So, All I am hearing from Saul and Billy is that Hoover was wrong, FDR was of course wrong, and Bush/Obama are wrong. Government is the problem not the solution to this economic disaster we are trying to avoid.
I am not just saying that they were wrong. Everyone else is saying that, too. But the mainstream claim is that they were wrong because they did nothing. I have shown that they did a WHOLE LOT, specifically everything that free market economists say the government SHOULDN’T do.
Guys it’s easy to naysay from the sidelines and in hindsight without having any solutions of your own. None of you will say that you think the free markets should be left alone now to determine all of our economic fate, but without government intervention what other solutions are there?
The government isn’t all there is to the economy, and it isn’t the only institution or group of people that can do something about the state of the economy. Workers and employers should renegotiate wages to rebalance supply and demand. Businesses should cut prices till they are able to sell their entire product, again, to rebalance supply and demand. They need to understand that the lower supply of money means the money is worth more, so the apparent losses they seem to suffer on paper may mean an actual profit if adjusted for the deflation. And they can only do this if they are allowed to reduce wages so that the sale of their stock can cover the costs of the next payroll.
This may still mean that some businesses fail, and are forced out of business. Since, according to the Austrian theory, there is a lot of malinvestment during the inflationary boom, this is necessary. Those businesses were producing goods or services that people don’t need, at least not as urgently as other goods. The malinvestment must be corrected.
But yes, the government’s role must be strictly hands-off.
Economic Depressions: Their Cause and Cure by Murray N. Rothbard, from The Austrian Theory of the Trade Cycle and Other Essays
What does Mises say should be done, say by government, once the depression arrives? What is the governmental role in the cure of depression? In the first place, government must cease inflating as soon as possible. It is true that this will, inevitably, bring the inflationary boom abruptly to an end, and commence the inevitable recession or depression. But the longer the government waits for this, the worse the necessary readjustments will have to be. The sooner the depression-readjustment is gotten over with, the better. This means, also, that the government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers’ goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom.
Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing. It should, from the point of view of economic health and ending the depression as quickly as possible, maintain a strict hands off, “laissez-faire” policy. Anything it does will delay and obstruct the adjustment process of the market; the less it does, the more rapidly will the market adjustment process do its work, and sound economic recovery ensue.
The Misesian prescription is thus the exact opposite of the Keynesian: It is for the government to keep absolute hands off the economy and to confine itself to stopping its own inflation and to cutting its own budget.
Here is a little tidbit on Herbert Hoover from Wiki. Sounds like he was maybe not so keen on government intervention in 1929 or so.
Hoover’s stance on the economy was based largely on volunteerism. From before his entry to the presidency, he was a proponent of the concept that public-private cooperation was the way to achieve high long-term growth. Hoover feared that too much intervention or coercion by the government would destroy individuality and self-reliance, which he considered to be important American values. Both his ideals and the economy were put to the test with the onset of The Great Depression. At the outset of the Depression, Hoover claims in his memoirs that he rejected Treasury Secretary Mellon’s suggested “leave-it-alone” approach. Critics, such as liberal economist Paul Krugman, on the other hand, accuse Hoover of sharing Mellon’s laissez-faire viewpoint. President Hoover made attempts to stop “the downward spiral” of the Great Depression. His policies, however, had little or no effect. As the economy quickly deteriorated in the early years of the Great Depression, Hoover declined to pursue legislative relief, believing that it would make people dependent on the federal government. Instead, he organized a number of voluntary measures with businesses, encouraged state and local government responses, and accelerated federal building projects. Only toward the end of his term did he support a series of legislative solutions.
So then, Hoover favoured volunteerism over government intervention and it has been accepted since that time that Hoovers actions, or inactions made the depression worse.
But the research paper I posted in the OP proves this mainstream perception wrong. He did use “voluntary” persuasion keep businesses from lowering wages, but he used the threat of withholding protection against labor unions to do it. There was always the possibility of more labor union legislation to be passed (the only industry with heavy labor union legislation at the time was the railroads), and Hoover could threaten to withhold his veto from future labor union legislation. This is like a mob boss getting someone to “voluntarily” “cooperate” with the offer of a nice new pair of cement footwear.
The fed for deregulating the markets and businessess in 2000?
They did? You mean that the Fed stopped playing around with the money supply in 2000? I thought they were lending money hand over fist.
Every time I hear someone claim that some problem was caused by deregulation, a little digging shows that the so-called deregulation was nothing of the sort, and was actually the imposition of more regulations.
Again, solutions anybody? let the economic system take it’s course without intervention?
The dow is back up to what, around 9500. What do you think it would be right now without government intervention?
Does it matter? The Dow is measured in money, which experienced deflation. The Dow is not a measure of the health of the economy. The value of the money has changed, so the value the price of the Dow is reporting has changed.
Lets all just complain about government and offer no real alternatives then. It’s so fookin’ cool to be a naysayer.
No. Government is the naysayer to the real cure. No, don’t lower wages. No, don’t let those badly run, overinvested businesses cut back or go bankrupt. No, don’t let prices fall. No, don’t let the price system signal which businesses should thrive and which should fail. They are too big to fail! Don’t let them! No, consumers shouldn’t re-assert control over the economy. Instead, lets spend a lot of money and have the government be the consumer taking control of the economy!
The government is the one saying no to the real solutions to the problem.
I recommend reading “The Austrian Theory of the Trade Cycle”. I posted the link above. Its all available online, and its not that long of a read.