An opposing opinion ...
Does the 1937-38 economic collapse, the so-called "depression within the Depression" offer any lessons on what we should do now? In 1937, it seemed that things were improving, some light was seen in the Great Depression, but unemployment suddenly jumped from 14.3 percent in June 1937 to 19 percent in June 1938.
Some conservatives, such as Newt Gingrich, have recently focused on the new Social Security taxes that started in 1938 as the problem. "If we have large tax increases in January, this economy will sink deeper into recession," Newt Gingrich told Newsmax in late July. "This was exactly the mistake made in 1937 and 1938, and it created a second mini-depression."Yet, while taxes surely hurt economic growth, there were other major economic events that both these discussions completely ignore. The late Milton Friedman pointed to new banking regulations that went into effect from March through May 1937. President Roosevelt had accused banks of "hoarding" money and his solution was to increase the reserve requirement with the Federal Reserve, dramatically reasoning that the government could make sure that the banks' money was properly spent. Of course, banks had not just been "hoarding" extra reserves for no reason.
The real lesson from the 1937-38 is that government made the situation much worse by always trying to fix things. Unfortunately, this is precisely what we have seen under Mr. Obama's presidency with the failed stimulus spending and all the regulatory chaos they have created.
For more, see Obama Is Repeating the Mistakes of the 1937 Economic Collapse by John Lott, September 3, 2010, at FoxNews.com.
3 comments:
A very interesting study would be the source of stimulus $ in the 30s as opposed to today. One would like to know the trade balance in those days to speculate on the relative efficacy of a stimulus. Intuitively it would seem that borrowing our trade deficit back from our trading partners (China, Germany, Saudi Arabia, etc. ) and then using it for stimulus is not as effective as borrowing it from our own citizens within our borders. It puts a much greater load on the stimulus return to borrow outside the borders. This would make the value of the stimulus less, it seems to me. Were we borrowing much of our stimulus in the 30s? What say others?
I don't know but it seems to me that borrowing from overseas would increase the domestic money supply without increasing the worldwide dollar supply, whereas borrowing domestically would not have such a beneficial effect.
Behind the need to borrow is a net trade deficit. So, we continue to send dollars overseas for purchases, then we borrow them back attempting to keep our balance of payments in check and to pay for our fiscal deficit. Thus, there is no overall change in the global dollar supply by borrowing back that which we sent for purchases. In the end, we simply owe others rather than ourselves.
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