How not to learn from the Great Depression

[one...two...tree 2,762]

Governments around the world are determined to repeat the mistakes of 1937 all over again. What about the Fed?

by Andrew Leonard

The specter of 1937 is haunting the world again. Today's installment comes from The New York Times' David Leonhardt, who warns that the global decision to cut government spending and tighten the austerity belt runs a very real risk of cutting short a shaky economic recovery -- a repeat of the events the occurred in the United States 73 years ago.

Wednesday morning's U.S. job numbers underline the danger. The ADP private sector job report counted only 13,000 new jobs in June, coming in considerably below the consensus economist forecast of a 60,000 increase. A sharp drop in Census hires means Friday's non-farm labor report from the government is already bound to produce a topline negative number, but now the worry is that the underlying trend for non-Census hiring may be pointed in the wrong direction. And the U.S. government, which can't even get an extension in unemployment benefits passed, appears powerless to do anything.

(Leonhardt reports that even Goldman-Sachs economists are calling the Senate's inability to function "an increasingly important risk to growth.")

The irony here is that the initial global response to the financial crisis and worldwide recession demonstrated that politicians and central bankers had learned the lessons of the Great Depression. World leaders executed an effective strategy of coordinated fiscal stimulus and expansionary monetary policy. A lapse into depression, for the nonce, was averted. But now they're reverting to their old bad habits.

Or are they? Tyler Cowen argues this morning that not enough attention is being paid to monetary policy. In 1937, he argues, "monetary policy was not just insufficiently expansionary, it was absolutely draconian. " And since the main selling point for Ben Bernanke's tenure at the Fed is that he is supposed to be one of the greatest living experts on monetary policy and the Great Depression, there's no way he too will repeat the mistakes of 1937, right?

"If monetary policy is sufficiently accommodative, I do not see that we are risking a 1937-8 repeat," writes Cowen. There's still time to drop money from helicopters.

But in a real head-scratcher, to help illustrate his point, Cowen links to two pieces of analysis that both argue that Bernanke has already repeated the monetary policy of mistakes of 1937.

David Beckworth and Scott Sumner both point to the Fed's decision in 2008 to start paying interest rates on "excess reserves" as functionally equivalent to the Fed's decision in 1937 to increase reserve requirements. In both cases, the result is that banks are encouraged to sit on more cash, rather than put the money to work by lending it out.

The only ray of hope here? If the Fed really is pursuing an effectively contractionary economic policy, Ben Bernanke has the power to change course at a moment's notice. And the U.S. Senate can't do a damn thing to stop him.

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[mendeleev 68]

Yeah, it is a bit eerie to hear all these calls, no only from US-based wingnuts but also from Important People in Europe and the financial establishment in the US that we need to raise interest rates and slash government spending while we are still markets are obviously still very weak and unemployment does not yet show signs of abating.

FDR's biggest mistake was raising taxes and cutting spending in 1937, and this mistake prolonged the Great Depression.

It might happen again.

If it doesn't, it may be mainly because sound policy is prevailing in SE Asia, China, and India. Relatively larger stimulus in China and SE Asia, especially SE Asia (Indonesia, Vietnam, Thailand, Philippines), is leading to a V-shaped recovery there.

Maybe the right in the USA wants to accelerate US economic decline and pass global economic leadership to East Asia.

I'm worried. You should be, too.

[one...two...tree 2,762]

Yeah, it is a bit eerie to hear all these calls, no only from US-based wingnuts but also from Important People in Europe and the financial establishment in the US that we need to raise interest rates and slash government spending while we are still markets are obviously still very weak and unemployment does not yet show signs of abating.

FDR's biggest mistake was raising taxes and cutting spending in 1937, and this mistake prolonged the Great Depression.

It might happen again.

If it doesn't, it may be mainly because sound policy is prevailing in SE Asia, China, and India. Relatively larger stimulus in China and SE Asia, especially SE Asia (Indonesia, Vietnam, Thailand, Philippines), is leading to a V-shaped recovery there.

Maybe the right in the USA wants to accelerate US economic decline and pass global economic leadership to East Asia.

I'm worried. You should be, too.

I thought with enough people unemployed, more people would be more concerned about jobs than deficit reduction.

Edited June 30, 2010 by El Buscador

[^_^ 5,021]

I thought with enough people unemployed, more people would be more concerned about jobs than deficit reduction.

You're forgetting the essential characteristic of the American conservative. The American conservative doesn't give a rats behind about the unemployed. They got theirs and that's all that matters.

[one...two...tree 2,762]

You're forgetting the essential characteristic of the American conservative. The American conservative doesn't give a rats behind about the unemployed. They got theirs and that's all that matters.

The ones that lost their job have to be rethinking their position. The ones that haven't should be reading the writing on the wall - that they are next.

