Here is another good essay on the subject.

My son is taking the AP American History test this morning. I told him that the correct answer to any question about the Great Depression and the New Deal is that Roosevelt was the Poor Man's Friend, and that the important thing was that the New Deal showed that the government cared about the problems of the poor. I also explained the truth.

"The combined impact of Herbert Hoover's and Roosevelt's interventions meant that the market was never allowed to correct itself."

You could say the same thing now about the Federal Reserve's and the Administration's intervention in interest rates and tax policy to prop up the bond and stock market bubbles. These markets need to correct themselves, but noone wins elections by allowing markets to correct themselves.

Except that interest rates and taxes remain historically high.

Interest rates are historically low, not high.

High. With no inflation--other than artificial oil-related hikes--interest rates have been high for over a decade.

The collapse of the agricultural sector (and the cascade that followed it, like the country banks) happened years before Roosevelt took the country off gold. Furthermore, none of those people handled many double eagles to begin with.

This is the kind of gold-bug lunacy that results when you fit practice to theory instead of the other way around.

Agriculture, which provided the direct or immediate economic support for 40% of the country, had been liquidated before Hoover even came into office.

Once it's been liquidated, that's it, you cannot keep liquidating it.

Earlier this year, Orrin was quite concerned about deflation, though he hasn't said much about it lately. He's right to be worried about deflation in the abstract, though wrong to think it's imminent; but it's weird to be theoretically concerned about deflation and to simulataneously scout the only people in this country who ever did actually have to do something about it.

We know more or less how to get a handle on inflation, but nobody is really sure how to reflate.

We have deflation. It will be a m,istake for the Fed to start raising rates and if Greenspan is serious could cause a slowdown in '05. There's a brief spike in oil prices due to overregulation. But there'll be gluts next year--as Iraq pumps more and Venezuela & Iran change regimes

Hoover and FDR should have returned tax dollars to the people instead of taking more for the government and then trying to spend "wisely".

OJ, rates are going up whether the Fed follows along or not, just not as fast. Stocks and bonds are tanking again on the good news of job growth. Inflation is on the way - the longer Greenspan dithers, the worse it will be.

He raised rates because of the last blast of job growth and caused a recession.

and he (Greenspan) seems poised to play the second verse of that same ole song, right down to carping about the deficit.

Yes, recession is the way that the economy corrects itself. Don't believe for a minute that the government can eliminate recessions, they can only postpone them, thereby making them worse when they finally arrive. It took 13 rate cuts and mountains of debt on the part of consumers, corporations and the government to get the economy started again, and the prospect of the first interest rate rise is turning the markets south again.

Remember, the equity markets are leading indicators. The smart money knows what lies ahead, and is getting out. You have a lot of variable rate consumer debt out there, much more than in 1994. Any increase in rates will impact consumer spending. Stock and bond market losses will work against the "wealth" effect.

Never let your political preferences guide your view of the economy. I've seen way too much economic boosterism on the part of Republicans. Sentiment is as complacent or moreso than before the downturn in 2000. The real experts on the economy, people like Warren Buffett and Bill Gross, are not bullish.

Rate hikes will cut spending but inflation will come?

Ever hear of stagflation?

Robert:

Yes. Think unemployment is headed up?

William B. Meyer, in his book Americans and Their Weather, points out that the large majority of agricultural workers who went to California, were not in fact Okies fleeing the Dust Bowl. They were ex-sharecroppers from the South, fleeing pro-landowner and anti-production government policies. "Most migrants to California were victims less of the direct effects of bad weather than of measures taken for protection against good weather." (p. 162)

Probably.

Robert:

So, you're calling for:

Rising unemployment
Rising interest rates
A stock, bond, real estate bubble burst

and rising inflation?

Welcome to Weimar!

Bob, Meyer can say that but he can't make me believe it. I am old enough to have talked to the people who were liquidated in the '20s. Liquidated is liquidated.

Once a bank fails, you cannot revive it. You have to start over.

Same with farms.

Robert, recessions are just the bottom dip in the sigmoidal curve of a dynamic system centered on a rolling average. Therefore, you are right, you cannot avoid the dips.

But you don't have to roll off the cliff. Kindleberger, "Manias, Panics and Crashes," explains why lenders of last resort have dampened the swings down since 1945.

The anti-FDR theorists have conveniently forgotten the advice their forebears were giving in the late 1920s: "Liquidate steel, liquidate copper" etc.

Fine if you have some solid assets, which is what Rockefeller meant when he assured the country that he and his son were buying up attractive stocks.

Guys who ran insolvent banks, however, were not picking up attractively priced stocks.

Harry:

Exactly. You can only prolong them artificially, which is what Hoover and FDR did.

Just for the record, Niven and Pournelle called this way of thinking "Crazy Eddie" in their classic SF epic _The Mote in God's Eye_.

Harry, I don't know that we will fall off a cliff, but we will have to move downhill at some point. I'm thinking of the 1970's as a model of what we will go through this decade. That is actually the rosy scenario. The problem now is that Americans are way more leveraged now than they were back then. Greenspan is trying to avoid raising rates because the inflation we are seeing now, in food, fuel and commodities (things that the core CPI leaves out) isn't showing up as income inflation yet. In this scenario, without growing incomes, increased rates will negatively impact consumer spending, which is 70% of GNP.

Much of the consumer debt that was added in the last 3 years will end up being bad debt. The government will print money to liquidate it.

My point is that noone on the Republican side is even talking about the risks that the economy is facing right now. Noone knows exactly how it will turn out, but there should be no complacency. It is foolish to put trust in the Federal Reserve and the Administration that they can steer the economy through these problems without igniting either high levels of inflation or deflation.

Robert, I'm with you on the risks. The phenomenon that Orrin and people like him think is so swell can also be described as the increasing commodification of sector after sector that never was commodified before.

We may not know much about how economies really work, but we can be pretty sure that commodified systems are more unstable than inefficient systems.

There ain't no free lunch, and inefficiency is a powerful insurance factor.

As for the Depression, the market theorists aver that there is always a market-clearing price. But in the Coolidge collapse there was not. People used corn for boiler fuel because there were no takers at any price.

Of course there was, it was just below that of fuel.

No, it was zero. Corn was worth not only less than fuel, it was worth less than the cost of moving it from one spot to anotehr.

Same for many other commodities, too.

Sales of phonograph records, to take another example, dropped from $104 million to $6 million.

How much more liquidation can you want?

$0, which is what it is today. If something is worth zero it costs zero and people find other industries.

But at the time, people did not find "other industries."

They just quit recording music for years.

W. Edwards Deming used to use the exmaple of carburetors. The carburetor manufacturers made better and better devices, because they thought they were in the business of making carburetors.

Really they were in the business of metering fuel, and that was taken over by fuel injection.

Phonograph records were not a goal, the goal was to reproduce music. A lot of guys whose sound was reproduced during the '20s and '40s left us nothing from what they did in the '30s, because the technology had been liquidated.

That's markets in action, but who wants that kind of action. Not Memphis Slim.

Harry:

That's how markets work. They're a bit brutal but they're efficient. Hoover and FDR unfortunately intervened to reduce their efficiency and thereby prolonged the "adjustments"