• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

Critique of Austrian Economics

Onion Eater

Well-known member
Joined
Jun 28, 2008
Messages
753
Reaction score
139
Location
Scottsdale, AZ
Gender
Male
Political Leaning
Libertarian
Critique of Austrian Economics From 1930 To 1990

The Quarterly Journal of Austrian Economics mission statement (Block,Hoppe & Salerno 1998) claims that “This forum is open... to articles expressing cogent criticisms of Austrian economics that are useful in provoking a rethinking and clarification of critical points of its theory, policy, or method. As was the case during our tenure with the Review of Austrian Economics, we will not shy away from controversy, regardless of whose oxen are gored.”

The purpose of this paper is to provoke a rethinking of Austrian economics and perhaps to gore a few oxen. I have tried to be cogent.
 

Guy Incognito

DP Veteran
Joined
May 14, 2010
Messages
11,216
Reaction score
2,846
Gender
Male
Political Leaning
Libertarian
Critique of Austrian Economics From 1930 To 1990

The Quarterly Journal of Austrian Economics mission statement (Block,Hoppe & Salerno 1998) claims that “This forum is open... to articles expressing cogent criticisms of Austrian economics that are useful in provoking a rethinking and clarification of critical points of its theory, policy, or method. As was the case during our tenure with the Review of Austrian Economics, we will not shy away from controversy, regardless of whose oxen are gored.”

The purpose of this paper is to provoke a rethinking of Austrian economics and perhaps to gore a few oxen. I have tried to be cogent.

Sometimes you gore the ox, and sometimes the ox gores you.
 

OrphanSlug

A sinister place...
Supporting Member
DP Veteran
Joined
Sep 24, 2011
Messages
31,124
Reaction score
29,304
Location
Atlanta
Gender
Male
Political Leaning
Independent
There is plenty to critique of Austrian Economics, and the article does a fine job explaining the details of how the statistical math does not support their core economic theories.
 

DA60

Banned
DP Veteran
Joined
Jan 28, 2012
Messages
16,386
Reaction score
7,793
Location
Where I am now
Gender
Male
Political Leaning
Independent
There are two main phases (and two minor phases within one major phase) of the American economy between 1930 and now.

1930 until Bretton Woods. And Bretton Woods until now (with two smaller phases within).


1930 until now was when Keynesian first took off...and what a mess it was (though most people are utterly clueless about this).

As I have pointed out MANY times, there were two depressions between 1920 and 1940. One in 1920/21 and the 'Great' Depression of the thirties. And they were 'attacked' two completely different ways.
In the first one, Wilson and Harding basically balanced the budgets and let the economy fix itself. The result? The unemployment rate and the DOW going back to near pre-depression levels (1.4/2.4 & 108/105, respectively) all with a DECLINE in the national debt of over 10% between 1920 and 1923.
http://www.debatepolitics.com/break...ct-w-123-a-post1060907468.html#post1060907468

But during the Great Recession, Hoover and FDR did the opposite, they spent like mad and tried to control the economy. The result? (1930-40/41)...national debt triples, DOW barely reaches 1/2 of it's pre-crash level and unemployment is 5 times worse (in 1939) then it's pre-crash level.

http://www.debatepolitics.com/economics/160861-case-austerity-has-crumbled-7.html#post1061850091

And Keynesians blame these numbers on the recession of 1937-38 on balancing the budget. But what they fail to grip is the fact that the economy had become so TOTALLY dependent on government stimuli, that as soon as the gov't. teat was removed, the economy collapsed. (which, btw, I believe will happen again today).


Then there is port Bretton Woods (1944). Bretton Woods - what an eventual disaster. First, the pathetic and destructive IMF is established. Then the U.S. dollar is made the official world reserve currency (in essence) - which guarantees America will be able to 'print' almost as much money as it wants for decades.
Within this period is the post WW2 boom (roughly 1945 to 1970) when America basically had things as she pleased. All the other major powers were either broke after WW2, destroyed or communist. So naturally, in this climate, America's economy thrived...there is almost no way it could not with virtually no competition. So calling this a victory for big government is a joke.

Then, there is post 1970 when the gold standard collapsed completely (in 1971). And ever since then, America's power has slowly waned. So much so that now, imo, the ONLY thing keeping America from another huge recession is massive government stimulus in the form of huge deficits and massive Fed intervention. In fact, the Fed basically runs the economy...they certainly are running the stock market. The DOW boomed once the Fed stepped in after the 'Great Recession' collapse by 'printing' trillions and trillions of dollars out of thin air. But since QE3 ended on Oct. 30, 2014...the DOW is barely up AND is, in fact, down for the year so far by almost 400 points. Stagnation has set in.

