axelrod608

What Does Bernanke Really Know about the Great Depression?

Excelent article and long overdue. The current reigning economic theory has more holes than fine swiss cheese, yet the talking heads believe it as a matter of faith. A couple observations -

First, on the wage issue income has gotten so skewed to the top 1% that much of the nation's income never makes it to the "main street" economy. And that economy is what keeps the national economy - the one in the streets of America - humming. The wealthy are pouring money into "investments", mostly PAPER not manufacturing. That money never makes it to the source of the "trickle-down" that, in theory only, is supposed to flow down to the proles.

Second, what the infusions of government funds does to a business depends largely on sentiment. In good times, that money would be quickly reinvested. Currently, where exactly is the money to be reinvested ? The opportunities aren't out there and fear is holding back investment. One place the new money is going is to buy up other failing businesses which ALWAYS ends up swelling the ranks of the unmployed. Every merger results in job cuts. See #1 for the result to the "main street" economy.

Third, historically rich companies and industries get fat. The salaries and wages grow and when hard times arrive, the personnel costs are unsustainable. That is precisely the condition of the American auto industry. If all salaries and wages were cut by, say, 50%, EVERY employee would keep their job and the companies would make money. Before pouring a bunch of federal money into an unsustainable sector, it would be interesting to see just how profitable the auto industry could be at half the personnel cost. Ultimately, it is a choce between earning unsustainably high wages or not working. So far, the white and blue collar auto workers are choosing "not work".

Finally, for Bernanke to believe in parallels between the 1920's and 1930's with today is just plain silly. With a few strokes of a computer, today one can "create" a trillion dollars or change interest rates to any number one chooses. But unlike former times, individuals, companies and governments are drowning in a tsunami of debt. They need more credit and debt like a fish needs a bicycle.

All Bernanke and his buddy Paulson are doing is replacing money lost by inept, greedy, incompetent corporate gamblers with tax revenues. We have an enormous, overgrown, overpaid financial sector. It is unsustainable. The efforts to reinflate the credit bubble with yet more cheap credit will fail. Or worse, they will succeed and when the bubble pops the second time, all will be lost.