Cafe Hayek - Latest Comments in Stimulating Reading

Re: Stimulating Reading

dg lesvic — Tue, 03 Feb 2009 19:49:23 -0000

From America's Great Depresssion by Murray Rothbard, Pp 167, 168:

"Laissez-faire was, roughly, the traditional policy in American depressions before 1929. The laissez faire precedent was set in America's first great depression, 1819, when the federal government's only act was to ease terms of payment for its own land debtors. President Van Buren also set a staunch laissez-faire course in the Panic of 1837. Subsequent federal governments followed a similar path, the chief sinners being state governments which periodically permitted insolvent banks to continue in operation without paying their obligations. In the 1920-1921 depression, government intervened to a greater extent, but wage rates were permitted to fall, and government expenditures and taxes were reduced. And this depression was over in one year -- in what Dr. Benjamin M. Anderson has called 'our last natural recovery to full employment.'"

Laissez faire, then, was the policy dictated both by sound theory and by historical precedent. But in 1929 the sound course was rudely brushed aside. Led by President Hoover, the government embarked on what Anderson has accurately called the 'Hoover New Deal.' For if we define 'New Deal' as an anti-depression program marked by extensive governmental economic planning and intervention -- including bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending (e.g., subsidies to unemployment and public works) -- Herbert Clark Hoover must be considered the founder of the New Deal in America. Hoover, from the very start of the depression, set his course unerringly toward the violation of all the laissez faire canons. As a consequence, he left office with the economy at the depths of an unprecedented depression, with no recovery in sight after three and a half years, and with unemployment at the terrible and unprecedented rate of 25 per cent of the labor force...Roosevelt, in large part, merely elaborated the policies laid down by his predecessor."

Re: Stimulating Reading

Mesa Econoguy — Tue, 03 Feb 2009 16:37:52 -0000

Correct, but much of the inflationary effect of this bubble was self-reinforcing, once banks discovered they had financial incentive to literally "look the other way."

From the guide:

Credit History: Policies regarding applicants with no credit history

or problem credit history should be reviewed. Lack of credit history should

not be seen as a negative factor.

Also from the guide:

Did You Know?

Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject

a financial institution to civil liability for actual and punitive damages in individual or class

actions. Liability for punitive damages can be as much as $10,000 in individual actions

and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions.

Regulation B

Equal Credit

Opportunity

12 CFR

202.14(b)

Incidentally, the entire premise of this “study” was based on fake and/or faulty loan statistics.

Your government at work. Now Barney Frank wants to "fix" the problem he caused.

Re: Stimulating Reading

Sam Grove — Tue, 03 Feb 2009 15:10:01 -0000

Let us not forget the inflation machine which is the root of bubbles.

Re: Stimulating Reading

Mesa Econoguy — Tue, 03 Feb 2009 13:39:22 -0000

Michael Smith above has it right,

but the problem is that what you are dealing with here is NOT "the error of your thinking" -- what you are dealing with is what long ago replaced "their thinking": namely, the swallowed-whole and memorized leftist talking points that are regurgitated on cue, much as a parrot squawks when someone enters the room.

I.e. absence of logic & reasoning ability, which this person consistently and embarrassingly continually displays.

But, since the village idiot hasn’t responded (& won’t, because it can’t) to very insightful challenges, here’s a little background on the “deregulation" point:

Closing the Gap: A Guide to Equal Opportunity Lending

Now, in financial circles, when regulatory and quasi-regulatory bodies, like the Fed in the above link, say "jump," financial institutions ask "how high?" which is exactly what happened in this case, as banks and lending institutions were "encouraged" [read: threatened with discriminatory legal action for non-compliance] to relax their lending standards, which warped the traditional loan and mortgage model.

The driving factor behind much of the housing mess was directly caused by government.

Re: Stimulating Reading

Christopher_Renner — Tue, 03 Feb 2009 11:39:48 -0000

Ahh...upon re-reading I realize I saw the fallacy of a universal conclusion from a particular premise when it wasn't there. My mistake.

I think a better example of a large scale deflation would be the Depression itself.

Also I've been curious for a while to find some good reading of the 1921 recession. Not sure if Friedman or anyone else studied it in detail.

Re: Stimulating Reading

Hammer — Tue, 03 Feb 2009 11:16:58 -0000

I think Kevin that one should remember that such adjustment would not occur over night. Wages would tend to ease down, or most likely stay static for most people, while the change in prices would also be slow, but probably a little faster since prices are much less sticky than wages. I doubt there would be much more or less discomfort and joblessness than a recession/depression would produce otherwise.

