Why Aren't We Undergoing Another Great Depression? 22 comments
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Paul Krugman's answer:
Averting the Worst: So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.... [T]he economic situation remains terrible... we’re... nine million jobs short of where we should be. And the job market still hasn’t turned around....
For all that, however, the latest flurry of economic reports suggests that the economy has backed up... from the... abyss. A few months ago the possibility of falling into the abyss seemed all too real.... [I]n the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year. So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.
Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending.... All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930.... In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better... while acknowledging that without these bailouts things would have been much worse. The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.
Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy... the American Recovery and Reinvestment Act... was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow.... All in all, then, the government has played a crucial stabilizing role in this economic crisis. Ronald Reagan was wrong: sometimes the private sector is the problem, and government is the solution.
And aren’t you glad that right now the government is being run by people who don’t hate government?...
[W]e appear to have averted the worst: utter catastrophe no longer seems likely.
And Big Government, run by people who understand its virtues, is the reason why.
The loose end in Krugman's article is why there weren't more Great Depressions back in the old days, before big government. The answers, I think, are two:
Business cycles are a disease of the post-agricultural economy--of the nonfarm economy. If you look back at the nonfarm unemployment rate before 1930, things look not as bad as the Great Depression but still pretty bad.
Most countries had a form of "big government"--a military large in size relative to its nonfarm economy and an activist, interventionist central bank--reaching far back into the past.
The U.S. was the only major industrial power without an activist, interventionist central bank before 1913--but the U.S. Treasury did give the baton to run monetary policy to the Morgan-Belmont syndicate in the 1890s and to Morgan in 1907, so we were not always without an activist, interventionist central bank.
And the U.S. looks like the worst as far as pre-1930 business cycles are concerned, with 1874 and 1885 matching 1893 in terms of nonfarm unemployment and industrial distress.
For example, this shows the Weir-basis nonfarm unemployment rate back to 1890:
Fun and games in 1921-22, 1914-15m, 1907-08, and 1893-6 as well as 1885 and 1874...
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This article has 22 comments:
'Business cycles are a disease of the post-agricultural economy--of the nonfarm economy. If you look back at the nonfarm unemployment rate before 1930, things look not as bad as the Great Depression but still pretty bad.'
Uh? Prior to industrialisation there were plenty of depressions, often called 'famines'.
Check out, for one example off the top of my head, the poor weather and famines across Europe after the year without summer in 1816.
Although suffering was widespread, some of the most intense was in rural, agricultural Switzerland, not industrialising England and Holland.
There are countless other examples in history, going back as far before industrialisation as you like.
Swings were just as violent, or more so, before industrialisation, but more poorly recorded.
After all, mass death is a pretty good indicator of depression.
BTW, one big difference is the immense wealth that has been generated over the last 70+ years. This wealth provides a tremendous national cushion against shocks like we have received. Of course, that cushion can easily disappear if our government keeps punishing the capitolist system that created the golden eggs.
-AM
Absolutely spot on. It was the non-agricultural workforces' extra (slight) cushion which caused what would previously have been a famine to be downgraded to a depression.
It was kind of natures' way of adjusting the statistics - instead of finishing your unemployment benefit and moving off of the register, you finished having anything to eat and moved off the rolls of the living.
No doubt the Lords of the Manor of the day then spoke optimistically of 'green shoots', as much of the population stopped complaining about being hungry!
The fly in the ointment was that they were, technically, dead.
But at least for them things had stopped getting worse!
Always look on the bright side of life, beboom, beboombeboombeboom.......
Recessions are caused by over expansion not because of the calendar. When Walter Heller, LBJ's chief economic adviser, wrote "We control the business cycle", I threw the book away. Not responding to over-expansion is like not responding to a heart attack. Call an economist at it will go away.
What nonsense and counter-productive as it ignores reality and lulls people into false security.
At a time when our country, as well as the world, has a debt load that is close to not being capable of service by our GDP we should not be listening to politicians, academics, economists and commentators that spout untenable theories.
Tell me the conclusion and agenda you have and want, give me a choice of time periods, and I will deliver the answers you want. Did I tell you about the chariot price trend in 1203?
the Obama group did not do it all wrong, they are not that sharp.
But their spending has not been to help consumers, but to reshape government role in society. You noticed?
When liberals seek to justify government behavior they are prone to point to the good done, but rarely to the harm done. The unmitigated good theory?
Why is that? I hope it is not delusional or track covering as we say in the South, because even a dead man would notice that nothing is all good or bad, even when the goals are chiefly bad.
You need to fly your colors as an unbiased liberal seeking to undo the private enterprise role in society. Fly your colors and be honest, if you can.
It'll get into second gear shortly, along with another stock market crash.
On Aug 10 09:31 PM whidbey wrote:
> Yes,
> the Obama group did not do it all wrong, they are not that sharp.
>
>
> But their spending has not been to help consumers, but to reshape
> government role in society. You noticed?
>
> When liberals seek to justify government behavior they are prone
> to point to the good done, but rarely to the harm done. The unmitigated
> good theory?
>
> Why is that? I hope it is not delusional or track covering as we
> say in the South, because even a dead man would notice that nothing
> is all good or bad, even when the goals are chiefly bad.
>
> You need to fly your colors as an unbiased liberal seeking to undo
> the private enterprise role in society. Fly your colors and be honest,
> if you can.
Because we've kicked the can down the road.
Big government indeed.........
"Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow....".
Hmmm. Eluding to “Saved Jobs” are we Professor Delong?
Saved Jobs: the ultimate non-statistic statistic.