Since the beginning of the Great Recession, when the Fed really started taking over, the economy has done the following: the number of Americans on food stamps has risen about 17 million. The number of people working in the all important 25-54 age range has dropped by millions (and, for those that say this is because of demographics---think again as the employment to population ratio - which takes demographics into account - has dropped in that time from 79.4% to 76.5% (which is not good).
Plus, the national debt has roughly doubled...and that does not even include the $4+ trillion on the Fed's books.

Since America decided to allow governments to have FAR bigger roles in things, America gas gotten far weaker economically. During the thirties, she stagnated under massive government stimulus. After the war, she thrived because she had ZERO competition. And since the gold standard died, she has slowly deteriorated. AND, finally, since around 2001 (when the Fed first started muscling in on things), her economy has done badly and is now stuck on stagnation mode again.

Today, fundamentals mean little as corporations just basically look to the Fed for guidance. And banks do not bother lending to almost anyone (which is (imo) primarily why the M2 money velocity is the lowest in 55 years and still falling) as they just sit back and make money on the 'carry trade' (again, thanks to the Fed).

1930-1990 is little to do with Austrian School and almost everything to do with big government. And as the government gets bigger, the economy stagnates more.
 
Last edited:

Onion Eater

Well-known member
Joined
Jun 28, 2008
Messages
753
Reaction score
139
Location
Scottsdale, AZ
Gender
Male
Political Leaning
Libertarian
There are two main phases (and two minor phases within one major phase) of the American economy between 1930 and now.

My paper is about theoretical economics and all of the 50+ books and journal articles that I cite are about theoretical economics. There is nothing in there about current events in America at the time that the articles were written.

For instance, Keynes was directly involved in the management of the English economy and there are papers available that he wrote about his work, but I did not cite them. I cited only his theoretical papers that were meant to apply to any economy at any time.

Similarly, I devote much space to Hayek’s book, Prices and Production, which is the transcript of a series of lectures that he gave at LSE in 1930-31. Of course, had it not been for the unpleasant events of 1929, he would not have been invited to London, certainly not on such short notice that he would be lecturing in a language that he barely spoke, which is what necessitated the transcript. But his lectures actually make no mention of current events circa 1930; they are theoretical in nature and apply as much to 2015 as they do to 1930.

Critique of Austrian Economics From 1930 To 1990

Obviously, you did not read my paper. You just saw dates in the title, assumed that it was about economic history, and then cut and pasted a lot of unrelated text that you (or somebody) originally wrote for another purpose than commentary on this thread. You are attempting to hijack my thread.
 

JP Hochbaum

DP Veteran
Joined
Feb 7, 2012
Messages
4,456
Reaction score
2,549
Gender
Male
Political Leaning
Independent
In the first one, Wilson and Harding basically balanced the budgets and let the economy fix itself.

No they didn't balance anything, not sure what you mean by basically. And the economy thrived in spite of reduced government spending, not because of it. You're committing correlation implies causation fallacies here.

Since you typically dismiss sources, I will leave you about dozens of sources here which prove this to be true:

https://www.google.com/webhp?source...e=UTF-8#q=balanced budgets causing recessions
 

DA60

Banned
DP Veteran
Joined
Jan 28, 2012
Messages
16,386
Reaction score
7,793
Location
Where I am now
Gender
Male
Political Leaning
Independent
No they didn't balance anything, not sure what you mean by basically. And the economy thrived in spite of reduced government spending, not because of it. You're committing correlation implies causation fallacies here.

Since you typically dismiss sources, I will leave you about dozens of sources here which prove this to be true:

https://www.google.com/webhp?source...e=UTF-8#q=balanced budgets causing recessions

Funny, the budgets look balanced to me (actually, they ran surpluses)...

1920 United States Federal Budget

1921 United States Federal Budget


I don't dismiss unbiased sources that present provable facts/data. Economic opinions mean almost nothing to me - whether they agree with me or not. Unless they back them up with unbiased facts from reliable sources, why should I waste my time reading them?
 
Last edited:

JP Hochbaum

DP Veteran
Joined
Feb 7, 2012
Messages
4,456
Reaction score
2,549
Gender
Male
Political Leaning
Independent
Funny, the budgets look balanced to me (actually, they ran surpluses)...

1920 United States Federal Budget

1921 United States Federal Budget


I don't dismiss unbiased sources that present provable facts/data. Economic opinions mean almost nothing to me - whether they agree with me or not. Unless they back them up with unbiased facts from reliable sources, why should I waste my time reading them?

And you left out 1922-1923, and several years after that..... All that were not balanced.
 

