Obama’s call for a spending freeze has Keynesian Brad DeLong worried, or maybe “this is simply another game of Dingbat Kabuki.”
Source link: http://blog.mises.org/11543/obama-the-next-herbert-hoover/
Obama the next Herbert Hoover?
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Let’s hope that Obama becomes to interventionism what Herbert Hoover was to laissez-faire.
Don’t kid yourself. Obama will be remembered as the champion of laissez-faire. He allowed all those bank bonuses!
“Don’t kid yourself. Obama will be remembered as the champion of laissez-faire. He allowed all those bank bonuses!”
Stranger I completely agree with you. He is a true Champion
Hell, if Obama is Hoover, who’s FDR?!
HE didn’t freeze military spending, so we can get out of this mess like FDR did with WWII
Oh how ironic. Obama could very well end up freezing all the liberals favorite welfare programs just as great Obama hyper-inflation hits. (I noticed that the military is exempt)
I always figured George W. Bush for Hoover, and Obama for FDR. After all, there are still many conservatives who believe that Dubya believed in small government, even though he did a great deal to grow it, just like Hoover did.
I thought Bush was already Hoover and Obama was trying to be FDR?
Hoover, FDR, JFK, LBJ, Bush, can’t these people decide? What’s that….oh, they’re all the same person.
Our current Commander in Chief is nothing close to another FDR. First of all, FDR launched the Public Works Administration, the Works Progress Administration and the Civilian Conservation Corp to create jobs, whereas our current President has done nothing to create jobs. Secondly, FDR introduced comprehensive labor market reforms, such as the minimum wage and overtime compensation. Thirdly, FDR advocated social welfare, as was reflected through financial benefits for the unemployed, the disabled and the elderly. That’s not to say FDR was perfect. FDR tried to curb the budgetary deficit and when the economy showed the slightest signs of recovery, he slashed spending, thus plunging us into the double dip recession that was the Great Depression. The economy started growing due to his policies, but his reversal of those policies led to a secondary downturn in 1937. It took the Second World War and a universal commitment to an armaments economy to bring about a permanent end to the depression. Due to those economic facts, most people conclude that wars are good for the economy. However, what was good for the economy was that the government acted as a borrower and spender of last resort. Had we not gotten involved in Europe’s war, we could just have easily recovered from the Depression by spending that same amount of money on our own infrastructure.
While Monetarists, Austrians and neoclassical economists and theorists blame the depression on money supply fluctuations, interest rates and trade protectionism, the true causes of the depression were based on speculative investments by the banks, irrational exuberance, inefficient capital allocation and national governments implementing policies that favored their own distinct financial elites and aristocrats. Another cause the global depression was the growing income inequality among the advanced “free market†economies. When the global financial system crashed, consumers and businesses were left empty-handed. Consumers couldn’t spend money they didn’t have on hand and businessmen couldn’t rely on bank loans to expand their businesses. The depression’s causes were interconnected, because the banks wouldn’t have failed without the prior equities bubble that facilitated the boom. In each of the mainstream economic causes, the mainstream theories don’t hold ground.
Monetarists believe that the Federal Reserve’s policies made the depression worse. This doesn’t hold truth because the Federal Reserve definitely didn’t cause the depression and because it monetary contraction wasn’t that much worse during the depression years than it was during 1919 and the early 1920′s when the money supply almost equally contracted and we underwent a depression. So, according to their theories, we should have recovered just as fast during the Great Depression as we did from the not-so-great depression. At the same time, Japan tried to overcome an economic downturn in the late 1980′s and throughout the 1990′s by printing an unprecedented amount of money and it did nothing to save them from their structural downturn. Instead of saving them from contraction and deflation, all that money they created from “thin air†has transformed Japan into a carry trade paradise whereby foreigners borrow Yen to invest in speculative investments that almost always provide them with a profit. Thus, the Yen has appreciated against foreign currencies, making their economy even weaker. So, by printing more money and maintaining a low interest rate policy, Japan has become a country that has prevented its’ own recovery. Now isn’t that a paradox?