[SMOKE 1,426]

You're forgetting the essential characteristic of the American conservative. The American conservative doesn't give a rats behind about the unemployed. They got theirs and that's all that matters.

wow that sounds a lot like some american liberals i know, when discussing a certain issue that contributes to americans being under paid & unemployed.

Edited June 30, 2010 by SMOKE

[mendeleev 68]

On this board, we heard repeatedly recently from a truly compassionate fellow member who was arguing about how deflation is good for some people.

Seems to me this member often takes a pretty hard-right line on a lot of issues, though. Maybe Legacy Member has people like him in mind ...

[Ban Hammer 13,366]

The ones that lost their job have to be rethinking their position. The ones that haven't should be reading the writing on the wall - that they are next.

that's a rather dire prediction - are you suggesting that obama isn't employment friendly?

[mawilson 2,133]

The ones that lost their job have to be rethinking their position. The ones that haven't should be reading the writing on the wall - that they are next.

We have a 90.3% employment rate.

[I AM NOT THAT GUY 5,715]

We have a 90.3% employment rate.

And a 9.7% whining rate.

[evli1966 88]

You're forgetting the essential characteristic of the American conservative. The American conservative doesn't give a rats behind about the unemployed. They got theirs and that's all that matters.

Some very harsh words.

I am or was considered a liberal minded person.

I have a job it wasn't my first choice of a job or career, I didn't put my self in debt up to my eyeballs to go to college let alone a prestiges (word) college. When I lost a job I went and found another one wether it was flipping burgers or working as a farm hand. Oh and yes I picked strawberries for 2 years to make ends meet during the seasons. I also had such low earnings that I did recieve foodstamp assistance and medicaid for my children during that time.

Why should anyone give up their savings or pay out of their earnings more money to support the people who wont work because the job available is beneath them or bcause they went to school and only expect to work in that field; or the pay isn't enough because they get more out of general welfare and asisstnace with the mecicaid card.

I am by far considered a rich person nor an upper middle class person my personal networth falls well below this margin and I could lose my job like anyone else but I would be hauling trash digging ditches, scrubbing crappers to ensure my family was fed and supported.

What most people fail to understand is that we as a people have forgotten the lessons we learned during that period. yes be good to your neighbors but your family came first and you did anything to scrap a living that was barely a living during the depression. It was also the period were all the ####### companies and bogus wall street marginers were shook from their lofty heights and made humble.

So back to Op topic tell me how increased spending makes the problem go away.?

It will not go away but when it does hit the country (btw that is you and I) will be that much further in debt and who pays it off well of course the people who have been working.

I do apologize if it sounded like I was ranting at you personally Legacy it wasn't intended that way.

[lostinblue 1,989]

Some very harsh words.

I am or was considered a liberal minded person.

I have a job it wasn't my first choice of a job or career, I didn't put my self in debt up to my eyeballs to go to college let alone a prestiges (word) college. When I lost a job I went and found another one wether it was flipping burgers or working as a farm hand. Oh and yes I picked strawberries for 2 years to make ends meet during the seasons. I also had such low earnings that I did recieve foodstamp assistance and medicaid for my children during that time.

Why should anyone give up their savings or pay out of their earnings more money to support the people who wont work because the job available is beneath them or bcause they went to school and only expect to work in that field; or the pay isn't enough because they get more out of general welfare and asisstnace with the mecicaid card.

I am by far considered a rich person nor an upper middle class person my personal networth falls well below this margin and I could lose my job like anyone else but I would be hauling trash digging ditches, scrubbing crappers to ensure my family was fed and supported.

What most people fail to understand is that we as a people have forgotten the lessons we learned during that period. yes be good to your neighbors but your family came first and you did anything to scrap a living that was barely a living during the depression. It was also the period were all the ####### companies and bogus wall street marginers were shook from their lofty heights and made humble.

So back to Op topic tell me how increased spending makes the problem go away.?

It will not go away but when it does hit the country (btw that is you and I) will be that much further in debt and who pays it off well of course the people who have been working.

I do apologize if it sounded like I was ranting at you personally Legacy it wasn't intended that way.

Well said....

[Usui Takumi 1,562]

And a 9.7% whining rate.

You're, quite frankly, are a horrible person if you think that is true and you validate the criticism directed towards conservatives.

Edited July 1, 2010 by Sousuke

[I AM NOT THAT GUY 5,715]

You're, quite frankly, are a horrible person if you think that is true and you validate the criticism directed towards conservatives.

Sorry. Don't believe in "compassionate conservatism". I am a social Darwinist. If you can't make it on your own, so sorry, you die. Survival of the fittest, and all that. Why is it that Progressives want to teach Evolution in the classroom, but don't want to see it practiced in real life?

[Usui Takumi 1,562]

Sorry. Don't believe in "compassionate conservatism". I am a social Darwinist. If you can't make it on your own, so sorry, you die. Survival of the fittest, and all that. Why is it that Progressives want to teach Evolution in the classroom, but don't want to see it practiced in real life?

Utterly disgusting.