Quote:
Originally Posted by Logicist027
It seems to me that the whole Keynesian/Monetarist/Austrian school battles are centralized here at the Great Depression. I want to see people defend their position. To get it started, here is their quick explanation (correct me if I am wrong).
Keynes - Shortfall in aggregate demand. Consumption & investment spending declined Gov. unwilling to spend, therefore we could not prime the pump
Monetarist - The Federal Reserve didn't do its job. They allowed the money supply to shrink by a third which caused massive problems. Stick wages & other factors contributed to non-market clearing prices aggravating the problem for years.
Austrian - The Fed kept printing in the 20's and caused an unsustainable boom. A massive bust was only necessary to correct the mistakes. Hoover & Roosevelt compound this problem by propping up wages, increasing regulation & intervening in the economy.
So which is correct? So far, my money is on the Austrian explanation.
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They're all wrong.
First, the Great Depression started in 1925 with the 1925 Recession and collapse of the housing bubble.
Be wary of the liars. They have an agenda. They ignore the 1925 and 1928 Recessions, focusing almost exclusively on the 1929 Stock Market Crash. The 1929 Crash neither caused a recession nor a depression. In fact, the 1929 Crash signaled the
end of the 1928 Recession. Their agenda is to use a fallacy called
Scare Tactic
If you suppose that terrorizing your opponent is giving him a reason for believing that you are correct, then you are using a scare tactic and reasoning fallaciously.
...in an attempt to convince you to protect investors from losses, uh, using your tax-dollars, of course.
The basics of Economics are that every society, civilization, State, economy -- whatever you want to call it, starts out as a ZERO Level Economy.
That's Agriculture, and in the early stages, it is subsistence level agriculture. Everyone works, and everyone includes children, so yes, unless you want to die, child-labor laws go right out the window.
How do you move beyond that?
It requires additional Capital.
Do not ever forget that.
Technology can create additional Capital in the form of Surplus Labor.
So the lowly stick is technology that reduces the number workers needed per field. What do you do with this Surplus Labor Capital?
That depends on what other Capital you have, and that depends on geography, geology, topography, hydrology, climate, culture etc etc etc....hereinafter, "The Conditions."
If you have additional Land Capital available, you could use your Surplus Labor to farm an additional field. That would raise your daily caloric intake above near-famine levels. Your Standard of Living and Quality of Life has improved, because people are now more resistant to disease and injuries heal faster.
As you gain additional agricultural technology --- even if it is just a rock on a stick -- you generate Surplus Labor Capital. So long as you have the appropriate Capital you can use that Labor. For example, you can put the Surplus Labor to use farming a different crop, which creates variety in your diet, and improves your Standard of Living and Quality of Life.
What if -- due to The Conditions -- you don't have any land? Maybe the Surplus Labor can hunt, trap or fish, creating variety in your diet.
Anyway, it is technology that allows you move into the latter stages of the ZERO Level Economy where you have a surplus of agricultural goods to sell or trade, plus you have the technology to preserve and store agricultural goods.
That's when you start getting paid.
The wages in a ZERO Level Economy are ZERO. In the early stages, your working to survive. It's only later when you have a surplus of crops that you can trade or sell for things you need or want.
If you understand that, then you understand that Ndela in Sierra Leone gets paid $0.03/hour as minimum wage, which is about $0.24/day and she lives in a ZERO Level Economy that is transitioning to the 1st Level.
When America was still a ZERO Level Economy in 1900, Americans were paid exactly the same wages Ndela gets paid.
You could say that Sierra Leone is exactly where the US was in 1890 more or less. So, is $0.03/hour a "slave wage?" No, wrong answer.
Assuming The Conditions are in you favor, what will you do with all of the Surplus Labor Capital generated through technology?
Hopefully, you can move into your 1st Level Economy, which is Natural Resources. You can put your Surplus Labor to work harvesting timber, or mining coal or salt or iron ore, or drilling for oil. What if you live in a place where The Conditions are not favorable and you have no Capital in resources? Then it sucks to be you.
The US has a well-developed 1st Level Economy at the start of the Great Depression. You're harvesting timber and processing it through saw-mills; drilling oil, processing the oil, refining the oil and consuming the refined products; mining coal, iron and other metals and minerals; and so on.
