Monday, June 28, 2010
Bravo for the common sense of the American people!!!
Monday, June 21, 2010
The first problem I found in reading Thomas Sowell's "A Mind-Changing Page" is his citation of employment figures:
Although the big stock-market crash occurred in October 1929, unemployment never reached double digits in any of the 12 months after that crash. Unemployment peaked at 9 percent, two months after the stock market crashed — and then began drifting generally downward over the next six months, falling to 6.3 percent by June 1930.
I agree with Sowell's assertion that the stock market crash of 1929 was merely the single dramatic event that people focus on. It was not, by itself, the event that really changed the course of history. But I was very interested to see how agreed-upon facts are treated very differently. Here is the picture of the 1930s in the statistics provided by Steve Kangas in "The Great Depression: Its Causes and Cure."
The GNP falls 9.4 percent from the year before. The unemployment rate climbs from 3.2 to 8.7 percent.
The GNP falls another 8.5 percent; unemployment rises to 15.9 percent.
So...wow! Unemployment was 6.3% in June 1930 but was at 8.7% by December! If 1929 unemployment was at 9%, the year began with 3.2% unemployment, hit 6.3% by June and 8.7% by December, that doesn't sound like a stable economy that was "gradually drifting downward," that sounds like an economy that was wildly jumping about!
A look at US Government statistics
Nonfarm Employment, Hours, and Earnings by Industry
This chart shows around two million people losing their jobs in 1930. By the way, this chart, with the years 1938 to 1940, backs up the frequent liberal Keynesian charge that by taking the government's "foot off the gas," i.e., by not spending lots of government money, thereby engaging in good Keynesian stimulative economics, the US fell back into recession. Employment made gains from 1932 to 1937, then fell sharply and didn't regain their former height until 1940.
What I find very interesting though, is that Sowell never mentions GNP, which is something Kangas takes very seriously as a way to measure the US's economic health. Kangas notes a few things about the US economy in 1929 that Sowell doesn't pay attention to:
- Backlog of business inventories grows three times larger than the year before. Public consumption markedly down.
- Freight carloads and manufacturing fall.
- Automobile sales decline by a third in the nine months before the crash.
- Construction down $2 billion since 1926.
- Recession begins in August, two months before the stock market crash. During this two month period, production will decline at an annual rate of 20 percent, wholesale prices at 7.5 percent, and personal income at 5 percent.
This is a picture showing that the US economy was in very serious trouble well before the stock market crash. Kangas ends off 1929 by noting:
- Stock market crash begins October 24. Investors call October 29 "Black Tuesday." Losses for the month will total $16 billion, an astronomical sum in those days.
Kangas' picture of 1932 is one of cascading disaster. The picture that Sowell paints of the remainder of the 30s is:
Within six months after this government intervention, unemployment shot up into double digits — and stayed in double digits in every month throughout the entire remainder of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started.
If more government regulation of business is the magic answer that so many seem to think it is, the whole history of the 1930s should have been different. An economic study in Out of Work.
Problem: The chart that Kangas shows us at the bottom of his piece:
shows steady improvement from the depth of the Depression when Franklin D. Roosevelt took over (1933) until 1936. Sowell appears to agree with the basic facts presented here, but I don't believe Sowell agrees with the general picture at all.
Was the crisis properly handled by keeping labor's bargaining power limited and by essentially waiting it out and not undertaking vigorous government action? I don't think so. Sowell states:
The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock-market crash in 1987 that most people have long since forgotten.
What was the difference between these two stock-market crashes? The 1929 stock-market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock-market crash was followed by two decades of economic growth with low unemployment.
But the two stock market crashes make for an apples & oranges comparison. As Kangas points out, the American economy was undergoing very real and very serious crises. The 1929 stock market crash was just one of many events that indicated America's economy was suffering a general systems failure. I was in my late 20s in 1987 and decided to change jobs. I made an appointment with an employment company and was to show up, but then the '87 crash occurred and they told me "Well, er, you can show up, but..." (I didn't bother). In other words, there was no general economic crisis in 1987 as there was in 1929 as the employment company was looking forward to having me come in right up until that date. Reagan's hands-off policy worked because '87 was a regular old downturn.