DA60

Banned
DP Veteran
Joined
Jan 28, 2012
Messages
16,386
Reaction score
7,793
Location
Where I am now
Gender
Male
Political Leaning
Independent
And you left out 1922-1923, and several years after that..... All that were not balanced.

Ummmm...look down a few inches on the 1921 source...1922 and 1923 FY's both ran surpluses.

Warren G. Harding Administration | U.S. Federal Budget


As I said above, during the 1920/21 Depression, the national debt actually went down.

'with a DECLINE in the national debt of over 10% between 1920 and 1923.'


What you are going on about is a complete mystery to me. Are you bent out of shape that they were not technically 'balances' but technically 'surpluses' so I should have said 'surpluses'?
 
Last edited:

JP Hochbaum

DP Veteran
Joined
Feb 7, 2012
Messages
4,456
Reaction score
2,549
Gender
Male
Political Leaning
Independent
Ummmm...look down a few inches on the 1921 source...1922 and 1923 FY's both ran surpluses.

Warren G. Harding Administration | U.S. Federal Budget


As I said above, during the 1920/21 Depression, the national debt actually went down.

'with a DECLINE in the national debt of over 10% between 1920 and 1923.'


What you are going on about is a complete mystery to me. Are you bent out of shape that they were not technically 'balances' but technically 'surpluses' so I should have said 'surpluses'?

I stand corrected, they did run surplusses all the way up until 1930. The the Great Depression hit. Do you not think that had something to do with the economy crashing?

Typically when the government is in savings the private sector has to borrow, and it seems government savings in that decade was done on the backs of consumer credit.

"He then meticulously documented data on the stunning growth in borrowing by households during the 1920s. As is common in the run-up to severe economic downturns, there was a tremendous growth in mortgage debt. “The great field of credit expansion in the last decade lies in the realm of urban real estate mortgages”, Persons wrote. In nominal terms, outstanding mortgage debt grew by more than eight times from 1920 to 1929, according to Persons.

Persons also highlighted the rise in installment debt, or consumer debt used to purchase new furniture, clothing, sewing machines, and cars. Martha Olney at Berkeley examined the rise in purchases of cars and other durables during the 1920s, and concluded that “societal attitudes toward borrowers changed radically between 1900 and 1920; by the mid-1920s, buying on credit was considered normal, not sinful.”

Persons concluded his 1930 article with a statement that is eerily similar to many we here today: “The past decade has witnessed a great volume of credit inflation. Our period of prosperity was based on nothing more substantial than debt expansion.”

Both the Great Depression and our recent Great Recession were preceded by large increases in household debt driven by new lending technologies. The 1920s had the installment loan; the mid-2000s had the subprime mortgage loan. Is it a coincidence that the two most severe recessions in the last 150 years were preceded by a dramatic expansion in household debt driven by new lending technologies? This is a central question of our book."

Household Debt and the Great Depression | House of Debt
 

austrianecon

DP Veteran
Joined
Dec 2, 2012
Messages
7,362
Reaction score
1,342
Gender
Undisclosed
Political Leaning
Libertarian
I stand corrected, they did run surplusses all the way up until 1930. The the Great Depression hit. Do you not think that had something to do with the economy crashing?

Typically when the government is in savings the private sector has to borrow, and it seems government savings in that decade was done on the backs of consumer credit.

But you just accused of DA60 of correlation implies causation fallacies here, Yet here you are doing it. Government running surplus in the 1920s was based upon economic growth (increased tax revenue). The economy crashed not because of consumption as income were rising. The issue came down to the stock market and the buy on the margin mentality. Regular people who had increased incomes could borrow money from banks and buy stocks on the margin. Stocks went belly up in 1929 and people got wiped out because they couldn't pay the loans. Those loans became bad loans to the banks, banks were wiped out and EVERYBODY banking lost their money, some at no fault of their own. This cascaded all over the country.

It's why there was the separation of Commercial Banking and Investment Banking known as Glass–Steagall because your local bank was telling you how great an investment stocks were.. and they knew you could pay the loan if the stock went up.

Btw, US Government has ran a deficit since 2002 and we still had a "Great" Recession (nice way of saying depression) US economy declined by 16% from 2008 to 2009. We just prettied up the term depression because if it was said.. the economy would have crashed further.
 
Last edited:

JP Hochbaum

DP Veteran
Joined
Feb 7, 2012
Messages
4,456
Reaction score
2,549
Gender
Male
Political Leaning
Independent
But you just accused of DA60 of correlation implies causation fallacies here, Yet here you are doing it. Government running surplus in the 1920s was based upon economic growth (increased tax revenue). The economy crashed not because of consumption as income were rising. The issue came down to the stock market and the buy on the margin mentality. Regular people who had increased incomes could borrow money from banks and buy stocks on the margin. Stocks went belly up in 1929 and people got wiped out because they couldn't pay the loans. Those loans became bad loans to the banks, banks were wiped out and EVERYBODY banking lost their money, some at no fault of their own. This cascaded all over the country.