Re: Stimulating Reading

Kevin — Tue, 03 Feb 2009 10:13:21 -0000

Does that mean we should make things worse, bring on more bankruptcies, and create more revolutionaries?

No. I was just raising the point that a large scale deflation would bankrupt a lot of people. Add that to the fact that the deflation would be seen as a wealth transfer to wealthy lenders and the fact that many of the now bankrupt people don't have a job, and you have got a big group of angry folks with little to lose, lots of time on their hands, and a laundry list of grievances with the system. Without opining on whether that's good or bad, I think most would agree that states seek to avoid this outcome, which is why I was curious about how it played out in 1921.

Isn't this kind of fallacious, to suppose that "revolutionaries" are always driven to revolution by their material condition?

I suppose it is, but nobody here supposed that. States manage to possibilities when dealing with threats to their existence, so "not always" is cold comfort usually inadequate to shape their choices. But again, nobody made that supposition.

Re: Stimulating Reading

Christopher_Renner — Tue, 03 Feb 2009 09:30:52 -0000

Does that mean we should make things worse, bring on more bankruptcies, and create more revolutionaries?

Isn't this kind of fallacious, to suppose that "revolutionaries" are always driven to revolution by their material condition? It's kind of in the same boat with the idea that poverty causes terrorism. Both ideas sound reasonable, make for great propaganda, and are thoroughly contradicted by empirical evidence where it exists.

Here's a bit on the backgrounds of terrorists.

As for revolutionaries being motivated by personal financial concerns, that certainly doesn't seem to be the case with the Americans of the 1770s(though I've argued with people that "revolution" shouldn't be used of our war for independence), the Russians of 1917, or the Chinese under Mao (late Republican China did have hyperinflation, which would generally have the opposite effect of deflation, which is alleged here to exacerbate revolutions.)

The Americans revolted because London tried to revoke their de facto autonomy.

The Russian Communist leadership disproportionately came from fairly well-off intellectual circles, not the working class. Though they certainly used real or imagined financial problems in their propaganda, they weren't themselves concerned.

Re: Stimulating Reading

dg lesvic — Tue, 03 Feb 2009 08:22:22 -0000

Kevin,

You wrote,

"Michael how bad were the consumer debt defaults in 1921? Today a sharp and deep deflation would mean bankruptcy for a whole lot of potential revolutionaries."

Does that mean we should make things worse, bring on more bankruptcies, and create more revolutionaries?

Re: Stimulating Reading

michaelsmith — Tue, 03 Feb 2009 04:24:09 -0000

Kevin, I don't know the answer to your question about 1921. But Reisman pretty much agrees with you that deflation today would be very dangerous.

He has a very illuminating article on it here: LINK

Re: Stimulating Reading

Kevin — Tue, 03 Feb 2009 03:33:18 -0000

Michael how bad were the consumer debt defaults in 1921? Today a sharp and deep deflation would mean bankruptcy for a whole lot of potential revolutionaries.

Re: Stimulating Reading

michaelsmith — Tue, 03 Feb 2009 03:22:59 -0000

Oil Shock brings up a really good point:

BTW, I will ask you a non-rhetorical question, what was the specific fiscal policies of the Harding administration that prevented the sharpest 1 year deflation ever recorded in American history fro becoming a great depression? Yes I am talking about the really short depression of 1921, so short that so few people have heard about it.

Economist and Objectivist George Reisman makes the point that by not intervening and by allowing both wages and prices to fall, the deflation of 1921 proved to be remarkably short.

Reisman’s point is mathematically simple and unrefutable. If the money supply contracts from “X” to “½ X”, then if both wages and prices are allowed to fall to ½ their previous levels, the lower monetary base can support the same level of economic transactions as before. Labor’s wages will be lower but their purchasing power will be unchanged because of the fall in prices. Businesses will experience lower profits but the purchasing power of those profits will be the unchanged for the same reason: lower prices.

In the Great Depression, however, first Hoover and then Roosevelt fought to keep both wages and prices from falling. Hence, a one year contraction became a decadal disaster.

Re: Stimulating Reading

michaelsmith — Tue, 03 Feb 2009 03:13:57 -0000

dg lesvic asked:

Again, Mr Muir, if I try to explain the error of your thinking, will you respond, or, as usual, just ignore what you cannot answer?

Have you ever gotten an intelligent response from this entity? I understand your benevolent desire to explain and educate; but the problem is that what you are dealing with here is NOT "the error of your thinking" -- what you are dealing with is what long ago replaced "their thinking": namely, the swallowed-whole and memorized leftist talking points that are regurgitated on cue, much as a parrot squawks when someone enters the room.

A very wise man said, “You cannot reason a person out of a position he did not reason himself into in the first place.” However, I fully understand your desire to try. There are, after all, others reading these comments who may NOT be impervious to reason and who may be influenced by your efforts.