Austrians are obviously wrong because the economies that most quickly rebounded from the depression were those that abandoned the Gold Standard and created the most money from thin air. England and France suffered the most through the depression, while Germany, Italy and Japan recovered the quickest. The Soviet Union actually boomed throughout the entire depression because they weren’t bounded by a currency standard and they didn’t face budgetary restrictions. Nazi Germany was one the first European countries to recover from the depression due to new forms of governmental financing and an overly liberal monetary policy. Nazi Germany and Imperial Japan benefited from Central Banks that created money out of thin air and governments that didn’t mind serving as borrowers and spenders of last resort.
And yet, classical liberals would have us believe the trade protectionism caused the depression. Well, Nazi Germany and Imperial Japan were even more protectionist than we were during those years, but their economies recovered quicker. The Soviet economy boomed during those years, largely by remaining self-sufficient. Trade declined more in those countries that didn’t follow the Anglo-Saxon model. However, those that didn’t follow the Anglo-Saxon model recovered quicker.
So, all I can ask is, what case do Austrians hold to justify their economic theories and prescriptions? According to history, the best method of saving capitalism is to continue creating money out of thin air and to continue fiscal stimulus programs. As the world’s leading economy, we (America) need to increase government spending. The Europeans need to increase government spending. The Chinese need to launch another round of stimulus spending and all of us need to increase monetary stimulus by printing more money and reducing interest rates.
Is it not astoundingly similar to Julius Caesar’s strategy of “Divide et impera”? There have however been some politicians talking about the business cycle as of late. Id est: Michelle Bachmann(sp?). Sadly, her foreign policy ideas remain woefully ignorant… Things could look real interesting if Schiff and Paul get into the Senate… Austrian economist senators F.T.W.!
Don’t feed the trolls, folks.
That was in response to Richard Allen Wilson, above.
“According to history, the best method of saving capitalism is to continue creating money out of thin air….”
is it the thin -air money of at least the current fed/frb system that i have read about the reason for so many ‘savings’ that need to take place anyway?
Praetyre,
Don’t feed the trolls? Or is it “don’t feed the lunatics”? The comedians?
Mr. Wilson, circa 1933: “Bet on Germany, Japan & Italy. Eat that seedcorn, boys”
I believe that the political class is shifting into ‘preventing systemic collapse’ mode.
I thought that they would have done this earlier, but they are now. Bernacke is going to get the boot and, perhaps, a Volker-type will come in to restore sanity to monetary policy. The ‘spending freeze’ is a symbolic gesture to our bond-holders that we are serious about restraining spending — that will help save the dollar.
If anybody’s noticed, yield on the 10-year is down 10% today, possibly reflecting a new investor setiment that the Federal Government will restrain future issuances.
It is an illusion that creating money out of thin air makes an economy thrive. Expanding the volume of fiat currency is accomplished by selling Treasury Bonds, thus borrowing from the future. Sure, I can appear to be living high on the hog if I mortgage my house. I look affluent. But I am poorer, and with our national debt, so are my children’s children. This is economic enslavement.
Debt isn’t bad in itself Citizen you could use the money from your mortgage to access investments that you couldn’t have access by biding your time and saving thus profitting and secure your childrens’ future. Somehow I believe most Third Worlders would like to be reborn as an American middle-class kid than be part of Third World country that may a lesser debt load but little economic value to pay back the loan such that debt repayments are plain burdensome.
“So, all I can ask is, what case do Austrians hold to justify their economic theories and prescriptions? ”
A less tenuous grasp on reality than yours, I suppose.