The general progression through the 1st Level Economy is typically harvesting. Here you're doing nothing more than mining iron ore, and then exporting the ore for sale. As you gain experience and knowledge, and provided you have Surplus Labor, you can start processing the iron ore, separating and the aggregate and then selling both the aggregate and the iron ore. Then you'd start smelting the iron ore into iron ingots. Of course, that can only happen if you have fuel to do that. What if you don't have coal or oil? Then you'd have to export iron ore to trade for imported coal or oil.
That's where we are when the Great Depression starts. The US is still principally a ZERO Level Economy. In 1925, 80+% of Americans live in rural areas, and it 68+% of Americans are engaged in agricultural work.
Now comes Electro-Mechanical Industrialization.
You replace the treadle on a lathe with an electric motor, and now one guy and do the job of 5 guys, so you fire 4 guys.
Lather, Rinse, Repeat about a Million times.
There are other things happening as well. Communications has resulted in new ideas such as the assembly-line method of manufacturing, which produced more goods at a faster rate using less labor. There were many such innovations. Even psychologists got in on the act. The forerunners of Industrial Engineers and Industrial Psychologists discovered that increasing the lighting in the work are to a certain level of foot-candles resulted in increased production and happier employees.
So...you're generating massive amounts of Surplus Labor with no place for it to go,
because you don't have any Capital.
I just made the ass-clown Austrians and the kooky Keynesians and the moron Monetarists look as stupid as they really are.
I need a Yamaha DGX640 keyboard with a Sound City SMF Tour Series head and two Sound City Twin 15 stacks wired in a series-parallel 4x12 X-pattern (and a B3 Leslie).
There's Demand....why isn't it happening?
Because I don't have the Capital, which in this case would be Cash or Credit.
Starving people aren't demanding anything? Sure they are. Then why are they starving? Because they don't have the Capital, which is the Cash/Credit to import food, or the products to export in exchange for food or whatever.
They idea that the Great Depression was caused by "lack of demand" is absurd. There was plenty of demand, but little Capital.
The other arguments are stupid and anachronistic.
What was US GDP in 1929?
You cannot answer that question, and neither can any person living or dead.
The US government did not keep statistical data of that nature.
For those who just don't get it --- and that would be quite a few of you --- it was a Stubby Pencil Environment.
It would have taken 9-12 months to collect and collate data for one fiscal quarter, then another 3-6 months to analyze that data, and then another 1-3 months to formulate a policy, at which point it is moot, since the data is now out-dated.
I won't even get into the cost of doing that.
How stupid is it to criticize the Federal Reserve for something the Federal Reserve
could never have known in the first place?
By the same token, data on unemployment was not collected by either the federal government or the State governments, so all unemployment figures are guesstimates.
Can you criticize the Federal Reserve for not intervening with failing banks quickly enough? Absolutely. Can you fault Hoover for not taking appropriate actions such as "banking holidays?" Sure.
However, note that those are symptoms of economic depression, and not causes.
Your current problems are Surplus Labor generated by technology --- mostly automation -- and the fact that US Foreign Policy created a World in which the US cannot compete economically.
Did Glass-Steagal cause Americans to default on their mortgages?
No.
Your ill-conceived Foreign Policy, technology, and continual violations of the US Constitution set the stage for massive job losses generating Surplus Labor. Two-income families are reduced to one income, or to an income and a half, or they're still two income, but having lost their jobs and gotten new jobs, they're paid less, thanks to US Foreign Policy.
Your so-called "housing crisis" happens no matter what. It is a symptom, not a cause.
You violated the Constitution with the Department of Education and allowing the federal government to be involved in education. The result is you failed to make the transition from your 4th Level Economy to your 5th Level Economy in the mid-1990s.
That would have absorbed nearly all of your Surplus Labor, because you certainly have the non-Labor Capital to move into the 5th Level Economy.
You can make the transition to the 5th Level R&D Economy 20 years from the day the federal government bows out. My advice would be to do that now, before the Eastern Europeans, and the Chinese and Indians take over the 5th Level Economy and leave you with nothing.
Correcting...
Mircea
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