Re: Stimulating Reading

Sam Grove — Mon, 02 Feb 2009 20:52:18 -0000

What It Feels Like To Be A Libertarian by John Hasnas

Re: Stimulating Reading

Sam Grove — Mon, 02 Feb 2009 20:27:19 -0000

Throw money in the hole, America's money hole.

Re: Stimulating Reading

Oil Shock — Mon, 02 Feb 2009 19:03:42 -0000

Oil Shock, was it?

"Don't do something, just stand there."

Posted by: Jesse Rouse | Feb 2, 2009 11:21:04 PM

Don't throw gasoline into the fire, in the name of doing "something"

Re: Stimulating Reading

Sam Grove — Mon, 02 Feb 2009 18:34:18 -0000

No, no, muirgeo prefers the "progressive" interpretation of those events because he is "progressive" and we can't expect much depth of economic thought on that front.

Re: Stimulating Reading

Jesse Rouse — Mon, 02 Feb 2009 18:21:04 -0000

Oil Shock, was it?

"Don't do something, just stand there."

Re: Stimulating Reading

Oil Shock — Mon, 02 Feb 2009 17:28:05 -0000

How does that explain how we got into the mess in the first place?

If that was not a rhetorical question, then I would suggest that you study Austrian Business Cycle THeory. Hayek & Mises were among the few economists who were warning about an impending meltdown back in 1928. John Maynard Keynes was so aware of the "mess", that he lost himself a personal fortune in the crash of 1929.

BTW, I will ask you a non-rhetorical question, what was the specific fiscal policies of the harding administration that prevented the sharpest 1 year deflation ever recorded in American history fro becoming a great depression? Yes I am talking about the really short depression of 1921, so short that so few people have heard about it.

Re: Stimulating Reading

brotio — Mon, 02 Feb 2009 16:50:31 -0000

*looks out the back door of the Cafe and sees Mierduck stuffing straw into a shirt and a pair of pants*

DG,

I think Mierduck's about ready to comment.

Re: Stimulating Reading

dg lesvic — Mon, 02 Feb 2009 16:36:38 -0000

Again, Mr Muir, if I try to explain the error of your thinking, will you respond, or, as usual, just ignore what you cannot answer?

Re: Stimulating Reading

muirgeo — Mon, 02 Feb 2009 16:28:40 -0000

Great Mesa! Your link talks about the supposed reason the Depression was so long. How does that explain how we got into the mess in the first place?

It's all the guys fault who can't put your shattered vase perfectly back together... and in short order.

Your snark on deregulation can't be taken seriously by anyone claiming to be objective. From loosed lending standards , to unregulated financial products and ratings agencies with massive conflicts interest lax regulation NOT the government was the reason AIG had trillions of dollars worth of crap the infested everyones retirement accounts that where thought to be relatively placed in safe investments. The government did not force AIG and others to make these massively irresponsible decisions. Wall Street has cost the average investor as much as they likely pay iin taxes over 5- 10 years or more.

Re: Stimulating Reading

Mesa Econoguy — Mon, 02 Feb 2009 14:23:31 -0000

Gee, let’s blame deregulation. No, wait, let’s blame George Bush. No, wait, let’s blame the rich (whoever they are).

Whatever we do, let’s not address the underlying cause of most of this mess, and let’s actually create more of it:

How Government Prolonged the Depression

Re: Stimulating Reading

muirgeo — Mon, 02 Feb 2009 13:53:27 -0000

Yep that some guy committed suicide in 1937 truly tells us of the failure of the New Deal. But it's interesting that if one suicide was a judge of FDR's failure as a proxy for public sentiment what about the fact that he won 2 more subsequentt elections by landslides.

But at least Ms. Shlaes came up with a fantastically original idea on how to get us out of this mess. Massive tax cuts for the wealthy and for corporations. Dang if only George W. Bush would have thought of this maybe we'd be in a lot better shape.

Re: Stimulating Reading

Max Frank — Mon, 02 Feb 2009 13:43:12 -0000

No, Amity Shlaes, FDR was NOT a great leader!

Forget about his poor economic policies. FDR was responsible for Executive Orders 9066 & 9102 in which persons of Japanese, German and Italian descent were forcefully imprisoned in American "internment" camps.

Indeed, Roosevelt was such a tyrant that he demanded that Latin American governments arrest and hand over their Japanese (and German and Italian) residents to American prison camps like Crystal City, Texas.

FDR was a tyrant, not a great leader, and any person who cherishes the precious liberty upon which politically centralized "leaders" have historically waged war knows that FDR was an abject failure.

--Max Frank