Use access key #2 to skip to page content.

So What Have We Learned in Two Millenniums?

Recs

9

February 01, 2009 – Comments (10)

"The budget should be balanced, the Treasury should be refilled, Public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."

-- Cicero, 55 BC

Evidently, nothing.

10 Comments – Post Your Own

#1) On February 01, 2009 at 1:22 PM, drummnutt (< 20) wrote:

This was the line in 1930, and this is why the economy collapsed completely. The obsession with "balancing the budget" at the expense of stimulus when it is required, is ill-informed opinion. Public debt should be allowed to (responsibly) increase to provide stimulus in times like the current climate. It should then be reduced in times of prosperity. Unfortunately this didn't happen in the last 5 years.

Report this comment
#2) On February 01, 2009 at 2:15 PM, FleaBagger (29.31) wrote:

drummnutt-

Thanks for your comment. But I fear that you may have just demonstrated that kdakota is right: we have learned nothing in two thousand years. The people who taught you your view of the Great Depression are a big part of the reason we are suffering economically today. What could be more stimulating to the economy than for things to return to their true value instead of being bailed out my inflation and government distortion of efficient capital allocation?

Sure, Hoover and the U.S. Congress of his time badly damaged our country's economy, but it was not the balanced budget that did it. It was increased regulation and increased taxes, particularly tariffs, that decreased the ability of the people and their businesses to function freely and generate wealth. You may have forgotten that Hoover was the most economically interventionist president of the U.S. until 1933. What Hoover (and later Roosevelt) tried had never been tried in the U.S. before, and we had never had a Depression that long-lasting before, either. You were probably taught the wrong cause/effect order for those two things when you were in school.

Best wishes!

Cicero is the man.

Report this comment
#3) On February 01, 2009 at 3:19 PM, kdakota630 (29.49) wrote:

drummnutt - If governments budgets were balanced and there was no debt (or if there was a surplus) perhaps it would be a good idea to open the coffers and add some stimulus to the economy.  However, when the government is broke and elects to run BIGGER deficits to fund "stimulus" all it is doing is borrowing against the future to pay for the present.

I fail to see how spending more of what the government doesn't have is a good idea.

Report this comment
#4) On February 01, 2009 at 5:10 PM, EnigmaDude (92.69) wrote:

People must again learn to work, instead of living on public assistance."
 (I think this is the key phrase that applies today)

I once visited Australia years ago when you could go "on the dole" and basically live off the govt.'s dime. If the stimulus package creates more reliance on federal breast-feeding of the American public, then we are doing our children an even greater disservice, by teaching them not to rely on themselves.

We Must be Weaned! (Yes We Can!)

Report this comment
#5) On February 01, 2009 at 5:21 PM, nthought (< 20) wrote:

All this preachiness about people on the public dole belongs in the sphere of ethics not economics.   Hoover's insistence on a balanced budget did contribute to the depression because it deprived the economy of a proper stimulus and forced firms to lay off workers en masse.  We didn't get 25% unemployment because of intervention.  We got there because of nonintervention. 

 

It's such an obvious historical fact, that if you don't get now, you'll never get it. 

 

Things return to their true value when you have people working, producing, using their talents, and contributing their labor to the economy.  When lack of confidence breaks the levies, you intervene, albeit temporarily, and do whatever is necessary to get capital flowing to firms again.  This is a system based on confidence of a better life, so that people may be willing to take risks. 

Report this comment
#6) On February 01, 2009 at 7:26 PM, kdakota630 (29.49) wrote:

It's such an obvious historical fact, that if you don't get now, you'll never get it. 

nthought

Too often people get their "facts" and "beliefs" confused.

From Wikipedia:

It is often inaccurately stated that Herbert Hoover did nothing while the world economy eroded. 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.