It's why there was the separation of Commercial Banking and Investment Banking known as Glass–Steagall because your local bank was telling you how great an investment stocks were.. and they knew you could pay the loan if the stock went up.

Btw, US Government has ran a deficit since 2002 and we still had a "Great" Recession (nice way of saying depression) US economy declined by 16% from 2008 to 2009. We just prettied up the term depression because if it was said.. the economy would have crashed further.

What correlation did I make? All I said was that when a government runs a surplus the government is in effect removing money from the economy. And then I stated that typically this results in the private sector having to take on more debt. And the 1920's was evidence of that happening.

Also yes we have run deficits and have also had recessions. Running deficits don't make us recession proof, I never said that either.
 

austrianecon

DP Veteran
Joined
Dec 2, 2012
Messages
7,362
Reaction score
1,342
Gender
Undisclosed
Political Leaning
Libertarian
What correlation did I make? All I said was that when a government runs a surplus the government is in effect removing money from the economy. And then I stated that typically this results in the private sector having to take on more debt. And the 1920's was evidence of that happening.

Your correlation comment. It applies here as well because you are assuming private sector borrowing caused the crisis known as the Great Depression. It's absolutely not true. Rather is was a stock market crash that caused the great depression coupled with a slow moving Federal Reserve.

I and DA60 don't run around and say that the real recovery after Great Depression was because there was rationing during WW2 which allowed almost every single family to build up a net worth because they were limited in the amount of basics they could buy when it came to food items per week/month or that during WW2 all consumer spending was on the basic and that was it. Companies that use to make and sell things like: Metal office furniture, radios, phonographs, refrigerators, vacuum cleaners, washing machines, and sewing machines were retooled for the war effort so there was little extra consumption.

So you had a gluttony of savings which allowed for a huge boom during the post war years until the 1970s as those savers from WW2 got older.

Also yes we have run deficits and have also had recessions. Running deficits don't make us recession proof, I never said that either.

So why assume that private borrowing is a cause of the Great Depression? You subscribe to sectoral balances, you know damn well private borrowing and spending has to go up if Government is saving.
 

SlevinKelevra

Sage
DP Veteran
Joined
Nov 16, 2014
Messages
6,639
Reaction score
1,487
Location
Pennsylvania, USA
Gender
Male
Political Leaning
Other
There are two main phases (and two minor phases within one major phase) of the American economy between 1930 and now.

1930 until Bretton Woods. And Bretton Woods until now (with two smaller phases within).


1930 until now was when Keynesian first took off...and what a mess it was (though most people are utterly clueless about this).

As I have pointed out MANY times, there were two depressions between 1920 and 1940. One in 1920/21 and the 'Great' Depression of the thirties. And they were 'attacked' two completely different ways.
In the first one, Wilson and Harding basically balanced the budgets and let the economy fix itself. The result? The unemployment rate and the DOW going back to near pre-depression levels (1.4/2.4 & 108/105, respectively) all with a DECLINE in the national debt of over 10% between 1920 and 1923.
http://www.debatepolitics.com/break...ct-w-123-a-post1060907468.html#post1060907468

But during the Great Recession, Hoover and FDR did the opposite, they spent like mad and tried to control the economy. The result? (1930-40/41)...national debt triples, DOW barely reaches 1/2 of it's pre-crash level and unemployment is 5 times worse (in 1939) then it's pre-crash level.
.


Umm, it was called the Great Depression, but more importantly,

GDP recovered to pre-crash levels (or within 1-2% thereof, depending on the source you use), by 1937. Then fears of debt triggered a austerity movement against the New Deal. The massive ramp up
in the debt was a consequence (majority) of deciding to enter WW2 after we were attacked. Anyone trying to discuss the topic with serious intellectual honestly would not lump that 11 years into a single block.



ps, your use of the DJIA as a metric of economic health is a very very very very slipper slope.

pps, if the economy "fixed itself", how was it broken even more severely a mere 6ish years later by personages and policies you didn't address?
 

JP Hochbaum

DP Veteran
Joined
Feb 7, 2012
Messages
4,456
Reaction score
2,549
Gender
Male
Political Leaning
Independent
Your correlation comment. It applies here as well because you are assuming private sector borrowing caused the crisis known as the Great Depression. It's absolutely not true. Rather is was a stock market crash that caused the great depression coupled with a slow moving Federal Reserve.
I didn't assume anything, I asked DA a question: Do you not think that had something to do with the economy crashing?

