that used to be punishable by death in past years in other lands. Of course, kings and queens used to do it all the time, and it's still being done wantonly by government, in which case it's called "fiscal policy".

14 posted on 07/22/2002 3:49:01 PM PDT by Lizavetta
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To: AdamSelene235
This sets us up for an explicitly Socialist president who will claim that Bush's reliance on "free markets" has failed.

Bingo! That game has already started, of course. That's the hidden point behind the Dumbs' attempt to blame Bush for the Business Integrity Scandals.

15 posted on 07/22/2002 3:50:10 PM PDT by sourcery
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To: AdamSelene235
Ping for study.
16 posted on 07/22/2002 3:50:47 PM PDT by sauropod
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To: AdamSelene235
"This sets us up for an explicitly Socialist president..."

Again with the rose-colored glasses!
17 posted on 07/22/2002 3:54:37 PM PDT by headsonpikes
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To: RLK
So...the old myths are to be replaced with some of the new myths stated here.

The lead article is a quite factual rescitation of events. As a student of the political history of the 1920s, I can assure you that Hoover was indeed to the Left of the Democrats in 1928 and 1932. What happened after Roosevelt took office, is also no secret. Nor is there any question but that FDR gave us by far our longest Depression.

There is, of course, a 36 year cycle, which the author largely ignores in setting forth the purely economic and political aspects. Cycles like that involve psychology rather than economics; and are thus less easy to explain. We are now in the same cycle (72 years ago was 1930), but whether the market continues to dive, triggering a contraction in the economy, may depend on how well we are able to allow a rapid adjustment of private economic activity to meet the challenge. All of the motivations, which make free enterprise work are still in place. The danger is when the politicians try to macro-manage the people's business.

That was the problem in 1929 to 1941, and we must not let it cause a similar result now.

William Flax Return Of The Gods Web Site

18 posted on 07/22/2002 3:54:49 PM PDT by Ohioan
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To: headsonpikes
In fact, tax hikes became a favorite policy of the president?s for the next ten years, culminating in a top income tax rate of 94 percent during the last year of World War II.

Ack! [Choking sound] What is the point of even working?

19 posted on 07/22/2002 3:59:30 PM PDT by Zack Nguyen
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To: Cousin Eddie
until WWII bootstrapped up out

Not really even then. Employment went up as the market for soldiers really took off and also the market for weapons, so employment was full but there was no money. All our production was being blown up in a war. It took the easing of controls after the war to bring to end thee depression. War production adds nothing to an economy unless it is production for someone else's war.

20 posted on 07/22/2002 4:00:33 PM PDT by arthurus
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To: Zack Nguyen
"What is the point of even working?"

Citizen! Anti-social criticism is actually treason, isn't it?

Remember the penalty!!!
21 posted on 07/22/2002 4:04:12 PM PDT by headsonpikes
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To: AdamSelene235
Do you really believe that Greenspan, Rubin, O'Neill, etc. don't know about these theories and facts and are dumbly repeating the old mistakes? While you, of course, are smarter and wiser?

What's most depressing about this post is how little the campaign arguments and humbug have changed. The public apparently never learns anything.

22 posted on 07/22/2002 4:06:31 PM PDT by liberallarry
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To: Zack Nguyen
Bump
23 posted on 07/22/2002 4:08:57 PM PDT by Richard Kimball
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To: headsonpikes
How dare I!
24 posted on 07/22/2002 4:19:56 PM PDT by Zack Nguyen
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To: liberallarry
Do you really believe that Greenspan, Rubin, O'Neill, etc. don't know about these theories and facts and are dumbly repeating the old mistakes? While you, of course, are smarter and wiser?

Never met them, couldn't tell you. Their problems are institutional in nature. The Soviets had some brilliant economists: didn't help.

25 posted on 07/22/2002 4:21:09 PM PDT by AdamSelene235
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To: liberallarry
INteresting point.

UNfortunately, the public is short-sighted and only wants what is best for them at the present time without regard to the consequences.

