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Old 08-17-2010, 12:30 PM
 
Location: San Diego California
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The more things change, the more they stay the same | The Economic Populist

This article points out interesting parallels between the great depression, and today’s economic downfall. Many of the same policies are being implemented now that were being implemented then.
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Old 08-17-2010, 01:07 PM
 
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It is interesting because in school they taught that Hoover did nothing and it was FDR who made the improvements. FDR was no better than Hoover, and both did more harm than good. A really good book about FDR and the "New Deal" is "New Deal or Raw Deal" by Burton Folsom. FDR walked all over the Constitution the same as President Obama is doing now.

Henry Morgenthau, FDR's Secretary of the Treasury, close friend, and had a big stake in the new deal even said, “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…I say after eight years of this administration we have just as much unemployment as when we started…And an enormous debt to boot!”
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Old 08-17-2010, 05:26 PM
 
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Both Hoover and FDR were very destructive and history is being repeated by Obama. My conclusion based all I have read was that 1929-1930 could have been just a short recession but the gubment has to inject itself.

From the time obama has come into office pretty much all he has done is pile on debt for junk like the porkulus bill that did nothing and come out in attack mode against this industry or that. When he's not on vacation or at a private concert of course. Every time I look up his narcissistic finger is wagging at someone and all business is doing is battening down the hatches. I think this year will look OK because people and business are selling off capital gains and declaring income now, once the taxes GET RAISED on Jan 1, 2011, it will slip backwards.

One of the best reads I have seen about government meddling and the great depression is this:

http://www.mackinac.org/archives/1998/sp1998-01.pdf
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Old 08-17-2010, 06:35 PM
 
Location: Nebraska
188 posts, read 246,735 times
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Quote:
Originally Posted by LeavingMA View Post
It is interesting because in school they taught that Hoover did nothing and it was FDR who made the improvements. FDR was no better than Hoover, and both did more harm than good. A really good book about FDR and the "New Deal" is "New Deal or Raw Deal" by Burton Folsom. FDR walked all over the Constitution the same as President Obama is doing now.

Henry Morgenthau, FDR's Secretary of the Treasury, close friend, and had a big stake in the new deal even said, “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…I say after eight years of this administration we have just as much unemployment as when we started…And an enormous debt to boot!”
Exactly, the economy can correct itself pretty quick if it is allowed to function without any interference. Once you throw interference in there it just drags things out until that interference is removed, and the correction will continue its course from there.

If the American people are not allowed to pay off their debts then we won't get out of this recession, pure and simple. But in order for that to happen spending will have to decrease, unemployment will have to go up (in the short term) and some of these service sector businesses will have to fail. Right now the government is doing everything they can to keep spending at an all time high which just pushes people farther into debt, which is the foundation for this entire recession to begin with. It really isn't that complicated but the politicians need to see past their short term in office and see the big picture, but that won't change as long as there are career politicians in office, because it will make things look bad in the short-term (allowing the economy to function) even though it allows us to prosper in the long-term.

It is no coincidence that Japan is in a 2 decade long recession when all they have done is use this Keynesian economic theory of stimulating (aka government spending) during recessions. But our government thinks Japans problem was that they didn't spend ENOUGH??? And it's not a Republican vs Democrat debate either, because the bailouts started with Bush and Bush came out in the early 2000's (after 9-11) begging people to spend so that the recession could end and the terrorists wouldn't "win." It's a complete lack of knowledge on how economies function by nearly everyone in Washington, no matter what party they are affiliated with.

But in regards to the original poster I would say Bush was Hoover and Obama is FDR. Bush did some very ignorant things with his multi $100billion bail-out. Trying to "save," companies that should have failed. Now of course, he and Paulson had a point, there would have been a huge panic and run on the banks but over a short period of time (less than a year or so) things would have worked out. But they took the short-term gain for long-term pain route instead, which is always a bad move whether it's in your personal life, business, investments, economy, etc. Then you have Obama come in here and use the same economic platform but magnify it many times over, with all types of plans to get people to spend, bailouts that are larger than Bush's, etc. When you talk to people on the street (especially conservatives) they tend to forget that Bush had nearly a $1trillion bailout, and they blame the bailouts all on Obama. This is like everyone saying FDR was the only one that spent, even though history clearly shows that Hoover did spend just not at the rate of FDR.

