The 1920s Depression: Glenn Beck, Thomas Woods, and "Benefits" of Cutting Taxes to Combat a Recession, Part 1
The 1920s Depression: Glenn Beck, Thomas Woods, and “Benefits” of Cutting Taxes to Combat a Recession, Part 1
So I get an e-mail from reader Dean Moriarty, stating:
Yesterday, I found myself in the sad position of inadvertantly listening to the Glenn Beck show. He was talking to some caller about how American history classes never want to talk about the 1920 Depression, because it is a matter that somehow completely undermines everything we are taught about how “the New Deal was a miracle and totally saved America from the Great Depression.” Aside from the straw man he made about the New Deal, I was still curious why he felt that the government response to the 1920 Depression was such a trenchant rebuttal of any kind of left-leaning economic philosophy.
Basically, the claim is made that it was a cut in government spending, tax cuts, laissez-faire ecomomic policy, and inaction on the Federal Reserve that solved the problem.
Dean goes on to point out that Beck claims to get many of these ideas from a dude called Thomas Woods, who is a senior fellow with the very libertarian Mises Institute. The guy has written a few books and gotten a few awards from assorted libertarian organizations, so he’s something of a prominent chap int those circles.
Woods’ position on the 1920s can be found here. Its even got footnotes so you just know its authoritative. Anyway, read the whole thing if you’d like, but what Woods is arguing is this:
According to the endlessly repeated conventional wisdom, the Great Depression of the 1930s was the result of capitalism run riot, and only the wise interventions of progressive politicians restored prosperity. Many of those who concede that the New Deal programs alone did not succeed in lifting the country out of depression nevertheless go on to suggest that the massive government spending during World War II is what did it.1 (Even some nominal free-marketeers make the latter claim, which hands the entire theoretical argument to supporters of fiscal stimulus.)
The connection between this version of history and the events of today is obvious enough: once again, it is claimed, wildcat capitalism has created a terrific mess, and once again, only a combination of fiscal and monetary stimulus can save us.
In order to make sure that this version of events sticks, little, if any, public mention is ever made of the depression of 1920–21. And no wonder: that historical experience deflates the ambitions of those who promise us political solutions to the real imbalances at the heart of economic busts. The conventional wisdom holds that in the absence of government countercyclical policy, whether fiscal or monetary (or both), we cannot expect economic recovery—at least, not without an intolerably long delay. Yet the very opposite policies were followed during the depression of 1920–21, and recovery was in fact not long in coming.
The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover—falsely characterized as a supporter of laissez-faire economics—urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.
Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.” 2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923.
The article goes on providing support for the idea that a) the gubmint stayed the heck out of the economy and b) the economy recovered swimmingly. It ends with this:
The experience of 1920–21 reinforces the contention of genuine free-market economists that government intervention is a hindrance to economic recovery. It is not in spite of the absence of fiscal and monetary stimulus that the economy recovered from the 1920–21 depression. It is because those things were avoided that recovery came. The next time we are solemnly warned to recall the lessons of history lest our economy deteriorate still further, we ought to refer to this episode—and observe how hastily our interrogators try to change the subject.
I read this, and to me its poison – it sounds reasonable, but is off just enough to be completely misleading. And it seems to me to be more than just purposely deceitful. See, influential people, whether they also think its deceitful or not, use these arguments. And that makes them dangerous. To me, dealing with this sort of thing is unpleasant. And I’m wasting my Sunday on something unpleasant only because I think its important. So before I lay into this let me explain the result of this post. I am going to lay out some arguments. They will state that Woods is wrong. My statements will contradict his in such a way that the difference between us will not be one of opinion. It will be one of facts and the use of facts. And I believe that at the end, there will be only four options. These are:
1. I am making up substantially all of my facts in a willfully deceitful way… and one would have to be crazy to take me seriously on anything
2. I am mistaken to the point of being delusional… and one would have to be crazy to take me seriously on anything
3. Woods is making up substantially all of his facts in a willfully deceitful way… and one would have to be crazy to take him seriously on anything
4. Woods is mistaken to the point of being delusional… and one would have to be crazy to take him seriously on anything
So with that, I’m going to start with what what normally might be a big deal, but in this case amounts to a minor quibble. And that quibble is that Woods uses made up data and doesn’t let on that the data he’s using is not the real thing. This may not be data he made up, mind you, and it may go by but its made up nevertheless.
For example, when Woods tells you that “unemployment had jumped from 4 percent to nearly 12 percent” in 1920 (presumably he means the unemployment rate) or that the ” unemployment was back down to 6.7 percent and was only 2.4 percent by 1923″ Woods is using somebody’s estimate of the unemployment rate. But if you head on over the Bureau of Labor Statistics’ website, and look around for historical figures, they’ll give you data going back to 1940 and no further. Spend a bit more time on the BLS site poking around and you might find an FAQ entitled “How the Government Measures Unemployment” which states:
Because unemployment insurance records relate only to persons who have applied for such benefits, and since it is impractical to actually count every unemployed person each month, the Government conducts a monthly sample survey called the Current Population Survey (CPS) to measure the extent of unemployment in the country. The CPS has been conducted in the United States every month since 1940, when it began as a Work Projects Administration project.
We can get into a quibble about the establishment survey and its precursors, but suffice it to say, whatever data Woods is using is an estimate someone probably produced long, long after the fact. Similarly, Woods tells us in 1920 “GNP declined 17 percent.” And once again, the question is, where is this data supposed to come from? Because when someone says “GNP” the natural assumption by someone with some familiarity with the data is that it originates with the Bureau of Economic Analysis’ National Income and Product Account Tables. And those tables only go back to 1929. Simon Kuznets wasn’t producing estimates before that.
Where does his data come from? No idea. Maybe he got it from Glenn Beck for all I know. But I have a hard time taking estimates produced decades after the fact seriously if I don’t know how it was done or by who. And when the person using those figures either doesn’t know or doesn’t tell you who made the data he’s using or how, it really gets suspect. But like I said earlier, for where we’re going, this is just a quibble.
So let’s quit the quibbles and get into his argument, namely that our Hero, Warren G. Harding, went all slash-and-burn on them vile tax rates starting in 1920, the Federal Reserve did nothing, and this led to a robust recovery, unlike, say, what tax hikes and gubmint meddling did to the Great Depression. Here’s how he puts it:
Not surprisingly, many modern economists who have studied the depression of 1920–21 have been unable to explain how the recovery could have been so swift and sweeping even though the federal government and the Federal Reserve refrained from employing any of the macroeconomic tools—public works spending, government deficits, inflationary monetary policy—that conventional wisdom now recommends as the solution to economic slowdowns. The Keynesian economist Robert A. Gordon admitted that “government policy to moderate the depression and speed recovery was minimal. The Federal Reserve authorities were largely passive. . . . Despite the absence of a stimulative government policy, however, recovery was not long delayed.”5 Another economic historian briskly conceded that “the economy rebounded quickly from the 1920–21 depression and entered a period of quite vigorous growth” but chose not to comment further on this development.6 “This was 1921,” writes the condescending Kenneth Weiher, “long before the concept of countercyclical policy was accepted or even understood.” 7 They may not have “understood” countercyclical policy, but recovery came anyway—and quickly.
So let’s look at a picture that both shows what happened to tax rates and illustrates the extent of the rapid recovery. Below, I’ve graphed the top marginal income tax rate (data from the IRS), and the gray shaded areas are the periods the economy was in recession information from the NBER) for the period from 1920 to 1940.
Let’s start with the timing of the recovery. Unless I’m missing something, the tax cuts came after the end of the recession. That is to say, the recovery preceded the tax cuts by half of a year. Now, Woods is very precise… he says tax rates were slashed between 1920 and 1922. I for one was left with the impression that tax rates were slashed in 1921 as well as 1922, but he never quite said that. So its right, but misleading. (Its the fact that he writes so precisely about timing that leads me to believe this is not a mistake on his part, but rather that he knows what he’s doing.) But then why are the tax cuts in 1922 being given credit for a recovery that had already begun half a year earlier? Woods quotes some dude called Anderson who in turn writes:
The rally in business production and employment that started in August 1921
Again… rapid recovery in 1921, tax cuts in 1922. Anyone see the problem with this? If Woods doesn’t, I have a bridge I’d be happy to sell him… in New York City in 1402. Unless, of course, we’re supposed to infer the classic libertarian view, which is that everyone knew a tax cut was coming and acted on the fact, Of course, anyone who was gonna act on tax cuts in August of ’21 ahead probably would have acted on them in November of ’20… when Harding was elected. As I understand it, Harding didn’t exactly make a secret about what he intended to do. Part of the The Return to Normalcy campaign he ran on included a rejection of Wilson’s active government.
