Tuesday, November 8, 2011

The Forgotten/Compressed Recession

People tend to forget. This country also had a depression in 1920 and 21. And, while, no, it wasn't quite as devastating as the Great Depression of a decade later, it wasn't exactly a walk in the park, either.......................................................................................................Here are some of the numbers, people. The unemployment rate crested at 11.7% in 1921. GNP declined by 6.9%. There was an 18% DEflation rate and a 36.8% drop in wholesale prices. The stock market plummeted by whopping 47% and profits decreased by 75%. Add to that the fact that there was a near tripling of business failures and, yeah, all in all, it was a pretty nasty economic downturn........................................................................................................So, what, pray tell, did the government do in response to it? Well, it basically did two things. a) The Harding administration/Congress slashed Federal spending by a humongous 65%. And b) the Fed RAISED its discount rate to a then record high of 7%. They basically did the exact opposite of FDR, Bush 2, and Obama, in other words.........................................................................................................So, just how successful was this approach? Well, at least according to the unemployment figures, it was extremely successful. The unemployment rates of 1922 and 1923 were 6.7% and 2.4% respectively. Quite a bit different from the rates of the 1930s and today, no?......Yeah, I'm talking to you, Mr. Krugman.

12 comments:

  1. Don't waste your time talking logic to illogical people. They wanted change, well they got change, as in pennies on the dollar.

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  2. A big second on Gorges' comment!

    Your beginning to sound like a conservative Will ;)

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  3. les,
    this nation has gone thru several economic depressions prior to the one that the Roosevelt administration oversaw.
    Economic Depressions

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  4. This comment has been removed by the author.

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  5. I realize that griper. Thanks for the link.

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  6. Les, the more that I read about Keynesian philosophy, the more absurd that it seems. Now, this isn't to say that stuff like infrastructure spending is necessarily a bad thing. But we need to engage in it to improve our overall competitiveness, not to produce some sort of artificial demand push. That's the way that I see it anyway.

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  7. Perhaps Hayek {The Road to Serfdom} will make surge.

    We can only hope.

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  8. Les,

    You bring up an interesting analogy here, but you do leave out some pretty important facts - especially the fact that it all ended with the Great Depression.

    And while I find it heartening to see you cite the value of a central bank when it behaves responsibly, you leave out some pretty significant growth factors of the 1920's...

    You leave out the rise of the automobile - and highway and road construction by the state.

    You leave out the massive demilitarization. That's where the vast majority of that 65% cut came from.

    You leave out the astounding disparity of wealth in the country in the 1920's. Almost exactly the same as in the first decades of the 2000's, and sure enough those two decades ended eerily similar, huh?

    You want to argue with Krugman?

    Puh-lease.

    If you want to argue with a serious economist, or anyone who knows a little about math and finance, then first you should recognize the futility of arguing percentages.

    JMJ

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  9. Again jmj, I am not the author of this fine piece. Although I wish I were.

    Now, you might want to go read some Hayek.

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  10. jmj

    "If you want to argue with a serious economist, or anyone who knows a little about math and finance, then first you should recognize the futility of arguing percentages."

    and the first thing that a serious mathematician or economist will tell you is that percentage is the only valid way to compare unequals too.

    so, before you make more of a fool of yourself you'd better understand the whys of its use.

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  11. I say, GOOD, the fact that Mr. Harding decisively cut military spending and didn't try to preserve it in some form of military industrial complex. And does this not also demolish the idiotic notion even more so that WW2 got us out of the Great Depression, the fact that Mr. Harding was able to orchestrate a turnaround by actually CUTTING military spending? It certainly seems persuasive enough to me.............As for Mr. Krugman, the fellow's a genius. Not so much that he knows what he's talking about, mind you, but the fact that he's put forth a foolproof paradigm of sorts. This, in that, whenever a stimulus program or an artificial loosening of credit doesn't work (and it usually doesn't), he can always say that "it wasn't big/loose enough". The dude can never be wrong!

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  12. There are three types of lies Griper. Lies. Damn lies. And statistics.

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