BTW, I have not had any luck with your problem. My medical friends said "They should not move out there," I know it is crass to say that but they did qualify it by saying that our resources need to be here in the urban area where they are needed most. You might be LiberalLarry but I LIVE in the stronghold of the left-wing. I am still trying.

26 posted on 07/22/2002 4:23:30 PM PDT by Arioch7
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To: headsonpikes
Again with the rose-colored glasses!

Actually, I'm doing quite well in the markets, so, yes, things are rosy. I'm just a bit concerned about the long term.

27 posted on 07/22/2002 4:26:39 PM PDT by AdamSelene235
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To: liberallarry
Do you really believe that Greenspan, Rubin, O'Neill, etc. don't know about these theories and facts and are dumbly repeating the old mistakes? While you, of course, are smarter and wiser?

Let us assume, for the sake of argument, that they are aware and concerned. There is only so much that they can do to avoid the same mistakes--given the prevalence of demagogues in Government, who will insist on "doing something," if things continue to deteriorate. It is when the politicians feel the need to "do something," that we get in trouble.

Remember that the natural tendency of the market is to correct itself. If there is a misallocation of resources, causing dislocations in employment, markets, whatever; the normal response--if the politicians just will stay out of it--is for all of the human factors in the economy to put their greatest effort into finding what is most beneficial to them--what they can legally do which will be most valued by others. That is how the rewards in a free economy are determined.

The way out of a depression is the same way we grew strong to begin with: Unleash the creative force of the whole people. No group of central planners on earth can ever be a match for that. Anyone who understands the actual dynamic knows how utterly ridiculous it is to expect planners to ever be a substitute for the power of a free economy. What Washington needs to be doing is to help remove the barriers to that free economy. Make sure the money is stable; that taxes are not burdensome; that red-tape to appease Leftwing bureaucrats does not impede rapid decision making--rapid adjustment to fluid conditions, etc..

As Reagan put it: Government is not the solution to the problem; often Government is the problem.

As for those Corporate Fiduciaries, who have betrayed the sacred Trust they owed the Shareholders they were supposed to be serving: If they deserve it, Prosecute the Hell out of them! That is a different principle, altogether. For a Fiduciary to milk a Trust for personal benefit is a crime. But the violation of a bureaucratically imposed duty, designed to accomplish some politician's social purpose, is something quite different.

William Flax Return Of The Gods Web Site

28 posted on 07/22/2002 4:30:21 PM PDT by Ohioan
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Comment #29 Removed by Moderator

To: AdamSelene235
The Federal Reserve was set up to stop Depressions and Recessions. That was the way the Fed was sold to congress. Seems they are not doing the job.

Or maybe they are doing the job they were set up to do.

The Federal Reserve must be destroyed and we must have a just money system.

30 posted on 07/22/2002 4:38:02 PM PDT by Radioactive
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To: Radioactive
The Federal Reserve was set up to stop Depressions and Recessions. That was the way the Fed was sold to congress. Seems they are not doing the job.

They also claimed they would help keep unemployment low. Barron's recently had an article on the subject comparing pre-Fed vs. post-Fed US unemployment. Unsurprisingly, we have never reached pre-Fed levels.

31 posted on 07/22/2002 4:42:35 PM PDT by AdamSelene235
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To: Ohioan
There is only so much that they can do to avoid the same mistakes--given the prevalence of demagogues in Government...

True, especially at this stage when people are starting to panic. But at the other stages...grossly inflating the money supply as the boom builds, continuing to contract it during the bust. I wonder.

Remember that the natural tendency of the market is to correct itself.

I'm out of my depth here. But Soros, who isn't, doesn't seem to agree with you. While you may not like many of the things he's done or says, he's no idiot.

What Washington needs to be doing is to help remove the barriers to that free economy. Make sure the money is stable; that taxes are not burdensome; that red-tape to appease Leftwing bureaucrats does not impede rapid decision making--rapid adjustment to fluid conditions, etc..

Who can argue with this...or with your complaints about central planners. Whether it will be enough is for better men than I to say.

