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Saturday, April 13. 2013
Many current economists think he extended it. It is relevant to today's economy, I think: Prager U: Did FDR End or Extend the Depression?
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This is pretty old stuff. Prof. Ohanian has been making the same claim for a decade now. In 2004 he and Harold Cole, both of them in the UCLA economics department, published a paper that laid out the argument. Their paper was highlighted in a news release that was issued by UCLA in August of that year under the byline of Meg Sullivan (it's available for viewing on-line). Amity Shlaes offered a similar argument in her book, "The Forgotten Man," which was published in 2007. The work of Cole and Ohanian is not cited in the extensive bibliography she provided in the back of her book, however.
I don't accept (or understand) the part of Ohanian's argument that starts at 1:00 into the video clip. If a company's PROFITS are going up---and profits are what a business earns AFTER its labor costs---why would it be reluctant to hire workers? I could understand that happening if labor costs were going up (as part of the FDR scheme) but REVENUES were not keeping pace, so PROFITS declined. But Ohanian says PROFITS are going up. And why would demand decrease as prices rose if workers' salaries also increased (again, as part of FDR's scheme)? Unless prices rose faster than wages, wouldn't workers be able to afford higher priced consumer goods?
I don't think Ohanian's analysis in this video convincingly explains why FDR's economic policies served to prolong the Great Depression. Those policies were the economic equivalent of a perpetual motion machine, and by today's thinking seem pretty naive. Except, I'd say, that everything Shlaes wrote about FDR back in 2007 applies equally well and presciently to the current occupant of the White House, Barack Obama, which accounts for the tepid recovery of the economy and employment since October 2008.
When you artificially raise wages, you don't get a commensurate increase of productivity. Since prices were rising - for everyone - the profits were illusory.
We're seeing a replay of sorts now. Prior to the Great Depression, there were depressions but they didn't last nearly as long. Of course, the government didn't try to micromanage the economy and so it recovered much quicker. Obummer is mainly trying to artificially raise the cost of energy which makes everything that has to move much more expensive but labor rates are declining so fewer people will be able to afford those things. In that way, his policies may be worse than Roosevelt's.
There is no doubt that FDR extended the Great Depression by ploicies that are almost identical to Obama's policies: massive piling on of public debt, mass unemployment enabled by the government's dole, weakening of the dollar, confiscation of gold, repudiation of the gold standard, etc.
The U.S. had faced a depression every bit as severe in 1919, with unemployment surpassing 12%, and the economy tanking into the same death spiral it entered going into the Great Depression of the 1930's.
But President Harding took exactly the right actions to stop that depression in its tracks: he slashed federal spending by 60%, mostly by cutting the federal workforce by 60%. He supported the dollar, and took similar steps to correct the problem.
The result: within eighteen months, unemployment fell to under 3%! And the U.S. economy entered the most prosperous decade of our existence: the Roaring 20's.
A capitalist economy is inherently unequal. Efficiency, hard work and savings are rewarded. But it always has its ups and downs, and there is a disparity of wealth. The net result, however, is that capitalism ALWAYS produces MUCH more national wealth than any other form of government. There are so many examples showing that fact that it is unarguable; you can start woith North & South Korea. There are numerous other examples.
Under Obama, we now have about half the population on direct government dole. Half of the population pays zero income taxes. Neither FDR nor Obama learned the clear lessons of 1919. In Obama's case, it is obvious that he is deliberately hobbling the economy, and forcing millions onto the dole. He is not stupid: his unstated but clearly implied threat is this:
"See this knob? I can just turn it, and your EBT cards will not top off every month. Or you wan't get so much. And your Social Security payments might not get their COLA. Social Security could even be fully taxed as income. And your food stamps are a gift from me: but if I turn this knob, they could be reduced. Now tell me, what are you complaining about?"
And so on. The system has been gamed by smart people, who want to turn the United States into a mediocre country, on a par with the average UN country. Obama clearly does not want America to be exceptional.
Obama has once again raised America's subsidy to the UN, despite his so-called sequester. Palestinians, Egyptians and others are handed billions of dollars every year with no quid-pro-quo; and where is the enabling legislation?
Incompetent and corrupt companies are handed taxpayer loot to manufacture inefficient products that routinely fail in the market place — or which are never even produced.