But once more back to this quote:
Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups.
Again, one more thing slightly misleading (at least to me) but technically correct. Tax rates were slashed for all income groups, but not in 1920 or 1921 or 1922. Check the IRS link again… the folks at the bottom only got their tax cut later, in 1923. (One can see very clearly why Reagan admired Harding.) And Woods doesn’t quite say that all income groups had their tax rates slashed between 1920 and 1922, does he?
But we still haven’t even touched the bigger problem the graph shows. To most people, “rapid recovery” does not mean “a recovery that burns out quickly, leaving behind another recession less than 2 years later.” But that is, indeed, what happened. Call that recession “Recession # 2.” Interestingly enough, Recession #2 didn’t end until after a tax hike, which makes for a delicious detail given what Woods writes. Following the end of Recession #2, taxes are cut again. (I imagine that Woods must be thinking he can credit tax cuts for retroactively ending that recession too. Also, that buying a bridge in New York City in 1402 would allow him to charge Moses a hefty toll when he rides across on a dinosaur.)
OK… so there’s a tax cut, and that leads to another rapid(ly ending) recovery – Recession 3 comes around about 2 years later, in October of ’26. That recession ended in November of ’27. And we know what came next, right? Another rapid(ly ending) recovery (21 month long) with a tax cut!!! And this time what follows is a doozy – the Great Depression itself.
Note… for comparison with the policies Woods is happy about, I continued the graph through 1940. Take a gander at the period from 1933 to 1940, when that commie pinko Roosevelt was in office. I wonder if Woods would say the tax hikes Roosevelt instituted are the reason there were no rapid(ly ending) recoveries in the 1930s.
So let me recap, but using a bit different phrasing than Woods might use. Starting with Harding, Republican administrations repeatedly cut taxes in the 1920s. Recessions came fast and furious; in the 96 months between the end of the 1920 Depression and the start of Great Depression that followed this tax cutting bonanza, the economy was in recession 30% of the time.
To be honest, this doesn’t strike me as a good argument for cutting taxes, but then maybe that’s why no libertarian organization would ever contemplate giving me a prize.
Which leads me to my next graph… or maybe not. I haven’t even gotten to my best material, but this post is getting a bit long. Expect part 2 next week. I’ll be taking my gloves off.
Very nice cactus
Take the gloves off………………….and put brass knuckles on. (juuuuuust kidding)
Proposition: only counter-cyclical policies can get us out of recession/depression.
Fact, we had depressions/recessions before we had counter cyclical policy. Therefore the economy must have permanently been in recession/depression, right?
No, clearly not.
Which moves us to a much weaker statement in favour of counter cyclical policy. That it’s a better way of getting out of recession/depression than doing nothing.
Well, maybe, maybe not, but that becomes now an empirical question. Study all previous recessions and see how long it took to get out of them and which policies were used.
Which makes the basic logic he’s using above absolutely fine.
I’m only going to point out a few inconsistencies…
I’m basically suspicious of data, especially data that is collected over vastly different timeframes under presumably varying methodologies. Then we use it to try an analyze economies, and clearly the structure of the economy changes dramatically over time.
It’s easier to analyze talk show hosts/pontifs. I’ve never had the pleasure of watching Glenn Beck yet, haven’t found the time. But I did see someone reading his book, and the cover of his book had a picture of a serious looking person wearing a military dress uniform, saluting, and starring off into space. Curious about this Glenn Beck War Hero, I looked up his bio in Wiki and found that he never served in the military. Research complete.
But back to economics. I think we have used up all our “supply side” bullets seeing that the Federal budget is $3.5 trillion and about only half that comes from tax revenues. The Laffer Curve is going to turn into the Cryer curve, one way or another. The CBO ten year projection shows projected deficits growing the National Debt from the current $12.5 trillion to $20 trillion in 2020. If we get there. Keep in mind global GDP is presently $55 trillion, US personel net worth is about $53 trillion. These are some useful what I think economists call “stock” and “flow” metrics to give some scale to our budget plans.
“Proposition: only counter-cyclical policies can get us out of recession/depression. “
No. What Woods is stating about 1920 Depression comes down to this:
1. The Fed did nothing
2. Taxes were cut
3. Gov’t spending was cut
4. The economy boomed
5. There’s a conspiracy of silence about what happened because it proves that Keynesian-style intervention doesn’t work as well as laissez faire
Now… cutting taxes supposedly is countercyclical policy too. But be that as it may, what happens if the data shows that:
1. taxes weren’t cut ’til later
2. the Fed did act
3. (I haven’t had a chance to look at gov’t spending yet)
4. the supposed economic boom fizzled
If that’s the case, presumably it doesn’t begin to matter what Woods is saying because the vast majority of the supposed facts he uses to make his “argument” are wrong or misleading.
And you may note… in this post I’ve already pointed out a few problems. I’ll be pointing out a few more next week.
As you note, what policies should be followed is an empirical question. So here’s how you prove that laissez faire is the best result: show that, on average, when the government did very little and kept taxes low, the economy grew more quickly than it did when the government was more activist or kept taxes high. Woods does none of this. He implies something about economic growth that isn’t true, he implies something about tax cuts that isn’t true, and he implies something about Fed policy that isn’t true. And then he claims he proved something and there’s a conspiracy of silence to boot.
Thank you Cactus for supplying facts to the analysis. I am too lazy/busy to find facts, but it seems to me that by definition cyclical recessions come and go, with or without government intervention–that is why they are cyclical. What government intervention does is softens them, reduces the hardships for working people and if deft enough lengthens the time between recessions. Other factors in our primarily private economy determine whether the economy has rapid, moderate or anemic growth over time. I think of things like railroads, industrialization, automobiles, pcs etcetera. True story when I took introduction to the economics way back in 1970 the conventional wisdom I was taught is that any unemployment rate below 6% would be highly inflationary and that 6% unemployment was essentially “full employment”. In any event, it seems to me that while there are cyclical aspects to what we have just experienced, that we had a primarily financial crisis, just as we did beginning in 1929. If I am correct in my lazy, too busy to fact search approach, then doesn’t this really boil down to an irrelevant analysis by Woods which simply demonstrates the heartless nature of the GOP in its approach to cyclical downturns?
Does anyone in the economics community take a look at what’s happening outside the GDP ledgers when they do their analysis? Becuase sometimes I seriously doubt it. The period after WW I through 1921 was probably one of the most tumultuous times since Napoleon.
Lets see what whas happening 1918-1921, probably nothing much right? Since only tax rates or Fed actions mean anything…Oh but for this:
WWI ends leaving large chunks of the French, British, and German male populations dead on flanders fields (the three biggest players at the time). Germany saddled with overwelming reperations.
The Russian revolution breaks out eventually leading to a Communist take-over of the country and one of the most evil governing philosphies ever (making the soon to break out Fascists looks comparably nice) to take over a nation. Communist led revolts rack many countries, the lucky ones crush them.
Austro-Hungaria is broken up into a multitude of new countries and revolutions and unrest sweep Europe. Ottoman Empire collapses. Fighting continues through-out Europe – the economic engine of the world – for most of this period finally petering out in 1921. (This includes among many the Russo-Polish War, Independence wars throughtout the balkans and former Imperial Russian Areas, the Greek-Turkish war etc).
Fighting throughout parts of French colonial areas and occupation of German colonies.
The influenza epidemic sweeps the globe
Heck the US didn’t formally end WW I until August 1921!!!
So you think some of these might have a LITTLE more effect than anything you mentioned in the post? Bottom line: the 1920 depression ended when Europe settled down and some semblance of rebuilding and trade was restored.
I seriously doubt the top marginal tax rate had anything to do with the recovery, reguardless of Woods inability to get his dates straight. All this economic crap were easily buried under the effects of just the limited set of what I mentioned above.
Islam will change
You are imagining things. GW cut tax rates. And he kept cutting them. Its been almost a decade since he started, so I know with certainty that the economy has been doing spectacularly over the past few years.