I never said it did or didn't, just asked him if he thinks it contributed.
 

JP Hochbaum

DP Veteran
Joined
Feb 7, 2012
Messages
4,456
Reaction score
2,549
Gender
Male
Political Leaning
Independent
So why assume that private borrowing is a cause of the Great Depression? You subscribe to sectoral balances, you know damn well private borrowing and spending has to go up if Government is saving.

Again see above, I just asked DA a question, never made a statement.
 

Ganesh

DP Veteran
Joined
Jun 15, 2014
Messages
2,028
Reaction score
1,329
Gender
Undisclosed
Political Leaning
Undisclosed
There are two main phases (and two minor phases within one major phase) of the American economy between 1930 and now.

1930 until Bretton Woods. And Bretton Woods until now (with two smaller phases within).


1930 until now was when Keynesian first took off...and what a mess it was (though most people are utterly clueless about this).

As I have pointed out MANY times, there were two depressions between 1920 and 1940. One in 1920/21 and the 'Great' Depression of the thirties. And they were 'attacked' two completely different ways.
In the first one, Wilson and Harding basically balanced the budgets and let the economy fix itself. The result? The unemployment rate and the DOW going back to near pre-depression levels (1.4/2.4 & 108/105, respectively) all with a DECLINE in the national debt of over 10% between 1920 and 1923.
http://www.debatepolitics.com/break...ct-w-123-a-post1060907468.html#post1060907468

But during the Great Recession, Hoover and FDR did the opposite, they spent like mad and tried to control the economy. The result? (1930-40/41)...national debt triples, DOW barely reaches 1/2 of it's pre-crash level and unemployment is 5 times worse (in 1939) then it's pre-crash level.

http://www.debatepolitics.com/economics/160861-case-austerity-has-crumbled-7.html#post1061850091

And Keynesians blame these numbers on the recession of 1937-38 on balancing the budget. But what they fail to grip is the fact that the economy had become so TOTALLY dependent on government stimuli, that as soon as the gov't. teat was removed, the economy collapsed. (which, btw, I believe will happen again today).


Then there is port Bretton Woods (1944). Bretton Woods - what an eventual disaster. First, the pathetic and destructive IMF is established. Then the U.S. dollar is made the official world reserve currency (in essence) - which guarantees America will be able to 'print' almost as much money as it wants for decades.
Within this period is the post WW2 boom (roughly 1945 to 1970) when America basically had things as she pleased. All the other major powers were either broke after WW2, destroyed or communist. So naturally, in this climate, America's economy thrived...there is almost no way it could not with virtually no competition. So calling this a victory for big government is a joke.

Then, there is post 1970 when the gold standard collapsed completely (in 1971). And ever since then, America's power has slowly waned. So much so that now, imo, the ONLY thing keeping America from another huge recession is massive government stimulus in the form of huge deficits and massive Fed intervention. In fact, the Fed basically runs the economy...they certainly are running the stock market. The DOW boomed once the Fed stepped in after the 'Great Recession' collapse by 'printing' trillions and trillions of dollars out of thin air. But since QE3 ended on Oct. 30, 2014...the DOW is barely up AND is, in fact, down for the year so far by almost 400 points. Stagnation has set in.

Since the beginning of the Great Recession, when the Fed really started taking over, the economy has done the following: the number of Americans on food stamps has risen about 17 million. The number of people working in the all important 25-54 age range has dropped by millions (and, for those that say this is because of demographics---think again as the employment to population ratio - which takes demographics into account - has dropped in that time from 79.4% to 76.5% (which is not good).
Plus, the national debt has roughly doubled...and that does not even include the $4+ trillion on the Fed's books.

Since America decided to allow governments to have FAR bigger roles in things, America gas gotten far weaker economically. During the thirties, she stagnated under massive government stimulus. After the war, she thrived because she had ZERO competition. And since the gold standard died, she has slowly deteriorated. AND, finally, since around 2001 (when the Fed first started muscling in on things), her economy has done badly and is now stuck on stagnation mode again.

Today, fundamentals mean little as corporations just basically look to the Fed for guidance. And banks do not bother lending to almost anyone (which is (imo) primarily why the M2 money velocity is the lowest in 55 years and still falling) as they just sit back and make money on the 'carry trade' (again, thanks to the Fed).

1930-1990 is little to do with Austrian School and almost everything to do with big government. And as the government gets bigger, the economy stagnates more.

You have written such an extensive example of revisionist history here DA, that I am tempted to think you might have a bright future as a novelist. Maybe you could team up with Clive Cussler or some such, just to inject a little more adventure into your stories.
 