More than 1.2 TRILLION dollars are added to the debt every year — that is why there has been no budget for the past 4 years: the Senate/House Continuing Resolution provides that much additional money creation annually when there isn't a budget. And despite the lies about the sequester cutting spending, the fact is that spending has only slowed; more money is spent every year even with the sequester.
The economic policies that made America great are being deconstructed and eliminated, one by one. EVERY action taken by the Obama Administration is bad for our country in the long term.
We have rocked the Middle East boat, toppling insular regimes that were either no problem for us, like Libya, or which were generally pro-American, like Egypt. They have been replaced by America-hating religious dictatorships. Syria is next — a country that caused us no peoblems will now be run by rabid America-hating Muslims. And of course, our one true ally in the Middle East, Israel, is being demonized by despicable American anti-Semites.
Obama knows exactly what he is doing, and his goal is the downfall of America, to the point where we are just another vassal state of the thoroughly anti-American UN. The ultimate goal is clear: Make the UN a "democracy", where the Security Council does not have a veto. Then the 196 wolves in the UN will get to vote on who is for lunch. They have their ravenous, greedy, hating eyes locked on the prosperity of the U.S., and they fully intend to vote our wealth and assets into their pockets.
Is ther ANY doubt? Never listen to what Obama says. Always look at his actions. Then you will clearly see his unspoken agenda.
Seems to me we have all this arguing about what helps vs. hurts an economy, simply because we don't keep in mind what an economy is. If there is more free trade going on, there is more economic activity. Free trade IS the economy.
FDR "improved" the economy by making a bunch of rules, and agencies to enforce them. Rules eliminate options. They prohibit some things, require other things.
To opine that FDR ended the depression, makes about as much sense as saying you can dry yourself off real quick by taking a leap into the lake. It is an evaluation of opposites and there really isn't much argument or discussion needed.
What I find funny about your reason to not accept the professor's argument is that this is our current situation. The same reason it did not work during the Depression, as the professor describes, is the same reason it is not working now.
Right now profits are way up for big businesses. The stock market is the highest it has ever been. But hiring is depressed.
Why is that? Well, instead of requiring higher wages, Obama is insisting on higher medical insurance coverage. Thus, the cost of hiring an employee will go up and a company is loathe to hire new employees without really grasping how expensive that employee will be. Companies are watching and waiting to see the impact of Obamacare before they hire.
To me, that is identical to what Roosevelt tried in the 30s. So look at today's situation to understand the truth in the professor's analysis.
What would be your reason that companies today are not hiring even though they have higher profits?
I see additional regulatory interference, current and anticipated (especially anticipated), as enterprises cannot trust this government to adhere to the current level of intrusiveness, and no possibility of lessened intrusiveness. (See discussions on 401Ks.)
I agree with Sam in that Obamacare might be the most obvious peril to budgeting for the future, but Obama's whacky interferences at every level inhibits people from making decisions that might -- and I say might -- lead them to invest, whether in their businesses or personal life. Who wants to take any type of risk with this administration's constant manipulation of every, every, every corner of our existence?
Would you hire five more employees if that decision might require you to raise prices in a business environment where companies are shutting down daily for lack of demand? Would you buy a house when the banks are being encouraged to take on risky loans again, thus the potential for another real estate bubble? Would you invest in property for a new factory when the EPA might involve you in a tangled web of regulations, causing costly delays?
Frankly, I don't trust the earnings reports from many of these corporations, especially the banks. Accounting is accounting is accounting. Remember Enron, HealthSouth, Madoff?
Make a list of potential decisions you should make tomorrow to make inroads over the next five years, then ask "can I really count on my government stay out of my way?" With Obama and the Democrats in general, absolutely not.
He, like FDR, thinks he's the smartest brain in the room and can run your life and make better choices for you than you can. Except, as with FDR, he never hangs around to have to deal with the fallout of his actions. He simply changes jobs. Show me one position, one position, where Obama has taken a decision-making role and then seen that decision through with beneficial results. Dare you. He and FDR, like other liberals, cause the very disasters they then presume to solve.
His decision to put that mourning mother from Newtown on his weekly TV spot was idiotic considering the media is finally breaking the stories about the deaths at full-term-abortion clinics (a longterm problem which Obama voted to support when he was an Illinois senator). Are we going to ban scissors, too? What about the gun runners of Fast and Furious fame that are supplying the gangs on Chicago's south side? What difference would gun registration and limits on ammo make there?