I have been fascinated the last few years with shouts of "unprecedented", "never seen before", "things are different!"
I never gave full attention in school, but most students remember the answer to "why do we have to learn history?" So you can learn from it and hopefully avoid the same mistakes. It seems that those in the position to do the most either ignore the lessons of history or are ignorant of them. So check out the following Jeopardy style answer:
I never gave full attention in school, but most students remember the answer to "why do we have to learn history?" So you can learn from it and hopefully avoid the same mistakes. It seems that those in the position to do the most either ignore the lessons of history or are ignorant of them. So check out the following Jeopardy style answer:
He made promises to voters of new
prosperity. He was a substantial victor in an election with high
voter turnout. It was universally believed he would work wonders, a
sort of superman, no problem beyond his capacity.
When he took over the presidency, the
Wall Street debacle was already whirring. He could have allowed the
artificially low interest rates to rise to their natural level, but
government-induced cheap credit was the bedrock of policy. He could
let the stock and real estate market liquidate and purge the economy.
But that would have meant lower wages and higher unemployment. He
decided he would not follow the advice of the liquidationists. He
therefore agreed to take on the business cycle deleveraging and stamp
it flat with all the resources of the government. He said that the
times were unprecedented and required pioneering a new field. He
resumed credit inflation with the Federal Reserve adding large
amounts of credit. He held conferences with industrial leaders
urging to keep employment and wages steady. The labor unions supported and
praised this policy. Prominent economists praised his moves and
called federal credit expansion the right solution. He increased
government spending. He deliberately ran up huge deficits, increasing
the government's share of GNP. This was the largest-ever increase in
government spending, most of which was accounted for by
transfer-payments. He tried to channel government money through the banks and
used government cash to try and reflate the economy. He started
programs of government intervention to target money to special
interests.
When intervention failed to produce the
desired results, he doubled and redoubled his efforts. He increased
the cash and credit available to his intervention programs. He
ignored or bullied Congress, running the administration like a
dictator. By this point, however, he had lost control of Congress,
which was horrified by the deficit and insisted that the budget had
to be brought into balance. The push in Congress was to increase
taxes, with the rate on high incomes jumping.
Mostly neutered by Congress, the
President still had his interventionist rhetoric and continued louder
than ever. He announced if they did nothing it would be utter ruin.
His rhetoric persuaded the financial
community that he was pro-labor and anti-business, furthering the
deflationary pressures on the economy. This was reinforced by his
incessant attacks on the stock exchanges, which he regarded as
parasitical. His demand to regulate and investigate Wall Street kept
stocks depressed and discouraged private investors. His policy of
public investments prevented necessary liquidations. The businesses
he hoped to save either went bankrupt in the end or were highly indebted. He undermined property rights and
contract laws by weakening the bankruptcy laws and encouraging moratoriums on debt sales and foreclosures. This impeded the ability of banks to maintain
confidence and clean up their balance sheets. After pushing federal
credit into the banks he bullied them to increase loans and inflate
the economy, a move which would increase the precariousness of the bank's
positions.
The Presidents interventionist policies
had prolonged the downturn, but it did not stop the unemployment
number from increasing. The young artists and academics were
empowered to criticize and be hostile towards the structural ideas of
free markets, capitalism, individualism, independence, and personal
responsibility. They were exhilarated at the unexpected collapse of
the “gigantic fraud.” And they instinctively began to support
public planning, leaving behind a “period of extreme
individualism.” Capitalists who disagreed “would be treated like
any maverick... roped and branded and made to run with the herd.”
The country could no longer afford “irresponsible, ill-informed,
stubborn, and uncooperative individualism.”
Who was it?
Herbert Hoover 31st President 1929-1933
Does the above parallel what has happened recently? Definitely has similarities. Here is what happened (possibly happens) next.
A large blow to the economy came when
Europe's economy began to slow. Large European debt had been
accumulated and after a leading European bank collapsed the European
dominoes began to topple. A U.S. Plan to intervene came too late and
other European banks began to shut. Debt repudiation ensued and
rampant currency devaluation began. European markets became detached
from the U.S and foreigners began withdrawing their U.S. Holdings
from U.S. Banks. U.S. Depositors followed suit and a classic bank
run brought the system to a standstill.
Landlords had difficulties collecting
rent and so could not always pay taxes. Municipal revenues
collapsed, hampering the welfare programs and municipal services.
Schools were shut, teachers laid off and colleges went bankrupt and
shutdown.
Basically, the Great Depression
happened. Can we avoid it? I don't know. But I can at least prepare for
what I know has happened before, now that I know some more history.
