From the Comments: Harding for Mt. Rusmore?
From the comments on Hurley and the Great Depression, some words from “ConstitutionNotRevolution.” That must be hard to fit on a “Hi! My Name Is:” badge on the speed-dating circuit. Anyway, I’m going to just interrupt C’n'R with my rejoinders:
Learn history.
You learn history. What do you think my degree is in, baseball?
Look up the Depression of 1920. In some ways it was as bad or worse than “The Great Depression.” Unemployment went from 4% to 12%. GDP dropped 17%. Secretary of Commerce and Progressive Republican Herbert Hoover recommended government intervention a la Keynesian “fiscal stimulus” but Harding ignored him.
Instead, Harding cut government spending by 50% and taxes were slashed similarly. Also, the Federal Reserve stayed out of the problem almost completely. The result was the unemployment rate dropping to under 7% in 1921 and to 2.8% by 1923. The total federal deficit was also eeduced by 1/3.
The 1920-1921 recession/depression and the Great Depression are not at all comparable, and the steps taken by the Harding administration would have been disastrous had the Roosevelt administration tried them in place of the New Deal. In the immediate postwar period, we had an overlarge government still bloated by the war, sucking money out of the economy with interest payments on war debt that were larger than the prewar Federal budget, taxes that were similarly heightened by the need to pay for the war, a tight-money policy at the Fed, and a great many doughboys leaving the ranks and looking for employment. What Harding’s men, Treasury Secretary Andrew Mellon among them, did was necessary to get the government back on a peacetime basis. At the same time, the Fed started dropping interest rates, and I would bet that that more traditional tool for combating recessions paid the largest dividends of all.
Unfortunately, in their doctrinaire rejection of sound taxation policies, Mellon and pals went too far, and throughout the Coolidge years the income tax system was pretty well castrated. Wherever Mellon could retreat from the progressive tax system he did, and what he couldn’t just abolish he refunded. In practical terms, the wealthy and corporations stopped paying taxes altogether. The average cat saw his tax bill go up. This helped set the stage for the Great Depression in two ways, first by contributing to wealth inequality, second by fueling the speculative orgy that was the basis of so-called Coolidge Prosperity and ended with the 1929 crash.
Hoover did go on to some fame, however. He helped pass the Smoot-Hawley Act which was one of the major causes of (or worsened) the Great Depression. You seem to be implying that FDR brought us out of the GD, yet we were still in it at the advent of WWII.
Harding succeeded where FDR failed miserably.
This may be the first time I’ve seen the words “Harding succeeded” anywhere. It might be the first time anyone has ever seen those words. First, I sure wasn’t implying I am a Hoover fan. Nor was I implying that the New Deal solved the Great Depression. The greatest federal spending program of all time, World War II, did that. Rather, I said that those that decry the New Deal, or for that matter deny the utility of the government trying to do something about unemployment now, forget that with the exception of the Woodrow Wilson years, people who shared their laissez-faire point of view had control of the government from the late 1890s to the early 1930s. Their program has been tried and found wanting. If Keynesianism, or Neal Dealism, or what have you, is similarly unsatisfactory, you’d better propose a third way.
May 17th, 2010 at 3:27 pm
Harding for Mount Rushmore? You are the reigning “King of the Strawman…”
You state: “You learn history. What do you think my degree is in, baseball?”
Sociology? No, that was not it. I’m pretty sure it started with S.O.C… though.
You state: “The 1920-1921 recession/depression and the Great Depression are not at all comparable…”
Actually they are comparable, mainly because you are arguing the wrong point. The CAUSE of a depression is mainly irrelevant. All depressions are plagued by “debt”, “unemployment”, etc. regardless of their causes.
It is the solution that matters. The Fed’s activities were not until late 1921 (rates were reduced to 4% in November ‘21), when the worst of the depression was over and there was daylight. Did cuts in spending and taxes reduce unemployment and debt? Yes. I do not see how this point is even arguable.
FDR (and the Japanese during the 1920’s) took an opposite approach. He did not allow for a correction and employed Keynesian policies. Both nations ended up with a lost decade of production.