The hands-off policy that was being advocated by "literally a thousand economists" in 1929 was a political non-starter and very poor economic advice because 1929 was fundamentally different from 1987 and from economic downturns that had come before. Yes, under some circumstances, a hands-off policy is a sensible course of action, but in 1929, the problem was a loss of consumer demand caused by money being concentrated into far too few hands. America is approaching a similar point of concentration today, meaning that the next economic crisis should probably be handled in a Hooverian/Rooseveltian manner.
In a UCLA study, one of the authors of the cited study declares:
"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."
"Self-correcting forces" are all very fine and well when a country faces a standard, normal economic downturn, but when the problem is that of the society's economy is collapsing, it's not a very good policy at all. Getting high wages to workers in the midst of a critical lack of consumer demand was an eminently sensible policy. Ohanian is correct for when times are normal and for when the economic downturn is a regular one. For the Depression, the UCLA study is useless.
Update: One of the people I was discussing this issue with referred me to a piece that defends the concept of keeping government out of the economy to the maximum extent possible. When the piece referred to Ludwig von Mises and stated:
Total bank deposits more than doubled between January 1914, when the Fed opened its doors, and January 1920. Such artificial credit creation sets the boom–bust cycle in motion.
I recognized the theory I was arguing against. I wrote a piece in April 2009 that tore apart the libertarian theory that Federal Reserve interest rates had anything to do with economic booms & busts.
Friday, June 18, 2010
AmericaSpeaks national town meeting on "Our Budget, Our Economy." Hundreds from the Delaware Valley will join with participants from 17 communities across the country for a national conversation about the fiscal choices we face...
Y'see many people look at Charles Dickens' portrait of London and Paris in the 1700s and 1800s and say "Heavens! What an awful time!" But the way the members of the "Catfood Commission" think when they read Dickens is "*Sigh*, those were the days!" The commmission, founded by billionaire Pete Peterson, wants to return America back to the days before Social Security was initiated, back to the days when old people lived on catfood because they couldn't afford anything better. To the commission, having a society without a middle class, having a society of poor people that's administered by the very wealthy, is the natural order of things, the "way it should be."
The commission is not directly responsible for the watering down of the second stimulus bill (The bill was to contain $50 billion in money to assist economic recovery, but got $25 billion cut out of it and STILL failed a cloture vote), but it most certainly is part of the same movement to defeat any stimulus measure and push America into a "double-dip recession" as this will fulfill Rush Limbaugh's vision of "I want him [President Obama] to fail." Keep in mind that the Bush tax cuts really and truly need to expire in order to combat the deficit, but as Limbaugh put it in the Fox News piece I linked to
If he [Obama] does not eliminate the Bush tax cuts, I would call that success. So yes, I would hope he would succeed if he acts like Reagan, but if he's going to do FDR, if he's going to do the new, new deal all over which we will call here the raw deal, why would I want him to succeed?
There's simply no arguing that Limbaugh is the head of the Republican Party or that, at the very least, his vision and theirs are one. The commission is part and parcel of the Republican movement to make Obama's presidency fail. We must call people's attention to the commission BEFORE it publishes its' conclusions.
Paul Krugman has commented frequently on deficit-hysteria
I've written frequently on that same topic and on the Catfood Commission
I ask the liberals, the leftists and the progressives of Philadelphia and the region to take a stand on this! We need to fight to rescue our economy from the Catfood Commission and the deficit scolds who look back upon the days of Charles Dickens with nostalgia and longing!
Update: Very good piece on how the traditional press corps deals with the catfood commission. For some strange, peculiar reason, the press corps seems to think that the catfood commission is not being ideological! That they're just sorta doing what anyone would do! I wonder what the color of the sky is in their universe?