In 1929, President Hoover authorized the Mexican Repatriationforced migration of an estimated 500,000 Mexicans and Mexican Americans to Mexico. The program continued through 1937. program. To combat rampant unemployment, the burden on municipal aid services, and remove people seen as usurpers of American jobs, the program was largely a

Congress approved the Smoot-Hawley Tariff Act in 1930. The legislation, which raised tariffs on thousands of imported items, was signed into law by President Hoover in June 1930. The intent of the Act was to encourage the purchase of American-made products by increasing the cost of imported goods, while raising revenue for the federal government and protecting farmers. However, economic depression now spread through much of the world, and other nations increased tariffs on American-made goods in retaliation, reducing international trade, and worsening the Depression.[23]

In 1931, Hoover issued the Hoover Moratorium, calling for a one-year halt in reparation payments by Germany to France and in the payment of Allied war debts to the United States. The plan was met with much opposition, especially from France, who saw significant losses to Germany during World War I. The Moratorium did little to ease economic declines. As the moratorium neared its expiration the following year, an attempt to find a permanent solution was made at the Lausanne Conference of 1932. A working compromise was never established, and by the start of World War II, reparations had stopped completely.[24][25]

President Hoover, in 1931, urged the major banks in the country to form a consortium known as the National Credit Corporation (NCC).[26] The NCC was an excellent example of Hoover's belief in volunteerism as a mechanism in aiding the economy. Hoover encouraged the member banks of the NCC to provide loans to smaller banks in order to prevent them from collapsing. Unfortunately, the banks within the NCC were often reluctant to provide loans, usually requiring banks to provide their largest assets as collateral. It quickly became apparent that the NCC would be incapable of fixing the problems it was designed to solve, and it was abandoned in favor of the Reconstruction Finance Corporation.

By 1932, the Great Depression had spread across the globe. In the U.S., unemployment had reached 24.9%,[27] a drought persisted in the agricultural heartland, businesses and families defaulted on record numbers of loans, and more than 5,000 banks had failed.[28] Tens-of-thousands of Americans found themselves homeless and they began congregating in the numerous Hoovervilles (also known as shanty towns or tent cities) that had begun to appear across the country. The name 'Hooverville' was coined by their residents as a sign of their disappointment and frustration with the perceived lack of assistance from the federal government. In response, President Hoover and Congress approved the Federal Home Loan Bank Act, to spur new home construction, and reduce foreclosures. The plan seemed to work, as foreclosures dropped, but it was seen as too little, too late.

Prior to the start of the Depression, Hoover's first Treasury Secretary, Andrew Mellon, had proposed, and saw enacted, numerous tax cuts, which cut the top income tax rate from 73% to 24%. When combined with the sharp decline in incomes during the early depression, the result was a serious deficit in the federal budget. Congress, desperate to increase federal revenue, enacted the Revenue Act of 1932. The Act increased taxes across the board, and the percentage increased with income, to near pre-1928 levels for top income earners. It also implemented a 13.75% tax on corporations.

The final attempt of the Hoover Administration to rescue the economy was the passage of the Emergency Relief and Construction Act which included funds for public works programs and the creation of the Reconstruction Finance Corporation (RFC) in 1932. The RFC's initial goal was to provide government-secured loans to financial institutions, railroads and farmers. The RFC had minimal impact at the time, but was adopted by Franklin Delano Roosevelt and greatly expanded as part of his New Deal.

Report this comment
#7) On February 01, 2009 at 7:34 PM, kdakota630 (29.49) wrote:

I'm not sure what happened to the 2nd paragraph, and I seem unable to repost it properly here for some reason. You can click the link to read it properly.

Report this comment
#8) On February 02, 2009 at 1:29 AM, nthought (< 20) wrote:

Kdakota,

 

What I read there supports my argument.  I'm not saying he did not react to it, what I'm saying is that he did not intervene.  

Mexican Repatriation Act - Typical case of blaming immigrants for problems.  This would not be something I would recommend for economic policy right now.

 

Smoot Hawley Tariff - Terrible idea, then and for now.  We need to work internationally to fix this.

 

Hoover Moratorium - Not relevant to us today.