“If I am correct in my lazy, too busy to fact search approach, then doesn’t this really boil down to an irrelevant analysis by Woods which simply demonstrates the heartless nature of the GOP in its approach to cyclical downturns?”
I disagree. If Woods were right about his facts and his conclusion, then even if you can’t make recessions go away, you could still reduce their likelihood or increase the growth rate overall. We all die, but you still want to be as healthy as you can in the interim, after all. But what happens if Dr. Woods’ is wrong about his diagnosis and his prescription?
I’ve only started pointing the problems with Woods’ post. I’m not done. And yes, I was thinking Influenza too. But that said, there are problems in all time periods. In the Great Depression there was a Dust Bowl that devastated agriculture in a big part of the country. The question comes down to… on average, are we better off with more intervention or less, with higher taxes or lower, with more Fed or less, etc. That’s why you don’t look at a single period but rather over many. Not because of some conspiracy.
Ya, I’ve noticed that too.
Woods isn’t saying the tax cuts caused the recovery. He’s saying they occurred. Beck is sayng they caused the recovery. Woods isn’t a supply sider. He’s an Austrian. He is saying that allowing the economy to restructure itself without interference caused the recovery.
Joseph Schumpeter says the case of 1920-21 suffices to prove that economies can adjust themselves out of depression. So if you want to describe Woods as “delusional,” you’ll have to do the same for Schumpeter. If you know who Schumpeter is, you see how uncomfortable this is for you. If you don’t, then you frankly have no right to an opinion.
Second problem for you: why do all the mainstream Keynesian economic historians Woods quotes agree with him that this recovery was indeed impressive, and much more robust than we should expect in the absence of stimulus? Are they “delusional,” too?
I just love it when all you do is point a few inconsistencies! Nancy Ortiz
It seems to me Woods’ only real problem is his failure to distinguish between which measures he believes contributed to the robust growth of the ’20s and which specifically lifted the country out of the depression. This is not a major issue, since he spends the second half of the article you cite explaining just a few of the theoretical problems with fiscal and monetary stimulus. The absence of those things, and the return of prosperity anyway, are his main point.
The whole “Woods must be distorting things on purpose, because he is a sinister person” bit is a bit overwrought. I could say that your refusal to consider anything other than discredited policy prescriptions (really, “fiscal stimulus” hasn’t been in the textbooks in decades, even mainstream ones) stems from your own sinister nature, but I’m inclined to be charitable enough to chalk it up to intellectual laziness or error.
I’m not saying conspiracy. Maybe myopia. Yes, there are tons of problems with Woods post. But, even giving him and you both (seperately) a 100% pass on what you say, its all irrellevant in contrast to the real events racking the globe. Your data is overwelmed with reality. More tax or less, more Fed or less etc is meaningless noise compared to what’s going on around. The Fed rate during WW II, for example, is nice to know, but is not relevant when talking about WW II economics. Its noise compared to the other inputs into the system.
That’s my point here – your discussing how to place the chairs on the Titanic to better allow you to sell tickets to the nightly music quartets production, and missing the gaping hole letting in water. You guys can talk all day about which way is better but its irrelavant compared to what’s going on in the world.
Islam will change
i hate it when people call whatever it is you do “logic.”
i could point out that before there were countercyclical policies we had depressions more often and longer lasting than we have had since… but to be honest i am not sure of the data. i think i would argue that the cycle of boom and bust was on the whole pretty hard on small businesses and workers, and that while i am almost as suspicious of government economic policies as you are, i think that government help in tiding people through the bottom of the business cycle is all to the good. but then none of my friends appear to suffer from the moral hazard that the rich always fear for the poor: welfare will make them lazy. or the moral hazard that the rich say they will suffer from: high taxes will make them lazy. speaking of “logic,” i think there is a contradiction there, unless, of course, the rich are not like you and me.
i would be inclined to agree that economists of both stripes are delusional. i would refer you to Buff’s observation that there are other causes for things than “economic policy” of any stripe.
but as to not having a right to an opinion… a somewhat fascist mindset wouldn’t you say?
and yes i am serious about that. i have a fairly low opinion of human intelligence in general, but a certain rigitiy, such as you evidence, that “what i know is all that matters” strikes me as one of the great contributors to human misery.
of course “economies can adjust themselves out of depression.” been doing it for thousands of years. no one disputes it. only a fanatic would elevate that to a principle of “don’t do nothing. that guy starving on your doorstep will adjust himself out of his depression as soon has he has enough motivation to get a job and buy something to eat.”
Nonsense. This is just one of the standard approaches to push-back that we saw all through the period that cactus was warming up for the book. The results of cactus analysis was to cast serious doubts on many of the statements made by supporters of “tax cuts for every occassion”. The response then, was to say the analysis is irrelevent because it leaves out (fill in the blank). So then cactus would fill in the blank, and some other blank would be opened. So now, after cactus filled in a number of blanks, pretty consistently showing that filling them in did little damage to his argument, buffy simply declares the entire argument a blank. It’s the “you’re it, I quit” approach to games of tag on the playground.
What we have here is that when buffy believes something, he makes strong statements, rhetorical chest puffed out. When he doesn’t agree with a point of view, but it is well supported with data, he declares the subject complex beyond analysis. In buffy’s world, strong, unsupported statements from him are allowed, but statements from others strongly supported by data and analysis are not. This is, by the way, the same behavior we saw from tobacco companies and hydrocarbon companies went faced with inconvenient science. No matter how strong the evidence against them, they’d just say that reality is so damned baffling that no amount of science can help understand it. buffy is taking plays right out of the “junk science” playbook.
Sorry, but the issues at hand matter, claims are being made about the issues in an effort to shift public policy, and we have the means of assessing those claims. We should use the available data to assess the claims and issues. We should also point when we see efforts to have it both ways.
Um, you new around here? Know who Schumpeter is? Get real. And learn some manners. Having a go at the writer’s background knowledge is an ever-available, ever-cheap way to distract from the actual argument the writer has made.
upon further reflection
it appears to me that David completely failed to understand Cactus’ argument. he has a dim perception that Cactus rejects the first prinicple of his Catechism and therefore Cactus canot have ever read the Catechism and therefore has no right to an opinion. It does not even occur to him that Cactus has made an argument against the Catechism that needs to at least be addressed in something the rest of us might recognize as “logical” or “cause and effect” argument.
and that leaves me with another thought: we don’t know what we are talking about. what does “end the recession” mean… i mean REALLY mean. Is what we care about that GDP returns to “growth”?
Let me propose a model economy… I have just been reading about such an economy, so it’s not as far fetched as you might suppose… in which nothing is done for money. the people have enough to eat and think they are happy. now an economist might want to assign a money value to what they eat and call that the GDP. fine. now along comes a man who figures out how to own the water source for the village/farms. the people have nothing to pay him with except to send their daughters over to service him, and being a good businessman the owner of the water assigns a monetary value to this service and pays for it, and of course arranges to accept “money” for the water he “supplies.” this of course increases the GDP, and all the economists shout hooray, our poverty is ended, the economy is growing.
I read all your posts assiduously (and often repeatedly) as soon as I lay eyes on them, and I’ve pre-ordered your book. Your fact gathering and presentation is excellent. A few responses to this post and your posts in general (and perhaps your book):
You could make your posts 25-50% better by making them 25-50% shorter. (Mark Twain: “I’m sorry I wrote you such a long letter. If I’d had time I would have written a shorter one.”)
For example: Remove the whole section from “I read this, and to me its poison…” to “amounts to a minor quibble,” replace it with one telling sentence, and you’ve got a much more powerful, compelling, and convincing post.
IOW, just the facts, ma’am. If you want to hurl rhetorical invective (I know how much I enjoy doing so, and some enjoy reading it), put it at the end of the post after you’ve proved your case.
Give more than a flippant nod to the “expectations of tax cuts” argument. We’re pretty confident that those kind of expectations matter (though of course the theory and modeling is problematic), and the best arguments obliterate the opponent’s (best) arguments with facts. (Yes, he doesn’t make this argument, but as you point out, he would. Nail it proleptically–great rhetorical technique.)
When, for instance, were those tax cuts proposed by the president? Passed in congress? That’s the question I felt went unanswered, weakening your argument and leaving the door open for suggestions of laziness or evasion.