Last edited by hskrfan2187; 08-17-2010 at 06:56 PM..
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Old 08-17-2010, 07:12 PM
 
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Actaully there is no comparison really beteen the two. Even to FDR who bascially just made work which got people thru but di not solve the depression.Bushes bailouts where half the TARP funds the second half was all Obam and meant for housding but used for auto bailouts and further bailouts for banks. The big banks have paid the entire ocst back plus some interest.The fight is to have that applied to the defcit because mnay democrats want to spent it'meaning more that will never be paid eacept by taxpayers .
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Old 08-18-2010, 05:06 AM
 
Location: Conejo Valley, CA
12,470 posts, read 18,296,247 times
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Quote:
Originally Posted by hskrfan2187 View Post
Exactly, the economy can correct itself pretty quick if it is allowed to function without any interference.
This is dogma, there are situations where an economy will not correct itself. After all what magically makes an economy recover naturally, what stops it from reaching a new equilibrium at lower output?

Anyhow, Obama is a bit like Hoover in that he is clearly not doing enough to jump start the economy. Hoover implemented the same sort of mild actions as Obama has done. The reason, I believe, is that Obama's economic advisers thought that once the banking situation stabilized that the economy would start to recover. They seemed to completely underestimate the structural problems in the economy that go well beyond the banking crisis....
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Old 08-18-2010, 10:42 AM
 
Location: NC
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Different mind sets but overall possibly similar results. Just shows both ends of the political spectrum really are at the mercy of forces that are difficult to control during down turns.

There is not always a right answer, unlike what 90% of posters think. There are biased answers though...

Also do HSKRFAN,

While we have similar problems, Japan's deflation causes are drastically different. The only large similarity was a huge real estate bust (China is up next!). Japan's deflation problem is from a combination of a huge savings rate and the actual productivity of the nation is decreasing due to demographics shrinking (less people means smaller GDP in the long run).

At the moment we do not have either problem, if not the opposite.
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Old 08-18-2010, 07:04 PM
 
Location: Nebraska
188 posts, read 246,735 times
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Quote:
Originally Posted by user_id View Post
This is dogma, there are situations where an economy will not correct itself. After all what magically makes an economy recover naturally, what stops it from reaching a new equilibrium at lower output?

Anyhow, Obama is a bit like Hoover in that he is clearly not doing enough to jump start the economy. Hoover implemented the same sort of mild actions as Obama has done. The reason, I believe, is that Obama's economic advisers thought that once the banking situation stabilized that the economy would start to recover. They seemed to completely underestimate the structural problems in the economy that go well beyond the banking crisis....
You're right, we don't really know for sure. Maybe it the economy would just reach a new equilibrium at a lower output, but from that point you can start to rebuild and push past the output in place before a recession and create a new all time high in output. But you can not continue increasing our output (or growing the economy) when we are pushing people farther into debt. That is an oxymoron, you can't have a sound fundamental economy with a population that is so indebted they have no money for investment, or purchases of any kind...all their money comes from borrowing.

So maybe your theory is right, we will create a new equilibrium, but it will be based on savings, not debt and a productive economy with manufacturing that brings money INTO a state, country, city, etc....you will also have much less service sector businesses, that do nothing more than circulate money around. So from that savings you get investment, from that investment you get new businesses, from new businesses you get more jobs...and it takes off from there. If at any point the investment money, or consumption money, comes from too much debt and not savings then we will be lead down the same path we just went on. At that point you create a false economy that will have to be corrected over time. Recessions occur due to the false investments during booms, or the over consumption during booms. This is why recessions occur, because people begin paying off their debts or building their savings back up from poor investments...thus there is less money spent thus business revenue is reduced and layoffs occur. The end result is a short period where the economy contracts to make up for the poor investments or over consumption during the boom.