Hayek and the Austrian School were correct.
You state: ” Nor was I implying that the New Deal solved the Great Depression. The greatest federal spending program of all time, World War II, did that. ”
LOL Then WHAT is your point?
You state: “Rather, I said that those that decry the New Deal, or for that matter deny the utility of the government trying to do something about unemployment now,…”
So, you admit that FDR’s “solutions” did not correct the great depression, yet state we should utilize the SAME methods for today’s issues. I’ll take mustard on that pretzeled logic.
You state: “…forget that with the exception of the Woodrow Wilson years, people who shared their laissez-faire point of view had control of the government from the late 1890s to the early 1930s.”
Is it too late to get a refund on your degree? Really? You want to make the claim that Teddy “shared their laissez-faire point of view?”
I cannot begin to debate someone who has such a belief because it is such a distorted principle. You apprently see an “R” after a name and assume they MUST be laissez-faire capitalists. Either that or you graduated from the University of Wisconsin or perhaps Columbia, where Progressive revisionism was invented.
May 17th, 2010 at 6:13 pm
CnR,
I’m not quite sure how you can maintain that the cause of a recession/depression is irrelevant to the solution… Are you stating that the only answer to a deflationary cycle is to reduce government expenditures and tax rates?
I think Steve’s larger point about WWII is that it was a Keynesian stimulus program. Do you not think that war related government spending had anything to do with depression ending?
May 17th, 2010 at 10:03 pm
Hantu,
What I am doing is attempting to find an instance where Keynesian economics ever lifted a country out of a depression. You can make the case that deficit spending from WWII lifted us out. Your argument is significantly undercut by the undisputed fact that the US government flooded the economy with money during the 1930’s to no avail. This is AFTER Hoover attempted a “stimulus” himself.
And no, the cause has little to do with the solution just as my infection needs an antibiotic regardless of how I contracted it. The “antibiotic” is the government allowing the market to correct itself. If you want to argue this point, we can though. I would just point out that the Austrian School believes that depressions are caused by the expansion of bank credit causing bad investments. Nothing like that in the last 5-10 years, right? We did not lend money to every person with or without a job so they could purchase houses and cause a market bubble, right?
Hard to argue with the Austrian School on that point.
May 18th, 2010 at 1:28 pm
I think you’re greatly oversimplifying some complex things…
First of all, there is a general consensus (at least among mainstream economists) that FDR’s Keynesian policies did have an impact- the classic graph of GDP looks sort of like a W written on an upward sloped line. The middle of the “W” begins with FDR’s election in 1933 and continues till ‘37-’38, during which time he pulled back government intervention because of conservative pressure. Also, none of the actions were large enough, relative to the size of the economy.
Spending associated with the war, however, is exactly the sort of action Keynes was talking about and large enough to jump start the economy…
There is certainly a healthy argument about the role of FDR’s stimulus policies vs. expansionist monetary policy vs. devaluing the dollar vs. flight to quality from a collapsing Europe, and the modern understanding is the “more of everything” approach with Ben Bernanke (no wilting liberal) wrote often about and put into practice the past couple of years.
As for Hoover’s stimulus, you’re probably talking about the RFC and ERCA which were both passed in 1932 and adopted and expanded by the FDR Administration in 1933. BTW, Hoover also tried the favorite solution of conservatives for everything- tax cuts for the highest brackets (75%-25%) in 1929… That sure turned out well.
I do disagree with your analogy- this most recent crisis, for example, has many causes- expansionary monetary policy by the Fed is certainly one of them. You could also say that housing (or actually, the credit crisis) was the symptom of a number of underlying ailments- the foreign savings glut fueled by export driven policies and rising oil prices. “Innovation” in the financial system and laissez-faire oversight of shadow banking system were also critical to the crisis. Equally important, though more subtle was the stagnant or declining income of middle class households. How many of these can be answered by pointing at loose monetary policy?
May 22nd, 2010 at 9:57 pm
‘We are spending more money than we have ever spent before, and it does not work. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started and an enormous debt, to boot.”
~ FDR’s Treasury secretary, architect of the New Deal, and close friend, Henry Morganthau, 1939