Germany, Italy and Imperial Japan were the first to recover from the Great Depression. That, my friends, is a stastical fact. Those that adhered to the gold standard the longest, primarily France and the U.K., were among the last to recover from the depression. So, apparently, creating money out of “thin air” generates economic growth. I love how I can use statistical facts to justify my positions, whereas you morons resort to name calling — a.k.a. “lunatic” and “troll.” How about using some hard factual evidence to support your positions. Oh, wait, you don’t have any statistical data to support your positions. What a shame.
Well, my bad, you guys do have something going for you. Atlas Shrugged, after all, is a factual book that just so happens to be fiction.
no, richard. countries lucky enough to be bombed flat enjoy marvellous economic growth. nothing to do with sound money. dynamite is statistically good for the economy.
Mr. Wilson,
Please do not be dissuaded by some of the remarks of other bloggers. They probably have full time jobs and no patience. My 60 hour job is down to 22 and falling. I teach for a living (not in the ivory tower) so I don’t mind taking the time plus it helps with the withdrawals of a workaholic.
Though there are plenty of resources on this site which could answer your questions and no doubt Austrian bloggers better versed in the theory…I will attempt ( in my simplistic deconstructionist approach) to answer some of your questions.
1)Your examples speak for themselves. Imperial Japan, Nazi Germany, Communist Soviet Union and Fascist Italy-all do not exist as they did during the 30′s. What is left are remnants of so-called empires. Today, Japan is an economic cripple, Germany is slowly suffocating from a social welfare system (Italy even more so) and will eventually collapse. The former Soviet Union, now broken up, is left with some sick version of crony capitalism/oligarchy. Not to mention these countries are historically responsible for the deaths of tens of millions of people through wars and slavery. I guess, in the long term, central bank policies worked out really well for them. Just ask the dead.
2) Your failure to understand the lessons of history is the same thinking process a drug addict goes through. The illusion of short term gain, or in the case of the addict a short term high, is justified in the face of reason and reality. If the drug addict continues to embrace the illusion they will eventually die. The same is true of nations and economies. No doubt going off financial stimulus will be extremely painful just as drug rehab is painful for the addict. The choice is simple… continue the illusion and die (like the nations you cited) or become healthy and live.
3) There is no argument with your statement “creating money out of “thin air” generates economic growth†except for the fact that the economic growth you cite is an illusion. (see Citizen post)
4)It’s interesting to me, that of all the examples you cite, everyone of them was a militaristic authoritarian command economy that left their people in ruins. Most of those countries have never really recovered. This does not foretell a positive future for the United States.
5)) Mr. Wilson you really should do a search on this site and read some of the excellent articles that would give you a technical economic explanation to your questions. I think you will find the time well spent.
Good Luck!
Great post by Dagnytg. I just wanted to make this part a little more explicit:
“of all the examples you cite, everyone of them was a militaristic authoritarian command economy that left their people in ruins. Most of those countries have never really recovered. This does not foretell a positive future for the United States.”
That is exactly right because the U.S. is in Iraq for the same desperate reason that Germany was in the Ukraine (I know, that’s not completely fair to the Nazis). These things always end up the same way, but as long as Mr. Wilson gets to live high on the hog today, I’m sure he is OK with that. [btw, Wilson, I didn't call you a lunatic, I *asked* if you were a lunatic or a comedian. I can't think of the third category for advocates of major policies of the Third Reich.]
masochists.
Does this apply also to Japan ?
Mr. Wilson,
I highly recommend Guenter Reimann’s Vampire Economy, found here for free, as an excellent account of economic destruction by the Nazis. It’s based on actual testimony by participants. Warning though, its nightmarish reality will make you want to sleep with the lights on.
http://mises.org/books/vampireeconomy.pdf
It is true that early on in the regime’s reign interventionism gave the aura of improvement. But Nazi militarism and nationalism necessarily meant continually tightening a noose around every facet considered economic. Generations of savings and capital were forced into armaments. Not only was it an unproductive use of capital, its destructive nature went beyond a zero-sum solution. Consequences of policy were that factories could not upkeep or replace machines necessary to war preparation.