Just out of curiosity, how do you think extra stimulus would help the economy? You mentioned that you don't think Obama is doing enough, so what are your thoughts?
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Old 08-18-2010, 07:34 PM
 
Location: Conejo Valley, CA
12,470 posts, read 18,296,247 times
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Quote:
Originally Posted by hskrfan2187 View Post
, but from that point you can start to rebuild and push past the output in place before a recession and create a new all time high in output.
You don't understand what an equilibrium is, if the economy stabilizes at equilibrium with reduced output its going to stay there. Future growth in itself will change nothing, you will just be growing at the same rate you would if output was higher. Obviously 3% of a small number is smaller. The system itself can't reach out of the equilibrium, that is what it means to be in an equilibrium. Instead an outside force has to shift matters.

Most recessions are V-shaped, the reduced output is only temporary and a reduced equilibrium is never reached. This recession is different, as was the great depression.

Of course, you can instead believe that the free markets can magically defy mathematics.


Quote:
Originally Posted by hskrfan2187 View Post
But you can not continue increasing our output (or growing the economy) when we are pushing people farther into debt.
That would depend on their existing debt loads, but the government is not trying to push people farther into debt. Personal debt over the last 2 years or so has been declining, not increasing.

What has increased is government debt, but federal government debt does not function like household or business debt.

Quote:
Originally Posted by hskrfan2187 View Post
So from that savings you get investment, from that investment you get new businesses, from new businesses you get more jobs...and it takes off from there.
This is gibberish, businesses won't invest unless they have a reason to invest. The banks and investors are sitting on cash, yet you think more savings is going to lead to more investment? Why!? The money is already there waiting and its available at low rates. Businesses aren't investing because there is no reason to do so, most are operating below capacity. What is the point in building new factories, buying new equipment, etc when your current factories, equipment, etc are under utilized? Increase demand and businesses will invest.....and how do you increase demand? FISCAL STIMULUS.


Quote:
Originally Posted by hskrfan2187 View Post
This is why recessions occur, because people begin paying off their debts or building their savings back up from poor investments...
This is in general false, there have been many recessions in US history that were not related to increased in household/business debt.

Quote:
Originally Posted by hskrfan2187 View Post
Just out of curiosity, how do you think extra stimulus would help the economy? You mentioned that you don't think Obama is doing enough, so what are your thoughts?
Yes, extra stimulus is the key. Without more stimulus the economy is going to stagnant at its current level, unemployment is likely to creep up to 10% as well. The next stimulus needs to be more job centric though.
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Old 08-18-2010, 07:54 PM
 
Location: Nebraska
188 posts, read 246,735 times
Reputation: 286
Quote:
Originally Posted by user_id View Post
You don't understand what an equilibrium is, if the economy stabilizes at equilibrium with reduced output its going to stay there. Future growth in itself will change nothing, you will just be growing at the same rate you would if output was higher. Obviously 3% of a small number is smaller. The system itself can't reach out of the equilibrium, that is what it means to be in an equilibrium. Instead an outside force has to shift matters.

Most recessions are V-shaped, the reduced output is only temporary and a reduced equilibrium is never reached. This recession is different, as was the great depression.

Of course, you can instead believe that the free markets can magically defy mathematics.



That would depend on their existing debt loads, but the government is not trying to push people farther into debt. Personal debt over the last 2 years or so has been declining, not increasing.

What has increased is government debt, but federal government debt does not function like household or business debt.


This is gibberish, businesses won't invest unless they have a reason to invest. The banks and investors are sitting on cash, yet you think more savings is going to lead to more investment? Why!? The money is already there waiting and its available at low rates. Businesses aren't investing because there is no reason to do so, most are operating below capacity. What is the point in building new factories, buying new equipment, etc when your current factories, equipment, etc are under utilized? Increase demand and businesses will invest.....and how do you increase demand? FISCAL STIMULUS.