Ditto for his other key assertions of fact (explicit and implicit). Line ’em up, knock ’em down. Then go after him if you feel so inclined.
Thanks again for all your great work. Here’s one reader who says “keep it up.”
What exactly are you argueing for? That the data proves anything? (BTW I’m not agreeing with Woods either here).
I’m saying, I thought quite clearly, that both sides claims are crap when discussing the 1920 depression. Your data is unable to asses for good or ill any of your claims. (Other than Woods’ inability to look at a calendar before speaking).
Here I’ll repeat: Your data is unable to asses for good or ill any of your claims. Period.
There is absolutely no, even causual, link from your claims that some policy cuased something to happen or not to what happened. Your the ones who keep bringing out the junk science and get mad when I point it out. If my light sarcasm gets to you I’ll try to tone it down.
If you want to discuss the issues of cactus’s book again, fine by me. How about answer three very simple questions, OK?
1) In the period 1992-1996 what actions taken by President Clinton would have been significantly different than a theoretical 2nd term for President Bush Sr that made Clinton’s growth during that period better than the theoretical Bush?
2) During that same period explain why Clinton should have raised taxes to increase GDP growth, thus by not doing this he under-performed the economy. Would the economy have grown at a high rate if he had upped taxes from the baseline or if he lowered taxes from the baseline?
3) Explain to me, in layman’s terms, how in the world you compare the US economy of pre-WW II with the economy in Reagan’s years? or Eisenhower’s years? or LBJs?
Bonus question: JFK lowered tax rates, got us involved in Vietnam (among other places), and came as close to any President to getting us into WW III. According to the current Dem definitions he should be treated as a war criminal. So why isn’t he?
Second Bonus question: Where the $%^@ are all the anti-war protestors with the Obama = Hitler posters out front of the White House? And I assume everyone on AB is in agreement with Cheney’s famous statement that deficits don’t matter. Becuase I haven’t seen one word about them here.
And when am I going to see the 5% unemployment and 5% GDP growth under Obama? Isn’t he going to do as well as LBJ? Plus where’s my pony?
Islam will change
Cactus, I guess my point and I thought yours was that Woods “analysis” was being used by some of the more deranged “entertainers” to support the notion that the current government should cut taxes, cut spending, jack up interest rates and drain liquidity from the system and we will all live happily ever after. I thought you made an excellent start at showing how flawed Woods “analysis” was and I simply argued that even if it was legitimate, it should not be used to prescribe remedies in the current situation or for that matter during tthe Great Depression. I think I agree with you that we all die and want to be as healthy as possible until we do. I think that is what countercyclical government policies do for the economy during a cyclical recession and of course to the extent that they soften the trough, they should cause overall growth to be higher. Contrary to what some of my GOP friends would argue, I do not see standard government countercyclical measures as the government “taking over” the economy or socialism except perhaps to the extent that it recognizes we are all part of society. Plainly, I think that the current situation is different from a cyclical recession and I think the government has acted correctly in enacting stimulus measures, cutting taxes, increasing safety nets and keeping interest rates at near zero. Obviously, there are limits to government intervention of this sort unless we do agree to change from our primarily private economic system and I do not believe that these policies can generate rapid growth anymore than the standard countercyclical policies can do that. Certainly, I do not believe laissez faire will produce rapid growth either–just cause more suffering in a cyclical recession and Great Depressions when you have financial meltdowns.
Thanks for seeing my point – which seems to be eluding all the rest. The idea that this stuff happens in a vacuum seems to be very prevelant around here. I just see that any action by the Pres/Fed etc during the 1918-1922 period were just noise when compared to what was happening globally. Yet, you never see this stuff in the models or even at least given a head nod. Saying the influenza epidemic had no effect on the 1920 depression (even if we hand-wave away the post WW I chaos) makes the analysis moot to begin with.
Islam will change
Heck I’ll through out a very simple idea. The greatest economic mistake made by the US in the 20th century was waiting until 1945 to permenantly occupy Germany. If we had done it in 1918 we would have been much better off. Higher GDP growth and no need to ship 4 million men over to Europe again in 1942, not even mentioning the incredible waste of economic material (including all those lives) building all that war stuff ilsm hates.
And I have better data to back me up than you guys have here…
Islam will change
I mostly agree with you here.
i was trying to give you some back up, but then you go all emo on me.
subject to correction, I thought Clinton DID raise taxes, and that answers your question #!: what would Bush do?
as to where the dems are on the deficit and the war… well, your guess is as good as mine. but i’d guess that the deficit FOR the war is a little more problematic than a deficit to ease a recession. not that I think Obama hasn’t found a way to minimize the benefits of a deficit by giving all the money to people who have no incentive to spend it or lend it until after the recession.
“So here’s how you prove that laissez faire is the best result: show that, on average, when the government did very little and kept taxes low, the economy grew more quickly than it did when the government was more activist or kept taxes high.”
No. The current argument is about recessions and how to get out of them. Not about the growth rate of the economy in the long term. It’s entirely possible that laissez faire is best for the long term while not good for getting out of recessions. Or vice versa of course.
Your list above shows that (at least by your lights) nobody did anything at all to get out of the 1920 recession. Yet get out of it very quickly people did. In fact, it’s very difficult indeed to think of anything people could have done to get out of a recession that deep any faster.
So score one for laissez faire and getting out of recessions then.
Just to give you a flavour of my own thoughts/feelings on the subject. I’m rather with some Austrians and Arnold Kling on the thought that recessions are not all the same. Sure, we’ve got these business cycle ones that come along now and then. I’m perfectly willing to believe in stimulus as a cure for these. I’d prefer the tax cut as stimulus to the spending rise for the spending rise seems to ratchet up the state sector of the economy and I’m pretty sure that a minimalist state (not quite laissez faire, but a small one) is a precondition for long run success in the economy.
However, I also think that there are recessions that are not just part of the ebb and flow of animal spirits and credit cycles and asset prices. Great big whacking periods of “recalculation” in fact. Exogenous shocks if you like. For the list of reasons give above I’m willing to believe that 1920 might have been one of these. I’m certainly willing to believe that the 1930s in the US was one. It was more about the huge and, for the country, unprecedented move from agriculture to manufacturing and the cities….the mechanisation of agriculture perhaps. This isn’t about a lack of aggregate demand, this is a serious knowledge problem. No one realy knows what to do. We just don’t need these millions of people with mules: we’ve got tractors now. What should they all be doing?
I’m also willing to believe that the internet is causing a similar series of structural changes right now. And finally I’m also willing to believe that laissez faire is the best response to these recessions caused by the exogenous shocks. For it’s a knowledge problem and those at the centre, as Hayek pointed out, simply cannot have enough information to know what to do.
Yes, I know, a lot of maybes, might bes and beliefs in there.
There are even times that I believe that macroeconomics, at least the correct answers in macro, change dependent upon the underlying technology in the economy. One of the New Keynesian ideas is that menu costs mean prices change only slowly. But near universal computerisation means that menu costs are near irrelevant now, meaning that prices might now change more like the New Classicals think they do, near immediately. Which means, in part, that even if the NK were right at some point in the past, they’re not right now.
Similarly, if labour isn’t homogenous, if there are long training periods necessary to move from a job in one sector to one in another then Keyensian stimulus isn’t going to be as effective as it might have been in the past. And the neo/classical model is screwed on much the same basis.
You keep asking what would Clinton do differently than Bush Sr. And I’ve had that post, multiple times. There is one variable which I come back to over and over that, if nothing else, correlates with something… call that something “deregulation” and “laissez0-faire.”
Going back to 1929, when national income and product accounts tables were first compiled systematically, every single Democratic administration except Truman increased the share of personal income they took in taxes, and every single Republican administration increased that share. (Truman, don’t forget, was by far the worst performing Democrat when it comes to economic growth.) BTW… Obama’s first year puts him as the second Democrat to reduce that ratio.
Now, that ratio doesn’t just magically go up or down. And cutting or raising marginal rates isn’t enough to force a pres into one or another side of the ledger, nor is the pace of economic growth. So something is doing it… and all I can figure is that its the President’s attitude toward enforcement.
Now, this pattern holds up over a very long time over a very large number of Presidents… only one President (Reagan) who cut that ratio outperformed a single President (Carter) who raised that ratio… and Reagan cut that ratio by less than most other Presidents who cut it. So there’s the rule of thumb.