Ganesh

DP Veteran
Joined
Jun 15, 2014
Messages
2,028
Reaction score
1,329
Gender
Undisclosed
Political Leaning
Undisclosed
........The 20-21 recession did not "fix itself", it was beaten to death with a blunt instrument, mainly because that was about all they had in those days, before such luminaries as Keynes, Galbraith, or Krugman. Inflation was stamped out by simply raising interest rates until economic activity slowed to the desired hobble, chucking many unfortunate workers to the ditch, but what the hey, this was still a time of class distinction and blatant discrimination. They were at the bottom of the food chain, and expendable.

FDR, sharp fellow that he was, was beginning to learn about economics in some depth during the '30s, and by then understood that more had to be done to bring society into line with desired outcomes than sitting around puffing on cigars, and exclaiming about the wonders of capitalist markets. Because by that time, capitalism had virtually collapsed, and it was either revive it in modified form, ie: something looking like what we call social democracy today, or cast fate to the wind, which could well have meant revolution and perhaps communism. Although his contemporaries would have been loath to admit it, FDR probably saved capitalism, and captialists, in America at that time.

Spend during a depression? You bet, and FDR certainly did, to great effect. It worked. People were gaining employment, valuable projects were being completed, and the economy was being pulled out of its death spiral of ever lower wages, ever lower demand, ever lower employment, ever lower investment in plant, ever greater risk of social explosion. Why did it falter in 1937? Because FDR, beset by austerity hawks in the same way campers in the north are hectored by horseflys and mosquitoes, relented, went back on his principles, and started tightening up, thinking the worst was over. Well, it wasn't, actually more deficit spending was needed. Any readers here reminded of a more contemporary situation at this point? I bet you are. Fantasy and myth tend to endure.

During the post war period, yes, the US did have some unique advantages, as you have described. But stop and think a moment. If the US got those benefits, but if it was business as usual, forget about the unseemly past decade or two, no reforms, where would those resources have gone? The trick then, and still is, to spread that wealth around, giving everyone just enough to spend and create employment, but not so much as to go into wasteful bubbles, or simply into limbo, and not be used. You recall how this was done? This is why the post war period was so successful.

Now we come to gold, that glittery substance that seems to drive men crazy. Some of the postings on this forum seem to substantiate this. Conquistadors, '49er miners, and now libertarian dreamers. The US declined in the '70s, and later, for a variety of reasons. Trying to finance the Vietnam War without the tax logic required, Tricky Dickey's political maneuvering, the oil shock of '73, the recovery of WW2 nations, and eventually the rise of the third world are all factors. Gold is not. Basing a currency on Gold (or any other sort of fixed commodity) is untenable, and illogical. Money must breathe, expand when necessary, and sometimes contract. This must be directed by academic notions, not by chunks of metal in a vault.

As for QE running stock markets (or bond markets), yes, it has an effect. But punters there also look at a number of figures before shoving their dollars onto the table, such as price to earnings ratios, or corporate earnings, and a number of other things. Debt is high right now, but again, that is all in flux, and a sustained rise in GDP will erase debt, in the same way the post war boom (and some socialist measures) erased WW2 debt. Collapse is not imminent.

Before FDRs time, the US was a bit player on the world stage, but has since become ever stronger, and is still dominant today, and that is due to the reforms that changed capitalism from corporate feudalism to middle class society. That's the real story here, although pulp fiction writers might struggle to make that salable.
 

DA60

Banned
DP Veteran
Joined
Jan 28, 2012
Messages
16,386
Reaction score
7,793
Location
Where I am now
Gender
Male
Political Leaning
Independent
........The 20-21 recession did not "fix itself", it was beaten to death with a blunt instrument, mainly because that was about all they had in those days, before such luminaries as Keynes, Galbraith, or Krugman. Inflation was stamped out by simply raising interest rates until economic activity slowed to the desired hobble, chucking many unfortunate workers to the ditch, but what the hey, this was still a time of class distinction and blatant discrimination. They were at the bottom of the food chain, and expendable.

FDR, sharp fellow that he was, was beginning to learn about economics in some depth during the '30s, and by then understood that more had to be done to bring society into line with desired outcomes than sitting around puffing on cigars, and exclaiming about the wonders of capitalist markets. Because by that time, capitalism had virtually collapsed, and it was either revive it in modified form, ie: something looking like what we call social democracy today, or cast fate to the wind, which could well have meant revolution and perhaps communism. Although his contemporaries would have been loath to admit it, FDR probably saved capitalism, and captialists, in America at that time.