This is in general false, there have been many recessions in US history that were not related to increased in household/business debt.


Yes, extra stimulus is the key. Without more stimulus the economy is going to stagnant at its current level, unemployment is likely to creep up to 10% as well. The next stimulus needs to be more job centric though.
To your last response, I was asking HOW the stimulus will work. As in how will it function within the economy. What you gave me was an opinion with no facts or anything of tangible value to back it up. There is no way for it to work, without (using your logic) defying laws of math. Trying to defy the economic forces is very similar to trying to defy the laws of physics. You can't defy gravity, but you can put an engine on a plane and fly around for a while...but eventually the engine runs out of gas and you come crashing back down. In this case, the gasoline would be the stimulus, but once it runs out you just end up in the same place.

Next part, you are right government debt has increased at astounding rates. You are also right, that households have started paying down consumer debt. You are wrong that it has happened over the last two years, it has only happened over the last year. Household debt peaked somewhere in the 1st or 2nd quarter of 2009 and has since dropped a measly 3%, but at least its progress.

I was referring to individual households, they take that money and invest (not all but some) or they have entrepreneurial spirits and try to open their own business. The reason companies are currently saving money is because they don't know what the future economy holds and they want to stay viable. It is extremely smart on their part to keep the money until they know what to do with it. If they went around recklessly spending it (like ignorant Americans and the government want them to do) and the economy gets worse, they put their entire company at risk. Companies are starting to be smart about how they spend, something everyone should have been doing over the last 10 years, but it's better late than never.

The Great Depression wasn't V-shaped because the boom was so large in comparison to others that the government refused to let the free market function. They didn't want things "collapsing (in their mind)," so as things got worse the government intervened, and intervened, and intervened. But what they failed to realize is that the recession must be as big as the boom. Because the recession is ridding the economy of the imbalances, poor investments, high debt loads, etc. That takes a contraction period because people have to consume LESS than they would during a NORMAL economy (normal as in NOT a artificial boom economy) to make up for consuming MORE during the artificial boom period. It's common sense, thats all. It can also be compared to the movement of a wave in the water. When the water is still there is a flat line (normal economy), when the wave occurs there is a high point of water that goes above the normal flat line level (peak), but just beyond that peak is a level that goes below the normal flat line level (trough). When the peak and trough are added together, they equal the value of the normal water level (flat line).

So you are the one that doesn't understand the mathematics. If somebody spends beyond their economic capacity (take on debt) they must EVENTUALLY pay back with interest. This results in less spending than this person would normally be capable of spending, because they must pay back debt+interest. Once the debt is paid off, however, their normal economy can go back to normal and they can increase their spending to normal levels again. But if they create a boom (spend beyond their means) then the same cycle will occur (a peak and a trough).

This is the same with investment. During the dot com bubble there were many people that didn't understand what it meant to invest in a sound company, and they speculated (bought poor companies that had no earnings, little assets, and very little customers) because they speculated that these companies would sprout out of nowhere and be the next great internet company. Once these bets were determined to be wrong, they lost a lot of money. These people had to consume less to replenish their savings (or pay off debt as many had margin accounts). So the same thing happened, a peak and a trough. Of course this is very basic, it gets a lot more complicated but I think you can get the point.

Now before you come out and say "I am wrong" or "I don't understand," how about you take time to EXPLAIN in detail how I am wrong. Also, the government is trying to indirectly push people farther into debt (fyi). It isn't working, but they have certainly pulled out all the tricks with cash for clunkers, keeping interest rates at basement rates to try and get people to borrow more money, etc. For the record, the government can't create jobs. Well they create jobs, but not productive ones. They squander wealth from the private sector, wealth that could be used to produce something, export, and bring money into the US. So how exactly can a "jobs stimulus" in anyway create jobs that contribute to the economy? Census workers? HAHAHA

Last edited by hskrfan2187; 08-18-2010 at 08:11 PM..
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