Thursday, June 17, 2010
I had previously recommend Representative Alan Grayson's (D-FL) "Audit the Fed" bill, but that's already passed.
Saturday, June 12, 2010
But many budget experts question whether supporting the existing benefit structure should be a cash-strapped nation's first priority.
In other words "Hey, we've got $2.6 trillion saved up that is guaranteed to keep Social Security paying full benefits until 2044. Surely, there must be something better for us to do with all that wonderful cash!" I mean hey, if America is "cash-strapped," well heck, why do we want to spend all that glorious money on mere *ugh* Social Security recipients? One might also consider, of course, that for America to default on its debts and to declare that it's an unreliabl payer of its debts would not be a very intelligent idea.
One of the really obvious ways to reduce the deficit is for health care to get truly fixed. The public option would have helped even more than the Affordable Care Act does in its current configuration. Another way is to fix immigration, as America has "...12 million people working in this country and not maximizing their contributions to the economy” by being undocumented and therefore, outside the income tax rolls (They pay sales taxes and Socal Security, Medicare, etc.), though of course, that consideration has to be balanced off by the fact that they don't use quite as many services, either. Heck, getting rid of the IMF would be a great way to start fixing the financial picture of the US as it relates to the rest of the world.
At the top of the list of villains in this story is the IMF. Its ineptitude managed to reverse the fundamental flows of capital in the world economy. In normal times capital is supposed to flow from wealthy countries with large amounts of capital, like the United States and the European countries, to the developing countries who need capital to fuel their development. Due to the failure of the IMF to establish a workable system of international finance, the flows went in the opposite direction in a huge way. The world's poor were sending their capital to the United States because the IMF gave them little choice.
Normally, the wealthy countries send capital out to the poorer parts of the globe, capitalists make investments and then bring the profits back to their home country. By supporting IMF policies, the US is making itself poorer by making speculation more profitable than actually making useful things for people to purchase. Senate candidate Carly Fiorina defends her "right-shoring" or sending American jobs overseas. This practice may be fine for the company's top layer of management and for stockholders, but the working men and women who toil for those companies are less than enthusiastic about the practice.
There are many, many choices available to the US that would improve our financial picture. Canceling the Bush tax cuts of 2001 and 2003 would be a great start as just about our entire current deficit can be traced to just those actions. A speculation tax, that would "slow the churning of stocks and financial instruments on Wall Street" would also be a great way to raise money. By charging a "quarter-percent tax on stock trades, and a commensurate rate tax on other instruments, [it] could raise more than $100 billion a year." Simply putting more Americans to work through the spending of money by the government, i.e., by extending the stimulus bill of February 2009, a bill that Republicans keep insisting they hate, but gee, wow, amazingly enough, every time the stimulus money is used for a project that benefits their state, they're right there claiming credit for a bill they opposed and didn't vote for. Representative Barney Frank (D-MA) has put forth a proposal that the Pentagon cut spending by around a trillion dollars over the next decade as the Pentagon is currently spending huge amounts of money on seriously wasteful items.
Arbitrarily reducing Social Security obligations to our citizens is not only a very, very bad idea as that would call into question the creditworthiness of the United States of America, but it would also be a grossly ineffective method of fixing the economy. There are many, many better ways to go about doing that.
Update (14Jun): Have to agree, it sure is nice that the Obama Administration is finally starting to see the light and that they're now seeking $50 billion in further stimulus funds. Of course, it would have have been far nicer to have discovered this bit of wisdom a year and a half ago. Instead, they allowed the "moderate" Senators (Lieberman, Collins, Specter) to chop out around $100 billion from the stimulus bill so that they could crow about what pragmatic, sensible, frugal moderates they were.
Wednesday, June 9, 2010
Saturday, June 5, 2010
This, of course, is the same man who was absolutely certain that the Clinton economic plan would be a massive failure, was completely convinced that Bush's economic policies would produce extraordinary prosperity, and just knew beyond a doubt that the recovery efforts that have produced 2.8 million jobs so far would hurt the economy.
I tremble for my country.