Spend during a depression? You bet, and FDR certainly did, to great effect. It worked. People were gaining employment, valuable projects were being completed, and the economy was being pulled out of its death spiral of ever lower wages, ever lower demand, ever lower employment, ever lower investment in plant, ever greater risk of social explosion. Why did it falter in 1937? Because FDR, beset by austerity hawks in the same way campers in the north are hectored by horseflys and mosquitoes, relented, went back on his principles, and started tightening up, thinking the worst was over. Well, it wasn't, actually more deficit spending was needed. Any readers here reminded of a more contemporary situation at this point? I bet you are. Fantasy and myth tend to endure.

During the post war period, yes, the US did have some unique advantages, as you have described. But stop and think a moment. If the US got those benefits, but if it was business as usual, forget about the unseemly past decade or two, no reforms, where would those resources have gone? The trick then, and still is, to spread that wealth around, giving everyone just enough to spend and create employment, but not so much as to go into wasteful bubbles, or simply into limbo, and not be used. You recall how this was done? This is why the post war period was so successful.

Now we come to gold, that glittery substance that seems to drive men crazy. Some of the postings on this forum seem to substantiate this. Conquistadors, '49er miners, and now libertarian dreamers. The US declined in the '70s, and later, for a variety of reasons. Trying to finance the Vietnam War without the tax logic required, Tricky Dickey's political maneuvering, the oil shock of '73, the recovery of WW2 nations, and eventually the rise of the third world are all factors. Gold is not. Basing a currency on Gold (or any other sort of fixed commodity) is untenable, and illogical. Money must breathe, expand when necessary, and sometimes contract. This must be directed by academic notions, not by chunks of metal in a vault.

As for QE running stock markets (or bond markets), yes, it has an effect. But punters there also look at a number of figures before shoving their dollars onto the table, such as price to earnings ratios, or corporate earnings, and a number of other things. Debt is high right now, but again, that is all in flux, and a sustained rise in GDP will erase debt, in the same way the post war boom (and some socialist measures) erased WW2 debt. Collapse is not imminent.

Before FDRs time, the US was a bit player on the world stage, but has since become ever stronger, and is still dominant today, and that is due to the reforms that changed capitalism from corporate feudalism to middle class society. That's the real story here, although pulp fiction writers might struggle to make that salable.

It is interesting to compare the difference between our two posts. Mine have a fair number of statistics. Yours have almost none. In fact, I do not think you posted even one.

But this is typical of Keynesianism/Krugmanism..long on theory, short on fact...style over substance.

When it comes to economics - I am not the slightest bit interested in opinions (which is why I only glanced over your post - no offense, but life is too short). I am only interested in facts/data from unbiased sources.

Good day.
 

DA60

Banned
DP Veteran
Joined
Jan 28, 2012
Messages
16,386
Reaction score
7,793
Location
Where I am now
Gender
Male
Political Leaning
Independent
I stand corrected, they did run surplusses all the way up until 1930. The the Great Depression hit. Do you not think that had something to do with the economy crashing?

Typically when the government is in savings the private sector has to borrow, and it seems government savings in that decade was done on the backs of consumer credit.

"He then meticulously documented data on the stunning growth in borrowing by households during the 1920s. As is common in the run-up to severe economic downturns, there was a tremendous growth in mortgage debt. “The great field of credit expansion in the last decade lies in the realm of urban real estate mortgages”, Persons wrote. In nominal terms, outstanding mortgage debt grew by more than eight times from 1920 to 1929, according to Persons.

Persons also highlighted the rise in installment debt, or consumer debt used to purchase new furniture, clothing, sewing machines, and cars. Martha Olney at Berkeley examined the rise in purchases of cars and other durables during the 1920s, and concluded that “societal attitudes toward borrowers changed radically between 1900 and 1920; by the mid-1920s, buying on credit was considered normal, not sinful.”

Persons concluded his 1930 article with a statement that is eerily similar to many we here today: “The past decade has witnessed a great volume of credit inflation. Our period of prosperity was based on nothing more substantial than debt expansion.”

Both the Great Depression and our recent Great Recession were preceded by large increases in household debt driven by new lending technologies. The 1920s had the installment loan; the mid-2000s had the subprime mortgage loan. Is it a coincidence that the two most severe recessions in the last 150 years were preceded by a dramatic expansion in household debt driven by new lending technologies? This is a central question of our book."

Household Debt and the Great Depression | House of Debt

I do not think government surpluses had anything to do with the Great Depression.
Look at the tax rates - especially from the mid-20's onwards. The highest tax rate was 25%. According to the IRS, the average income was about $5,200 in 1925 and the average tax rate was 3.35%. How on EARTH could that tax rate be causing the Great Depression? Come on now.


http://taxfoundation.org/sites/taxfoundation.org/files/docs/fed_individual_rate_history_nominal.pdf

http://www.irs.gov/pub/irs-soi/25soirepar.pdf page 2 at the top


I think the Fed increasing the money supply by 62% in the 20's had a lot to do with it.