As for those Corporate Fiduciaries, who have betrayed the sacred Trust they owed the Shareholders they were supposed to be serving: If they deserve it, Prosecute the Hell out of them!

This is what I think must be done as fast as possible. No single step, in my mind, will restore faith and trust more than this...or, if not done, will do more to undermine them. But this is what I fear the Bush administration does not want to do.

32 posted on 07/22/2002 4:49:41 PM PDT by liberallarry
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To: Lizavetta; AdamSelene235
"Rothbard estimates that the Federal Reserve expanded the money supply by 60% from mid 1921 through mid 1929."

That works out to an annual increase of 6%, which is fairly modest.

Also, it's hard to tell which is cause and effect between money supply and economic activity. For example, inceased economic activity generates more money and is reflected in an increased money supply.

33 posted on 07/22/2002 4:54:44 PM PDT by Ken H
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To: agitator
America is the market everybody else wants into and they should pay for the privilege.

You don't seem to realize that trade has two equal parties--the buyer and the seller. You can't beat up on one without giving the other a black eye as well. Let other governments beat up on their consumers, forcing artificially high prices and inflating the cost of living with high tarrifs. Free trade is almost always the economically and morally sensible policy, even if unilateral.

34 posted on 07/22/2002 4:54:57 PM PDT by beavus
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To: Arioch7
Thanks for trying. Didn't you get my FReepmail? We're out of the immediate crisis stage because government will help us with the emegency room. We've decided the regional model is the one we have to live with so we will keep hospital services to a minimum (crisis stabilization) while looking to expand clinic services and the old folks home. That seems to be a viable solution until technology again changes the equation. In this regard we'll probably try to allow nurses and PAs to be more than is now permitted by law. We'll see. I'll keep you informed.
35 posted on 07/22/2002 4:59:27 PM PDT by liberallarry
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To: AdamSelene235
Good point. What institutional changes would you make?
36 posted on 07/22/2002 5:04:37 PM PDT by liberallarry
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To: liberallarry
I'm out of my depth here. But Soros, who isn't, doesn't seem to agree with you. While you may not like many of the things he's done or says, he's no idiot.

Remember Soros was the trader not the analyst. He has publicly admitted to having a God complex that drives his desire to reshape the international monetary system. He is waiting for something to destabilize the post-Bretton woods system so he can hawk his ideas.

37 posted on 07/22/2002 5:04:47 PM PDT by AdamSelene235
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To: AdamSelene235
While the author raises some interesting points, this hardly counts as a serious piece. He picks and chooses which New Deal programs to attack, and which to ignore. What ever happened to Rural Electrification, the CCC, the SEC, TVA, Social Security, etc.? Don't they deserve some mention? Economics is very complicated, and the author doesn't make a convincing case that the NIRA and the Wagner Act were responsible for much of anything. The cost of business may or may not have risen 40%, but who can say that wasn't due to demand fluctuations and higher overhead as more and more satellite companies floundered.<p<This is not to say such a case couldn't be made, but the author doesn't do it.
38 posted on 07/22/2002 5:04:56 PM PDT by andy_card
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To: Ken H
Also, it's hard to tell which is cause and effect between money supply and economic activity. For example, inceased economic activity generates more money and is reflected in an increased money supply.

Money loaned out by the fed has market-rational risk removed from it since it is "gauranteed" by the power of taxation. If a bank loans out its own money, it has its own solvency at stake not to mention the limitation of its own available funds. This greatly restricts the availability of money for loans compared to what is available with the fed res system. If a bank loans out the fed's money it would have to be altruistic to decide that the fed's policy is too loose and is putting the taxpayers at risk.

39 posted on 07/22/2002 5:05:04 PM PDT by beavus
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To: andy_card
What ever happened to Rural Electrification, the CCC, the SEC, TVA, Social Security, etc.?

You're right. FDR was responsible for far more boondoggles than the author mentions. But the piece was already running a bit long, don't you think?