Yes, we know all about Schumpeter around here. And it doesn’t make me at all uncomfortable. I would say this – if I believed in what Schumpeter believed I’d be extremely uncomfortable with the fact that as the government followed that policy, the economy went into one recession after another and then produced the Great Depression.
I can’t speak for mainstream economic historians, Keynesian or otherwise. Over here we don’t traffic in other people’s opinion. Over here we look at data. I graphed some data. (I’ll be graphing more next week.) I find that graphs are more expressive than the carefully parsed wording that Woods and others peddle.
The graph indicates that the recovery lasted 2 years. Then a recession, then another recovery that lasted 2 years. Then another recession, then another recovery that lasted 2 years. Then the Great Depression.
Now, if you think that’s the way an impressive recovery works, that’s fine. I do not. Feel free to go around telling people you think an “impressive recovery” is one that lasts two years.
So did Bush. Cost him his 2nd Term.
Islma will change
And I keep pointing out that the effects of the US transitioning into the infomation age and the end of the cold war had more to due with Clinton’s economic growth than any IRS tax enforcement policy could ever have.
So basically your saying that the only difference between a D and an R is that D’s enforce the tax code more strictly? So if Bush had doubled the IRS tax enforcement and audit division he would have done great? By how much? Or am I missing something?
If I haven’t do you understand how ludicrous that sounds?
Islam will change
Its true that GDP or GNP or whatever, adjusted for inflation, is still not a perfect measure. But its the best measure we have right now. But its also why, in my book (and here at AB), I try to look at a very large number of series.
Its true that you have other things happening. But that’s why I don’t look at a single instance and say: “Hah, this one instance proves my point.” (It’s what Woods did, except he doesn’t even have his facts right.) I keep looking at a lot of Presidents. And in the end there are patterns… Presidents who followed a certain prescription tended to do well on the economy. Presidents who followed the opposite prescription tended to poorly. Since 1929… or longer if you trust data from other sources. And you cannot respond to that… “Well, I cannot prove it, but I’m sure that outside conditions just happened to be worse whenever Presidents happened to be from one camp.” At some point, insisting on coincidence leaves you arguing theology, not economics.
Thanks for the kind words, and for pre-ordering the book. In a month or two, I’ll be putting up a website and will put up a couple of the chapters in the book. Right now there’s still copy editing.
I don’t expect to make much money off of the book, but we are trying very, very hard to get across a certain thought process. I guess that’s the thing I’m a fanatic about. And I have made a number of compromises in the book…. my language was toned down dramatically by my co-author and my editors. And a lot of their comments were the same as yours. I do think in the book we toned the down the snark a bit too much, but otherwise, a bit more of a “just the facts” approach probably makes more sense. The facts really do usually speak for themselves.
true enough. i always forget about that. i think clintons tax cut cost him the congress. in both cases doing the right thing seems to have angered the people. what i tend to remember about daddy bush is his “we have more will than wallet” which, i am afraid to say, was a lie. the wallet was there, he didn’t have the will to reach for it. his tax raises would not quite contradict this. as they seem to have been forced on him by reality, and did not reach to the needs he was talking about in re “will.”
but don’t take me for a Clintonista. Clinton was ready to sell out the elderly poor with a proposal to fix Social Security by raising the retirement age “it’s obvious,” he agreed with Newt.
i really don’t see Bush Sr going as far as Big Bill on the tax raises.
I’ve pointed out, time and again, that there is one variable that seems to correlate just about perfectly with whether a President produces rapid growth or not. I’ve pointed out that even when a President does what the other party normally does, he gets the other party’s growth rate.
Now… is that variable by itself a cause? I think in a small part yes, but it seems to me to be more likely to be a canary in the coalmine. I do not know how to prove it right now, but it seems to me that generally, Presidents who won’t enforce tax law won’t enforce other business related laws. And from there you get externalities. And that allows a lot of growth quickly, but at great cost, and when the costs come due, you have a crash.
As to Clinton in particular… sure, there was the information technology explosion. And if you try hard enough, you can explain away FDR and JFK and LBJ and Carter. But then you realize you can explain away Hoover and Truman and Ike and Nixon and Ford and Reagan and the two Bushes just as easily.
A good theory does not treat most observations as a special case.
I have never given any thought to what you just wrote and don’t have a strong opinion. But if you have a theory you can back up with data, then do it so we can learn something.
i would only note that according to Republican talking points the information age boom could not have happened after the tax raises. it’s not that the tax raises caused the economy to grow, it’s that at the least they didn’t stop it from growing… in a way that most people would say was a genuine improvement in productivity and not just paper chasing or solacing the people’s misery with more plastic toys. though that too.
i haven’t looked at Cactus argument/data beyond what shows up here on AB, but my intuition (as good as any R’s) tells me that Dems do tend to spend more money on poor people. and this tends to lead to economic growth. can’t prove it. can’t even offer a decent argument, but it seems like it ought to be right.
up to a point. i am not absolutely convinced that the “average” income of the not desperately poor is any lower than is reasonable in terms of what people need and what the land can support. i am absolutely convinced that we need to find a solution to “desperately poor” that the R’s will never find, and the D’s don’t seem to be much smarter about. and I am absolutely convinced that the rich need to pay enough taxes to control the deficit, which is largely created by what they want Congress to spend money on.
there is a difference between theology and economics?
(smile. i agree with you. but i do think buff has a valid point.)
Woods is wrong. Beck is a nut. And Cactus, admittedly, has the history a little less than comprehensive.
The story is thus: Farmers did exceptionally well during the war. But food prices at the end of the war were too high to allow the necessary shift to manufacturing. The USDA field agents therefore were evidently instructed not to reduce production levels even though it was obvious that the demand for staple goods would fall as Europe’s farmland came back into service.
This caused a glut that drove down not only food prices but also the cost of labor . In 1921 the ‘yellow dog’ union busting campaign began. By 1929, before the crash, 71% of the population was living in poverty. Farm incomes by 1929 had fallen to 25% of what they had been at the end of war.
So it is conceivable, and more likely true, that the Depression of 1920-21 ended when the Great Depression ended. ‘The Economy that Roared’ was actually just a statistical illusion that hid the fact that a redistribution of wealth occurred on a grand scale. But the wealth that was the result of hard work and good intentions by not just farmers but by the nation as a whole, was ultimately squandered by the financial sector, the culmination of which being of course the crash of 1929. Those who were most affected by the depression of 1920-21 did not however recover their gains, ‘ever’ in most cases. It would not be until 1941 that farm incomes would reach the depreciated levels of 1929.
Ray L. Love
I saw Clinton losing congress to two major things 1) The horrendous overreach with Hillary -care, reguardless of your position on it or HCR, politically it looked terrible and 2) Gingrich and the Rs perfectly captured the mood of the moment with ethe ‘Contract with America’ theme. it was a perfect storm. Note how only two years later Clinton handily beat Dole and Gingrich has been doing Op-Eds for quite some time. Probably the only time Clinton misread the public during his tenure (and during his initial campaign).
Islam will change
>I don’t expect to make much money off of the book
Yeah, Workman seems kind of an odd placement — based more on the graphical approach than the subject and content — and you gotta wonder if their reps will be able to get large and good placements in the bookstores, their publicists will be able to get the media mentions, etc.
But I’m *really* looking forward to it. 1. I think your arguments are the strongest ones the democrats have (and serve to fatally undercut and steal the Pubs’ own arguments), and it dismays me that they’re not used as constant, repeated talking points over years and decades, in the way the Pubs do so well. 2. I think the constraints and rigour imposed by writing a book (as opposed to a blog), combined with top-notch, professional infographics support, will greatly improve the quality of your presentation and the convincingness of your arguments.
BTW, my ex-business partner (who I argue with constantly over this stuff) recently put together a year-by-year spreadsheet of who controlled the house/sentate/presidency since ’61 (ddd, ddr, etc.), and we’ve been looking at numbers (spending, taxes, deficit, GDP) relative to those. One thing’s clear: ddx results in the greatest increases in spending as a % of GDP–about .5% annual growth when dems control both houses. (We looked at 0, 1, and 2-year lags.) Harder to see any pattern in RR and mixed–control years, except that they’re generally less than dd. (One self-serving interpretation: Pubs consistently underspend, so Dems have to make up for it.) FWIW… Will pass on more as I get to it.