'From 1921 to 1929 the Federal Reserve increased the money supply by 62%' The Silver Bear Cafe halfway down the page after 'Great Depression'

I think the ridiculous margin rules of the time had a TON to do with it. I think the absolutely MORONIC Smoot-Hawley Tariffs made things FAR worse. And I think that there were virtually no welfare safeguards whatsoever had something to do with why the Great Depression got SO bad (I am not big on welfare...but I strongly believe you need enough to keep people fed, clothed, sheltered and give them access to basic medical care if they need it).



The 1920/21 Depression was clearly brought on by too much government spending (for WW1). I believe the Great Depression was (among other reasons) caused by too much Fed money 'printing'. And I KNOW that the Great Recession was primarily caused by the stupid idea (instigated by the government) of low income housing stimulus mixed in with the Fed dropping rates FAR too far for FAR too long.

I do not wish to debate this as I doubt either of us will change their mind and the effort would be wasted...BUT...'normal' recessions are a normal part of the economic cycle and they are GOOD for the economy as they correct price irregularities in the market. But, of the three major recessions/depressions of the last 100 years...all of them (imo) were primarily brought on by poor actions by the government/Federal Reserve.
 
Last edited:

JP Hochbaum

DP Veteran
Joined
Feb 7, 2012
Messages
4,456
Reaction score
2,549
Gender
Male
Political Leaning
Independent
I do not think government surpluses had anything to do with the Great Depression.
Look at the tax rates - especially from the mid-20's onwards. The highest tax rate was 25%. According to the IRS, the average income was about $5,200 in 1925 and the average tax rate was 3.35%. How on EARTH could that tax rate be causing the Great Depression? Come on now.


http://taxfoundation.org/sites/taxfoundation.org/files/docs/fed_individual_rate_history_nominal.pdf

http://www.irs.gov/pub/irs-soi/25soirepar.pdf page 2 at the top

There are two aspects to a surplus, either taxes are too high or spending is too low. So yeah taxes weren't really the reason for the surplusses, it was the lack of spending at the bottom. The economy was roaring not from surplusses but from what is referred to as a shift in the supply curve causing the PPF to shift right, meaning our production frontier expanded making new products available and so people wanted those products and borrowed to get them. Same thing happened in the late 1990's, we had a surplus. not because of government policy but because of a massive expansion in PPF.

Hence why the feds printed more money, not because the feds wanted to, but because money is endogenous, meaning the banks created the money because there was demand for it.
 

DA60

Banned
DP Veteran
Joined
Jan 28, 2012
Messages
16,386
Reaction score
7,793
Location
Where I am now
Gender
Male
Political Leaning
Independent
There are two aspects to a surplus, either taxes are too high or spending is too low. So yeah taxes weren't really the reason for the surplusses, it was the lack of spending at the bottom. The economy was roaring not from surplusses but from what is referred to as a shift in the supply curve causing the PPF to shift right, meaning our production frontier expanded making new products available and so people wanted those products and borrowed to get them. Same thing happened in the late 1990's, we had a surplus. not because of government policy but because of a massive expansion in PPF.

Hence why the feds printed more money, not because the feds wanted to, but because money is endogenous, meaning the banks created the money because there was demand for it.

You are making assumptions...which you are free to do.

If you want to assume that some/all recessions happen because of a lack of government spending...go ahead.

But if you are trying to convince me of that, I think we both know you are wasting your time.


I like you man (because you seem a decent sort), but we do not see eye to eye on this.

Good day.
 

JP Hochbaum

DP Veteran
Joined
Feb 7, 2012
Messages
4,456
Reaction score
2,549
Gender
Male
Political Leaning
Independent
You are making assumptions...which you are free to do.

If you want to assume that some/all recessions happen because of a lack of government spending...go ahead.

But if you are trying to convince me of that, I think we both know you are wasting your time.


I like you man (because you seem a decent sort), but we do not see eye to eye on this.

Good day.

Well I didn't assume anything there. PPF is first year economics.
 

DA60

Banned
DP Veteran
Joined
Jan 28, 2012
Messages
16,386
Reaction score
7,793
Location
Where I am now
Gender
Male
Political Leaning
Independent
Well I didn't assume anything there. PPF is first year economics.

Say whatever you what man, your above theory is just that...a theory. And one I do not agree with...no matter how many 'curves' you throw at it.

Anyway, this is just going back and forth now - leading to nowhere.

Later.
 
Last edited:
Top Bottom