40 posted on 07/22/2002 5:09:06 PM PDT by beavus
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To: beavus
You're right. FDR was responsible for far more boondoggles than the author mentions. But the piece was already running a bit long, don't you think?

No, I don't think the piece was anywhere near long enough. If the author wanted to attack FDR programs as boondoggles (which many if not most were, imho), he should have argued such. Instead, he just pulls out a few issues and adds some circumstantial evidence without really making a compelling case one way or the other. This article has all of the depth of a high-school textbook, without any substance behind the claims.

41 posted on 07/22/2002 5:15:08 PM PDT by andy_card
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To: AdamSelene235
Old myths never die; they just keep showing up in college economics and political science textbooks.

Actually, this hasn't been true of the great depression for 20 years. It's the english department that has kept socialism alive. The Economics department moved on a quarter century ago when it became apparent that Hayek was right instead of Keynes.

42 posted on 07/22/2002 5:16:04 PM PDT by tcostell
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To: AdamSelene235
good post
43 posted on 07/22/2002 5:16:12 PM PDT by Libertarianize the GOP
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To: liberallarry
Good point. What institutional changes would you make?

It will be politically impossible to make serious changes in absence of a major crisis. Personally, I believe the very internal economic logic of the GSE's could produce such a crisis. A Fannie Mae crisis prompted by deflation or derivatives trading would simulataneously take out the bond, stock and real estate markets, for example.

The problem of money is a tricky one. I'm not a gold bug but I have been pleased at the recent emergence of electronic gold. The fiat system is lunacy. The government is the largest and most irresponsible debtor in the room, so their bias will always be towards debasing the currency. Until it is impossible, that is. Then you've really got your tit caught in the wringer.

My best guess is that a deflationary environment will be the endgame for Keynesian economics. Afterwards, I'd like to see corporate taxes (in reality a regressive consumer tax), capital gain, and income taxes abolished. A National Sales tax should suffice. Restoring the nation to a Constitutional Republic from its current status as a Socialist Democracy would also be nice.

As far as currency is concerned? Since capital gains taxes would no longer punish you for not participating in the inflation, you could use any thing you please, a tri-metalic currency or one backed by a basket of equities.

44 posted on 07/22/2002 5:22:01 PM PDT by AdamSelene235
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To: AdamSelene235
bump for later review
45 posted on 07/22/2002 5:24:45 PM PDT by Centurion2000
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To: andy_card
What ever happened to Rural Electrification, the CCC, the SEC, TVA, Social Security, etc.?

Are you saying this ironically?

Social Security may very well wreck the country one day if FDR's GSE timebombs don't do so first.

46 posted on 07/22/2002 5:25:32 PM PDT by AdamSelene235
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To: andy_card
this hardly counts as a serious piece

Sure, my idea of serious economic research is something that I would find in the Journal of Political Economy. However, research always starts with small, non-empirical articles.

Economics is very complicated

It's not an exercise in quantum mechanics.

the author doesn't make a convincing case that...the Wagner Act were responsible for much of anything

One would be hard pressed to believe that artificially increased costs that trade unions create do not stifle growth. Existing firms may be able to bear the cost. However, new entrants may be discouraged. This certainly would be a subject for further, in-depth research.

Well pro wrestling is on at 9. I have to go.
47 posted on 07/22/2002 5:30:55 PM PDT by Lee_Atwater
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To: tcostell
Certainly, Dr. Samuelson has been forced to make some revisions. Twenty revisions of his magnum opus, Economics, is quite an indication. I was fortunate enough to study under free-market (i.e. Chicago School) types, but Keynesian theory still abounds.
48 posted on 07/22/2002 5:36:46 PM PDT by Lee_Atwater
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To: andy_card
No, the article has all the depth of a forum post. If you want depth, read some of the books the author references.
49 posted on 07/22/2002 5:36:46 PM PDT by beavus
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To: AdamSelene235
Another excellent discussion of depression era economic policies can be found here:

Economics on Trial by Mark Skousen pp.102-118

50 posted on 07/22/2002 5:38:27 PM PDT by nonliberal
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