“A good theory does not treat most observations as a special case.”
Except when they all are. The economic, poitical, technological and external events were so different between Ike and Clinton as to make comparison between the two meaningless. We can look back and say, yep they both did pretty well and give a list of things accomplished. What we CAN”T say is yep, if Ike and Clinton had just doubled the IRS enforcement division they would have added 2% to their GDP growth.
But if the real correlation with economic growth was enforcement of IRS tax code and business laws, then make that case. If that is really true then I should insist candidates from both parties enforce them and select on other factors. The D or R on this become meaningless if everyone agrees on the point.
And I will continue to point out, budgets and laws start in Congress (and most get buried there).
The major wars of the 20th century the US was invovled were all under D’s watch (WW I & II, Korea and Vietnam. Since the correlation is 100% I should always vote R to keep us out of a major war? Right, Correlates to 0.8 if we add Bush Jr.
And that, in a nutshell, is why I don’t buy your correlation. No causation. And definitely not enough to then jump to the conclusion that I should vote D vs. R on the basis of this.
Do you really think that the budget and effectiveness of the IRS enforcment division (or whatever did that back in 1918) had more effect than the influenza virus? More recently – Under Clinton we had a huge technology bubble. Its well documented. What I hear you saying is that Tech bubble had less effect on the economy than the IRS enforcement division. Sorry, I just don’t buy it.
Islam will change
Why stop the New Deal at WWII? The GI Bill had more spending over the decade from 1945-55 than all the New Deal years.
Do you think that a massive government spending program to educate the workforce and prepare them for high productivity jobs and a massive stimulus to allow people to buy homes would have an effect on the economy?
The trick with the GI Bill is that it could be very large because it was sold politically as a thank you to the troops. That level of Congressional support for social spending was not possible before the War and its hardships.
I don’t buy all R points any more than the Ds. I said and continue to say Bush was horrible with the deficit and the second round of tax cuts (after 9/11) were out and out stupid. But then we get Obama who makes Bush look like a spendthrift.
The information age change happened during AND after the tax raise (see Bush Sr). It was cooked into the books and neither the Rs or Ds were going to stop it short of world-wide catatrophe. The theory, as I understood until today, that cactus proposed was that Clinton could have gotten HIGHER growth with HIGHER taxes and would have gotten LOWER growth if he had LOWERED taxes. If this is really true we should start to see real growth as Bush’s tax cuts sunset and we get increased busness taxes due to Obama-care and cap & trade. Heck Obama should be raising taxes NOW.
As for the poor. I believe that we need to have a bottom where we keep people from sinking any lower. A rich country likes the US needs a safety net. The question we all seem to argue about is how big or deep the net is. I don’t think anyone who can afford a cell phone is poor. If your buying cigerettes your not poor. Considering how easy it is to buy and prepare cheap good food, I would say anyone who is obese and without a medical condition that caused it can’t be poor. If you can afford a house you probably arn’t poor (unless you got there after acqusition). We will never agree on what the bottom is, but my limit is the bottom that the government provides should never be comfortable except for the elderly or crippled and we have done a pretty good job with the combination of SS/welfare/medicare to combat that issue. I also expect family to chip in and don’t think that’s unreasonable. Bottom line if your healthy there are plenty of jobs out there, even if no American will do them – come on down here to Texas. But YMMV.
Islam will change
My data – 1939-1945 would not have happened if we had been sitting on Germany. To date I know of no country that we were occupying that has initated a war. Or has gone totalitarian while we were there in force. South Korea has been the closets case and as developed into a burganing democracy while its communist neighbor is lving in the dark ages. The Phillipines was conquered externally for a brief time (1942-1944) but we retook the place and its turned out pretty well. And Wilson was a D.
Another 100% correlation…I could go on. But I think your getting my point.
Islam will change
AND BUY THE BOOK!!!!
I have no problems with the argument that the Great Depression began in 1921 and it ended in the 1960s. It follows too that the perceived economic success during this period, 1920 – 1960, was actually only due to the fact that all of the other advanced nations were so devastated by the 2 World Wars that the US seemed reletively robust when it was in fact still recovering — cyclically.
It would also follow then that the 6.5% growth rate that China has maintained over these past decades is an indication of what a healthy, growing economy should exhibit if not held back by production based on destruction. Where would the US economy be now if not for its involvement in war after war. What if the GI Bill had been enacted in 1910 or in 1920 with the same debt to GDP ratio that it caused through the 1950s? What if the Government took on the necessary debt now, to provide free education to all who might want it, as opposed to digging and filling holes?
I think that was spot on Coberly, and I am with Buff that at least in Clinton’s case the biggest factor in the growth during his administrations was the tech revolution. Certainly the tax increases did not hurt (they helped keep real interest rates low), but I would never put too much causal significance to that in the face of the tech revolution. And I agree with Buff that other things that happened in other periods of economic history likely had greater effects on performance than govern,ment policy. But Cactus is right that other things are always happening and you need something to explain why the economy always performs better with Democrats than with Republicans in the Whitehouse. I think you have part of it Coberly, but even if it is simply dumb luck, I am going to vote for the luckier party.
I admit that I haven’t been studying economics full time my entire life, but this is the first time I’ve heard we had a recession every two years in the ’20s. (I have heard of the ’21 recession).
Prior to this news, I remember Mrs. Kiefer in high school sociology class telling us we had The Roaring Twenties in the ’20s, and she showed us a movie called something like The Great Depression and It’s Causes. The movie had footage of Flappers from the twenties, and offered this among other things like real estate booms, bad stock brokerage rules, and high leverage investing as causes of the Great Depression.
Up until now, I thought the big problem with economists is that they ignore the ’20s in economics school, then more recently ignored financial reform history post Great Depression.
So maybe now we know that nothing fixed the 1921 recession until WW2 ended? That’s depressing.
You know Rdan puts up guest posts, right? If you have interesting findings on Congress, he’d love to see ’em.
As to Workman books and Black Dog & Leventhal, the division of Workman that is publishing the book… they aren’t one of the big guys, so they may have a bit less reach. On the other hand, the book wouldn’t be what it is without them. One of their editors, Becky Koh, immediately understood the concept and sold it to her people. She’s been amazing to work with. She’s gotten us a first rate illustrator, and has done a great job at herding cats. In fact, she hasn’t so much as tried to change the concept (which is what we might have had to do with another publisher) as augmented it.
So… we may have to rely more on ourselves for marketing (and I’m thinking of ways to do that) but on the other hand, I think we have a better product. I have nothing but positive things to say about BD&L, Workman, and Becky Koh.
“To date I know of no country that we were occupying that has initated a war.”
Depends on the “occupying” and “war.” I can think of a number of situations where a government we strongly supported (as in, the president was all but a puppet of ours) either initiated or at least really, really escalated a civil war. Knowing that the big guy has your back can give you confidence.
Thanks for the additional info.
WW2 was a big exception to just about every rule. It seemed a natural stopping point.
lots of maybes and i have no reason to suppose my maybes are any better than your maybes. except i know they are maybes. while you seem to value them because they tend to support the conclusion you want to reach “minimalist state and low taxes.”
well, i’d like that too. question is does it work. i’d suggest taking one industry and look at cause and effect in as much detai as you can manage and see if you can get a sene of what is happening. the “big picture” is not, can never be, more than an advertising poster for some ideology.
you might look at the farm picture in the 20’s. or you might wonder what is the effect of all those “rapid recoveries” and rapid busts, on the ability of workers to plan and save. much less eat or live indoors.
you could be right. i didn’t think much of Hillary care and I don’t think much of Obama’s bail out of the insurance and medical industries. But I also suspect that Clinton got beat not by any objective opinion (hah!) of the masses, but by well conducted propaganda on the part of the R’s, who understand how to manipulate the ignorant. The D’s used to have the advantage in that the ignorant were poor enough to see the advantages of the D’s plans for government help for them. Nowadays the ignorant mostly have too much money … because of the New Deal … to support higher taxes…. which is what the R’s tell them is what the D’s will give them.
don’t tell anybody but i agree with you about the poor. especially the poor middle class. who have more than i ever had and are still complaining. you can build a good life on not much money. but you need some. and a steady job is a really good foundation unless it’s a killing job, of which i have had several.
since we all live in the same community i have nothing against community solutions. i would tend to agree with the R’s if they were honest about it that government solutions may be ipso facto doomed to fail. but the R’s are not honest. recognizing the depths to which the D’s are not honest is something fairly recent in my education.
for what it’s worth, i don’t the the object of government intervention should be cash payments… though those might be needed… as much as looking at the deeper causes… like company stores… and making the kind of legal fixes that keep the rich from preying upon the poor… as they will. it’s part of the job description.
fact is I agree with Cactus too. I can only guess at the reasons, I am afraid Obama is going to reverse the correlation, but for now my intuition is that the Democrats at least tell the lies I want to hear, while the R’s are out there telling lies that gag me without the spoon.