Lets see now, Delong is a professor of Economics. Yet “Saved Jobs” is political double speak. “Saved Jobs” is a concoction of the Council of Economic Advisors used to cover their tracks when the Quasi-Stimulus Bill fell flat on its fat little pork barrel face. Moreover, “Saved Jobs” is not a term in Economics nor a measurable statistic. Matter of fact, “Saved Jobs” is not a statistic.
Then the question arises of why would a professor of Economics even entertain eluding to “Saved Jobs”?
Delong further writes:
“So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government…”.
Then the question arises of which character did Delong play in Orwell’s 1984?
Then Delong writes:
“Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy... the American Recovery and Reinvestment Act... was too small “.
Oh, it’s the “Size Matters Argument”. Try this on for size Professor Delong: Design Matters. Designing a stimulus package based on Political-Political rather than Political-Economy is a major design flaw. This particular stimulus plan is the Spruce Goose of all stimulus plans.
If Delong is going to continue to post such articles, Seeking Alpha must create a Humor Section to accommodate.
Thanks to the highly efficient farmers in the US today, the remainder of the population is able to create less essential services than food, and has no need to be concerned with their own subsistance. Isn't America simply GREAT?
We. Want. Something. Here. NOW.
Rather than borrow to build parks and statues, we the people should have been plundered from less. Now we have this massive debt burden, and nothing to show for it.
Oh, and in the 1930s the average retail investor couldn't short the stock market for a transaction fee of $15 (adjust that down for inflation). That helped me this time. I think shorting the treasury market will help me and others in the years to come.
Long: put options on Sept TLT
On Aug 10 09:31 PM whidbey wrote:
> Yes,
> the Obama group did not do it all wrong, they are not that sharp.
>
>
> But their spending has not been to help consumers, but to reshape
> government role in society. You noticed?
>
> When liberals seek to justify government behavior they are prone
> to point to the good done, but rarely to the harm done. The unmitigated
> good theory?
>
> Why is that? I hope it is not delusional or track covering as we
> say in the South, because even a dead man would notice that nothing
> is all good or bad, even when the goals are chiefly bad.
>
> You need to fly your colors as an unbiased liberal seeking to undo
> the private enterprise role in society. Fly your colors and be honest,
> if you can.
There was a big bailout in the UK chariot business in 1205. French imported chariots with the Croissant and Brie holders were all the rage. It caught the Brits by total surprise. They tried to counter with a Haggis holder which ultimately flopped except in Scotland. So, the RBS had to be bailed out, because it made bad loans to Triumph Chariots and their grain guzzlers.
On Aug 10 08:04 PM Prudent Man CFA wrote:
> Is re-writing history a disease today?
>
> Recessions are caused by over expansion not because of the calendar.
> When Walter Heller, LBJ's chief economic adviser, wrote "We control
> the business cycle", I threw the book away. Not responding to over-expansion
> is like not responding to a heart attack. Call an economist at it
> will go away.
>
> What nonsense and counter-productive as it ignores reality and lulls
> people into false security.
>
> At a time when our country, as well as the world, has a debt load
> that is close to not being capable of service by our GDP we should
> not be listening to politicians, academics, economists and commentators
> that spout untenable theories.
>
> Tell me the conclusion and agenda you have and want, give me a choice
> of time periods, and I will deliver the answers you want. Did I
> tell you about the chariot price trend in 1203?
I looked at what you wrote and thought. The cause is believed to be the cure! Am I wrong? I believe each boom and each bust is the result of imbalances in the economy. Each boom cycle will cause excess wealth in the producers hands. That excess wealth is directed toward greater production or output. As excess is produced. excess wealth accumulated earlier allows the bussinesses to further increase production in hope of some future reward. The problem has become worse because government has helped keep those producers producing. And the buyers were given monies and monitary tools to keep consuming! Can government keep things from going worse? I believe there is an inverse relationship between the amount of government intervention and the severity of the ultimate problem. Can government improve things? Absolutely short term. I think at the cost of even more serious problems in the future. I hope I am wrong time will tell.
Business cycles are the product of central banking and/or government-driven inflationary periods, going back as far as the beginning of government control of the money supply, i.e. at least ancient Egypt. Governments debase coinage, or create fiat money, and/or loosen credit standards, in order to fund their incessant wars and welfare schemes, sending false signals to the broader economy about the level of wealth in the society. In more modern times, this was as true during Tulip Mania in Holland as it is today, during the dot.com buying frenzy and the real estate mania.
In short, nothing has changed, including the ability of the average person to grasp the essential facts. And Krugman is living proof that the Nobel Prize in Economics sometimes goes to non-economists.
'The idea that historical famines were the result of business cycles is absurd.'
In a non-industrial economy agriculture IS the economy, or within a few percent.
So when there is a problem in agriculture, due to weather ( the famine of 1816, for instance) war or any other cause then there is automatically a depression.
Even those parts of the economy which are not directly agricultural, such as making clothes for the Lord of the Manor or whatever are hit, as he has lower rent incomes from his lands however many peasants he allows to die rather than reduce taxes.
Even today it is not all business cycles causing recessions, but a variety of causes, for instance check out the consequences of a poor monsoon on India's growth.
As you have also illustrated, debasing coinage and associated financial turmoil leading to economic problems far pre-dates industrialisation.
So in other words the sequences of boom and bust may have differed somewhat in origin from the present, but there were certainly periods of both throughout history.
Whether you choose to call it a business cycle is entirely up to your own taste, unless of course you have previously chosen a definition of business cycle which excludes pre-industrial societies.
The ups and downs were certainly just as great as now.