 

FHLB - as the article states, it worked, but it was too little too late.

NCC - Hoover is still trying to get banks to do things voluntarily.  It failed because it lacked real teeth.

 Revenue Act of 1932 - Hoover's commitment to a balanced budget and a strong dollar was apparently stronger than his urge to keep taxes low.  Obviously, a tax increase is not what was needed, nor is it what we need right now.

All of this while the Fed kept interest rates high because the Fed feared an irrational run on the nation's gold, which is what happened when Great Britain tried to devalue their currency.

 

The depression was caused by:

1. A real estate bubble which created a general bubble.  Low taxes, top-heavy growth, a deregulatory policy toward business, and a government culture that encouraged corruption.    

2. It was further aggravated by Hoover's administration who refused to inject cash into a cash-starved economy, and whose number 1 goal apparently was to protect the strength of the dollar. 

 

It was solved by:

 

FDR's policies of intervention, fighting unemployment by any means necessary, instituting automatic stabilizers (which helped America avoid a depression for many years afterward), and government stimulus. 

Eventually, WWII forced FDR to go even further, and the New Deal was applied to a wartime economy.  Soldiers were given jobs, the government provided huge contracts to businesses, and the government maintained a debt greater than GDP while avoiding high inflation (eat your heart out Peter Schiff).

Obama should follow FDR, not Hoover, and yes, they are very different.

Report this comment
#9) On February 02, 2009 at 10:21 AM, Imperial1964 (97.77) wrote:

Nice quote!

Report this comment
#10) On February 03, 2009 at 12:43 AM, FleaBagger (29.31) wrote:

nthought -

While your relegation of public welfare out of economics to the realm of ethics is laughable on its face (How is a distortion of a free economy not economic?), it seems more urgent to address your contention that FDR's policies were good for the economy in the 1930's, and that they need to be replicated by President Obama.

For one thing, how prosperous was the average American in 1933? 1934? How about 1937? 1940? If an ancestor of yours had no money or other assets besides a willingness to work, how well was he able to provide for himself in the 1930's? How about after Roosevelt's first term? His second?

You may like to point out that GDP rose under Roosevelt. Okay, so it rose. So America had more money under Roosevelt than it had before he took office. So what? If all that money failed to trickle down to the common man, what good is that? If a worker could not find a steady job (and throughout FDR's first two terms, workers could not find steady jobs), how is that economic recovery? Are you really trying to tell me that 1936 was good times for the laborer? Or that in 1938 Americans were living high on the hog?

The 1930's saw an enormous drop in the standard of living of those who had nothing but a willingness to work, and for most, FDR's policies were unable to stop it. The policy of nonintervention has stopped economic downturns, allowed job creation, and with no inflation. (I don't know what you consider high, but I'd rather not do the >10% inflation FDR incurred.) Hoover did not choose a noninterventionist path, instead choosing tariffs and regulation.

Hoover was known as a reformer, and had repeatedly asked New York governor Franklin Roosevelt (heard of him?) to increase regulation of the NYSE, which Gov. Roosevelt cynically refused to do, hoping to discredit the president for his own political gain. With a reformer in office, even deflation could not stimulate the economy, as no one knew what the government would do next. I know capriciousness and lawlessness in government sound good, but actually they make it difficult to do business.

Lacking an environment of unbiased law and private property rights, businesses seized up, unable to create new jobs, and hanging onto their cash. When FDR took office, the outlook worsened, but inflation forced businesses to rid themselves of their cash, so employment sporadically increased and GDP grew, even though little of value was actually being created, and few had a single job that lasted for more than a few months. To call Roosevelt's first 2.5 terms America's lost decade would be flattering. He savaged the economy, and you can see it on the faces of everyone photographed at the time. You know the stories of people who scrounged for their next meal every day in 1939.

So go ahead and quote government statistics until you're blue in the face. I'd rather have freedom than an astronomical GDP any day. 

Report this comment

Featured Broker Partners


Advertisement