Cactus, I think we are living through the exception to nearly all the rules, and we are not really at war.
Buff keeps talking about the externalities that influenced economics. I keep asking for the specific passt administrations’ policies that influenced the economy. But, having all that said, under Obama we are living and learning which externalities and policies influence and in which direction.
My own prediction? At the end of Obama’s only term we will see a huge difference between the woulda/coulda guesstimates of what the GNP should have been versus the actuality.
either you have been reading the same books as i have, or you are just right.
this is true (that new deal like programs after the war kept the economy going. there is no natural connection to war and prosperity except for arms dealers and the winners of wars of conquestl
the fact seems to be merely that the political problem of government spending is only solved for purposes of a war. but it ought to be obvious that world war 2 levels of spending would have been good for the economy if they had been spent on roads and schools and like that instead of things that go boom.
love, i agree with you in my heart, but i’d say there is real danger that a high government spending economy would produce the bureaucratic stagnation that the R’s warn about. maybe there is no real solution except letting the Rs and Ds balance each other out. In which case we are in big trouble now that all the big D’s are secret R’s.
I truely meant occupy. Like 50K US troops sitting on your soil (or half million for a long time in Germany’s case). The ROK is not independant actor as long as we have 40K US troops on their soil. Same with Germany, Japan, Iraq, etc…
Your probably thinking about Israel. Yep we had there back, but we were not occupying them.
Islam will change
Yeah, the recovery from the 1920-21 recession was completely credit based. While this was going on, the real economy was declining. I would say the “real” recovery didn’t happen to early 50’s either. Sounds like the 00’s “expansion” to a t as well. The FED didn’t intervene much in the 30’s collapse either and Hoover cut taxes in the early days of the depression to no avail.
This lead to the greatest boom period 1963-1999 in middle class wealth thus the changes of social conditions. As the middle class got more and more money they began to stray from classical calvinism and the first generation of people(The Boomers) began to go into alternative lifestyles. It is what angers conservatives(and left as well): The 60’s were the natural evolution of the Bourgeois as the economy boomed. Basically leaving conservatives people without a country. You still see these reactions today. They need a depression to forceably send the “middle class” back to poverty and force them back into more ‘traditional living”.
It is like a libertarian leaning conservative friend said: After we are done, we will have a great great culling: 10’s of million people will die globally, whole generation of business will be gone. But it will rebuild the moral fiber and lead toward a better future just not for America, but for the world. At least he is honest.
History tends to be written by the victors. And there was some serious victoring in the 1920s, which only goes to show that the 1920s were a period of unending prosperity. The same thing can be said about the 1980s. And if you give it 20 years, you will hear about the prosperity of the oughts too.
I’ll stand by the pattern I’ve observed… if the share of personal incomes that gets taken in federal taxes rises from what it was at the end of GW’s term, then its likely Obama will be in the top half or so of presidents since 1929 when it comes to real GDP per capita growth. If that share falls, Obama will probably be in the bottom half or so.
(I’m hedging a bit with the “or so” because that ratio took a dive in GW’s last year, as I recall, so I don’t know whether we should look at whether it rises or falls from 2008 or from 2007.)
“And if you give it 20 years, you will hear about the prosperity of the oughts too. “
And they will have the GDP data to prove it too! At least up till 2008.
Yes, the 1920s were a precursor to the 2000s. I would add too that the glut of 1921 and ag subsidies now have similar affects on labor values and migratory trends etc. Now though the rural-to-urban-wealth shifting is global, as is the subsidizing that enables the pressure on labor values. The largest influx of immigrants by percentage occurred from 1900 to 1917. The second largest influx began with the Immigration Act of 1965. In 1919, the return of the soldiers caused a severe housing shortage when combined with the influence of the pressure put on housing by the previous influx of immigrants. The cost of food, clothing, and other basics more than doubled over prewar rates while farm incomes fell by 65% between 1919 and 1921 (how do food prices double while farm incomes fall by 65% ?). Very similar conditions but occurring at a different pace. Union participation rates fell dramatically etc., etc.; Same type of scoundrels behind it all too.
In reply to what “books” I’ve been reading: I’ve been arguing for years that the glut of 1921 was intentional and the underlying cause of the GD. I have some writings on the subject but this site refuses to accept my material from my Word Files. (I am computer challenged)
As for: “real danger that a high government spending economy would produce the bureaucratic stagnation…”, that is what I’ve been reading about lately, coincidently, but I can’t say that I am yet able to get my mind around that question. I have been exploring the fringes some and the Modern Monetary Theory crowd, and even their opposites over in balanced-budgets-are-the-answer-to-all-economic issues camp. But mostly I am not sure where I stand just yet. Steve Keen and Bill Mithcell each have some interesting work, but it sometimes has a too-good-to-be-true feel to it. I’m trying be open-minded though. There is some interesting controversery though about money multipliers and capital requirements and I have been up to my elbows in all of that. Currently just confused though, tough subject, seemingly endless implications. Economics has so much baggage. Currently though, I suspect that too much public debt is an ineffecient use of capital that has risks that tempt the ‘animal spirits’. But the problem might only exist in the minds of the animals?
some people think the Marshall plan had something to do with the lack of a third war with Germany and the Russian Bear had something to do with it… one way or the other. Korea and Japan same deal, though we did get a war there that we didn’t exactly win.
point may be that good old American government interference saves the day and happifies the locals.
i would agree with co rev that you ought to attempt to identify a causal mechanism. maybe you can’t prove it, but you could make a credible case.
frankly, i think Obama is not much of a Democrat. on the other hand, i don’t think one solution fits all cases… as a rule. In this case I’d like to see more taxes at all levels… paying down the deficit and using the money to put people to work doing useful things, or lending it to real businesses to do useful things. might serve as a kind of test between “less taxes” and “more spending.” i think “less taxes” has been killing us for thirty years.
well, get that computer challenged. you got something to say.
the problem with the bureaucratic stifleization would not be taxes and debts, but just putting too many decisions in the hands of the wrong kind of people.
i think we need the relatively mindless entrepreneur, we just don’t need to give him everything he wants.
i think i saw a bit of that with the Reagan recession. it sure turned a lot of hippies into yuppies.
In an effort to get the impetus correct: It is critical to know that there were 3,600 worker strikes in 1919 alone. Another salient fact is that the War Industries Board was abolished as of January 1, 1919; and so, the government canceled wartime contracts and unleashed a large number of workers just as veterans were also being released back into the job markets. The Wilson administration was criticized at the time for what was seen as ‘disorderly’, but, the sudden oversupply of labor was the beginning of the end of what had been a very significant labor movement, again: 3,600 labor strikes during the course of one year. But union memberships fell from 5.1 million in 1920, to 3.6 million in 1929 but some unions also came into existence without the right to negotiate wage disputes (company unions), so the numbers are a little deceiving. Unionism was essentially made inconsequential during the 1920s.
Looking forward to it to the detail and the graphs. 🙂
Stats whether normal or non normal in distribution can only point a direction. Stats do create a conclusion. I am assuming you know this from the detail of your posts.
I disagree. I want the detail, the nuance, and the direction. It is then I will go to the detail and see if I agree as any statician would do using MiniTab.
I too would love to see your post on your assumptions and conclusions drawn from them. 🙂
Arizona? I read something (I thought) of yours down there recently in editor’s comments. Not saying where. I am at hotmail if you wish to respond.
I’m not sure you can make the claim that we got out of recessions before without countercyclical policy.