The central banking structure, that once had the power to gain from government profligacy, was eventually subordinated to the Nazis. What had been a privileged system with some independence, even moreso than that of the Fed Reserve here in the states, lost out to the central authority. Here is a quotation on Hjalmar Schacht, former Reichsbank Director and Minister of Economics:
“Under the Nazis, Schacht could no longer apply the old methods of compelling the Government to fulfill the wishes of private corporations. The Reichsbank was no longer a central bank defending the interests of the private banks or of the “capital market” against the demands of the State. On the contrary, it had to function as an arm of the Government, issuing instructions to the “private” banks and to the corporations, directing them how to invest their funds. Dr. Schacht, who had attacked parliamentary government for its increased expenditures and its deficits during the depression, had to help the Nazi Government increase its expenditures and its deficits to such an extent as to necessitate the closing of the capital market to any but the demands of the Government.â€
Of course, you may be applauding this the same way that many in our time cheer on Obama everytime he takes over corporate decision making. But it is one thing to despise privileged central banking and wish it to be dissolved into the free market. It is quite another to see totalitarian authority as the answer. Where was this totalitarianism leading in Germany? Here, is Reimann:
“From the purely financial point of view, the situation is more serious than in 1931, the year of the banking crisis. But the totalitarian State can tighten its control over the whole financial system and appropriate for itself all private funds which are essential for the further existence of a private economy. Yet the institutions which still exist as private enterprises are not allowed to go bankrupt. For an artificial belief in credits and financial obligations has to be maintained in open conflict with realities.â€
At the very least, take a look at the “Graphic on Autos” on page 2. The insanity that the process of production became in Germany is quite an empirical eye-opener. Maybe this will lead you to read more stuff on this site and understand why so many of us know that the Germany, Italy, Japan and the USSR were economic failures- and necessarily had to be so.
Cheers
mpolzkill
Thanks for the compliment and support.
Fallon
Thanks the citations and quotes.
newson
Thanks for the laugh:)
But in defense of Mr. Wilson, he did write six paragraphs to support his thesis. He also called us out to defend our position in which he was mostly ignored. At least no one took a serious interest. It’s natural to be smug when reason is something we understand so clearly, but we must remember that for most people it’s not clear. You look in the index of a high school economics text book you won’t find Mises listed… you might find a small citation for Hayek. That’s it. Forget finding (in any H.S. book) Rand, Nock, or Rothbard. How can we expect people to understand anything Austrian or otherwise?
There is no shame in being ignorant. In Mr. Wilson’s mind he’s not but let’s not forget the conventional wisdom held by most people is that the Depression ended because of WWII. Mr. Wilson’s thesis falls right in line with that thinking…albeit his examples are a bit…unique.
We should embrace the Mr. Wilsons of the world not ignore them. We should want people to call us out to defend our beliefs and theories. We should long for dialogue and debate. What challenge is there preaching to the choir?
As our ideas become more popular people are going to come to this site, and they are going to look to us for leadership and knowledge. We shouldn’t turn them away. We should welcome them and teach them. Reason is easy to teach. It just takes effort and patience to get people to open their eyes and see it. (Remember the world is full of illusion and its promoters.)
PS> I just left a post on Seeking Alpha and (after a light spanking) I encouraged this person to check out mises.org. His names Matt and he’s a Bernanke fan…ok you guys be nice! and be gentle… we want to win him over to our side.
Apologies if I seemed a bit hasty. I just assumed RAW to be a troll seeing as he seemed to have not read any of the site or it’s material, to be spouting nonsense that is basically the complete opposite of what most people here accept and his lack of response has only cemented my conception. Plus, names like that make me suspicious, as high class troll names who dress up reaction-getting in elaborate copy and paste screeds are things I have witnessed in the past.
I’m still working on a response for the above.
Von Mises on the increase of the money supply:
http://mises.org/books/Theory_Money_Credit/Part2_Ch12.aspx#_sec3
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