We do not have very accurate data on unemployment numbers prior to 1930s, we know very little about how much the govt did or didnt spend in times of low economic output. One thing is for sure though, new dollars into the US economy have always come from govt spending unless someone was counterfeiting. This is also true for any currency issuer through history.
Counter cyclical policy is not just about govt debt issuance. Any increase in govt spending activity during a downturn would be considered countercyclical by any objective observer. We certainly know there were times before the 1930s when govts did less and understood less about macroeconomics (macro was not even an area of study til the great depression) and basically operated on the idea that each individual economic decision added together to make a macro picture that was un alterable.
We now know that paradox of thrift and other fallacies of composition affect the macro economy in a way that negative for many.
Well depression ia happen some time because of mental stress, then decide if the recommended treatment works for you or not. One of the key disappointments of many treatment methods used independently, they might be effective for some people, but won’t be able to help most people without a proper treatment plan.
I also acknowledge I’ve lots of maybes. I absolutely do not consider myself anything more than a very amateur onlooker as far as macro is concerned.
“ i’d suggest taking one industry and look at cause and effect in as much detai as you can manage and see if you can get a sene of what is happening.”
There’s something of a problem there. for my very point is that, sometimes, what we might think is a cyclical recession, just a part of he business cycle, is in fact a structural shift in employment from one sector to another. From agriculture to manufacturing, or manufacturing to services, or even within such broad sectors….like now perhaps, from construction and housing to more export orientated industries.
So if the problem is, as I (with lots of maybes!) posit, movements between secotrs then studying one sector alone won’t tell us all that much.
“Your list above shows that (at least by your lights) nobody did anything at all to get out of the 1920 recession.”
Actually,I have merely pointed out that tax cuts (which Woods implied happened before the recession ended actually came when the recession was in full swing.
I haven’t covered what the Fed actually did yet. A quick preview of a piece of next week’s post because it isn’t going to surprise most readers of this one: the Fed did not do nothing.
“”No. The current argument is about recessions and how to get out of them. Not about the growth rate of the economy in the long term. It’s entirely possible that laissez faire is best for the long term while not good for getting out of recessions. Or vice versa of course. “
So a friend of yours goes to Dr. Woods with a cold, which is the kind of problem that usually lasts about 2 weeks. Dr. Woods tells him, “Do nothing, and then when the cold is over, start consuming sugar like crazy.”
So your friend does what the doctor tells him… his cold ends in two weeks, and he starts having chocolate cake three meals a day. A month goes by and he gets another cold. The Dr. tells him, “Don’t worry, keep doing what I told you.” After ten days he come out of the cold. He stays on the chocolate cake diet, with Dr. Woods’ approval… and he gets another cold after yet another month. But he sticks to what he tells you, and once again, he comes out of the cold after ten days. He keeps on the Dr. Woods’ prescribed diet and then bam, a month later, he has the flu and fall into a diabetic coma to boot.
Now, you feel a little sniffle. Should you go see Dr. Woods? You can argue that that your friend recovered quickly from two of the three colds he had while under Dr. Woods’ care, after all.
Actually, the data set will run from 2004 to Dec 2007. But when you read Woods’ account, you will come away thinking the whole of 2001 to 2008 went through double digit growth.
Sure. This isn’t detailed statistics, by any means. I’ve gradually reached a conclusion that in economics, the tools are way too sophisticated for the theory we have. Its time to take many steps back and make an effort to find out what actually happened before we use any statistical tools.
“Your probably thinking about Israel.”
Actually, I’m thinking much closer to home. With the exception of the 1973 Airlift, I don’t think Israel’s survival was dependent on the US at any point.
But there were a few regimes in Latin America in the 1980s that made a habit of butchering the indigenous peasantry that came to power and kept their hold on power only through the, er, good graces of the US.
Perhaps an even greater violation of your rule… there was a border dispute (that often flared up leading to the death of a handful of conscripts here and a handful of conscripts there) between Chile and Argentina for a couple of hundred years. And it was still ongoing in the late 70s and early 80s. We didn’t exactly occupy Chile or Argentina, but except for Mary Anastasia O’Grady at the Wall Street Journal, I don’t think anyone would be surprised to find out that the Chilean military came to power with US assistance and the Argentine junta also enjoyed US support. They were certainly “clients” of ours.
The causal mechanism will take time… I hope I have it.
Obama the Dem… the healthcare bill is the first Dem looking thing he’s done. We’ll see if there’s more. Everything else could have come out of GW’s playbook.
The idea that the 1920-21 experience is relevant to the great depression is bogus, and wilfully so.
The depressions of 1920-21 and 1929-4? (pick a number) occurred in very different circumstances. My cursory check uncovered this list:
1920 preceded by large deficits, 1929 preceded by surpluses.
1920 preceded by inflation, 1929 preceded by no inflation.
1920 preceded by war, 1929 preceded by peace.
1920 depression possibly softened by export strength, 1929 ???
1920 evidently not near the 0-interest rate bound, 1929 probably approaching it.
1920 gold standard not in force, 1929, gold standard in force.
The latter point is especially intrguiging, and I’d love to see it dealt with by someone who is up to the task. There is a direct correlation between the time when countries abandoned the gold standard, and when their recoveries from the G.D. started.
Further, I think there was a fundamental difference in the nature of these depressons: the 20-21 depression was caused by a supply side imbalance (too much stuff, return of WW1 soldiers to the work force) while the G.D was caused by a demand side imbalance – money supply and credit collapsed, and nobody could afford to buy anything.
An anciliary point that nobody seems to think about much (though I might just be missing it,) and Austrians seem to studiously ignore, is that capitalism is totally dependent on consumption. No customers, no business.
“We can get into a quibble about the establishment survey and its precursors, but suffice it to say, whatever data Woods is using is an estimate someone probably produced long, long after the fact.”
So where do economists get data to analyze unemployment during the depression from?
I would imagine there have been numerous studies of the period from 1929 to 1940 so Im shocked to learn that those studies are invalid because no BLS data existed pre 1940
Gold standard… interesting. Hadn’t thought about it.
The problem with all of these studies is that there is very little reliable contemporaneous data. That limits the number of things that can be studied. But it also makes the 1920s a good example for folks who are allergic to data.
Anyway, as a result, I probably will have one more post on this, but that’s it. Its not the subject isn’t interesting, but there’s so much more low hanging fruit where there is data.
Well done. It is a shame one has to spend a Sunday combatting this type of persiflage.
Well, Austrians and Libertarians love them some gold standard.
That’s almost an indictment in itself.
Looking forward to part 2!
First a border dispute is not a war and neither country was invaded. That like calling the narco-losses currently on the US-Mexican border a war. Second we did not occupy either country and that is exactly what my position was. I don’t remeber having a division or two in either country. I know your from the area, but this border disput doesn’t hold a candle to ones like Israel-Palistine, Pakistan-India, INdia-China…and we don’t call them war.
So no one has pointed out any violation with my rule….
Islam will change
I am with you all the way here. The Great one and this one are not part of a cycle, though certainly, the economy would pick a cycle nadir to implement a Recalculation.
Two telling sales graphs, the continuing and accelerating rise in on line sales, they seem to be spurred by this recession. In 1926-1933, the continuing and accelerated rise in commercial radio and broadcast mass markets.
Thanks for posting this. The quibbling about some of the finer epistemological within the comments, I think, detracts from the larger point here, Woods and Beck are full of it. I mean, analyzing policies are one thing, completely missing the dates of tax cuts, and then using them as arguments for your policy analysis is another. Even worse is failing to look at the causes of one financial downturn, and using those aforementioned arguments about tax cuts and the Federal Reserve for today’s problems.
I appreciate the attention everyone, from all ideological perspectives, is giving this. It might not seem like a big deal, but I think you all would be surprised how much this kind of crap plays in the world of the slightly-educated working class, angry white man know-it-alls that I work with (I’m a career firefighter). Many people hear things from media like Beck and Limbaugh, and just eat it up. This is especially true for cases where there are claims about a grand conspiracy by the Left to keep us all ignorant of the truth of supply-side eonomics or that the Federal Reserve is an instrument of Satan himself. The silly arguments these people buy ARE relevant, because thousands, if not millions, of people hear them and have their votes influenced by their sophistry. This is not unimportant.
Personally, I have no dog in this hunt, I only know that bullcrap is bullcrap, and it is good to have people out there able to point out how bad it really stinks. Thanks guys.