Tag Archives: Great Depression

Do great droughts and great recessions coincide?

Anybody else find it odd that these great droughts occur during weak economic times? The Dust Bowl of the 1930s occurred during the middle of the Great Depression. Now this one during our Great Recession.

Or perhaps it is because a nation is able better endure these hardships when times are good…

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Worldwide backlash against quantitative easing.

Apparently, I’m not the only one concerned about the Fed’s quantitative easing.

Yesterday, I wrote a piece: Quantitative easing. What is it good for? Absolutely nothing!

Today, we get similar sentiments from around the world:

Could this move turn out to be a modern-day Smoot-Hawley? For those of you who are too young to remember, the Smoot–Hawley Tariff Act was passed in 1930, raising tariffs, and being a major contributor to the Great Depression.

No sovereign debt crisis here in the U.S., but we’ve got other problems, namely jobs.

The United States may not be experiencing a sovereign debt crisis like Europe, which I have written about quite often recently, but we have our own problems. In Europe, 20 percent unemployment is making it very difficult to balance budgets. While unemployment is not as bad here, we are experiencing the worst economic recovery since the Great Depression. And today’s ADP report proves it:

Private employers unexpectedly cut 39,000 jobs in September after an upwardly revised gain of 10,000 in August, a report by a payrolls processor showed on Wednesday.

The August figure was originally reported as a loss of 10,000.

The median of estimates from 38 economists surveyed by Reuters for the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC, was for a rise of 24,000 private-sector jobs in September.

Employment fell 63,000 short of expectations, though last month was revised up by 20,000. ADP only measures private employment. The government report due out Friday also includes public sector jobs, which is expected to decline as census workers were recently laid off after the census was completed.

The ADP figures come ahead of the government’s much more comprehensive labor market report on Friday, which includes both public and private sector employment.

That report is expected to show overall nonfarm payrolls were unchanged in September, based on a Reuters poll of analysts, but a rise in private payrolls of 75,000.

Woh! These economists expect 75,000 private sector jobs were created last month when ADP said 39,000 were lost? Seems like somebody is way off the mark here.

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Stimulus spending: the new perpetual motion machine.

Stimulus spending is like a perpetual motion machine. Sounds great in theory, but it doesn’t work. Just as machines must use up more power than they output, so too stimulus costs more than it produces.

If stimulus spending really creates jobs and improves the economy, the government could just stimulate the economy all the time and we’ll never have recessions or unemployment. We can achieve perpetual motion through big government! Or so they tell us.

Eighty years ago, Ludwig von Mises wrote:

It is obviously futile to attempt to eliminate unemployment by embarking upon a program of public works that would otherwise not have been undertaken. The necessary resources for such projects must be withdrawn by taxes or loans from the application they would otherwise have found. Unemployment in one industry can, in this way, be mitigated only to the extent that it is increased in another. From whichever side we consider interventionism, it becomes evident that this system leads to a result that its originators and advocates did not intend and that, even from their standpoint, it must appear as a senseless, self-defeating, absurd policy.

It is not just economists like Mises that predict the failure of stimulus projects. History predicts it as well.

Stimulus spending didn’t prevent the Great Depression. It didn’t prevent any recession since then. And I have yet to see proof that stimulus spending produced a net economic benefit when the costs of the government programs were weighed against the economic gains, if there were any at all. Which leads us to one of two conclusions: either (1) stimulus spending cannot work or (2) it can work in theory but government is simply incapable of applying the correct amount of stimulus at the correct time.

In reality, stimulus does have some short-term effect. The “cash for clunkers” program boosted auto sales briefly. The tax credit for home purchases boosted home sales briefly. Construction spending from the Recovery Act did help the economy slightly. The census lifted employment for a few months. But all these programs do is borrow from the future. In the case of “cash for clunkers” and home tax credit, it brought future sales into the present. In the cases of jobs programs and construction projects, the government takes money from the future (debt) and spends it today. That leaves the government with less money in the future and it will either need to reduce future spending or raise taxes, either way harming our economic future.

The Keynesian argument is that this stimulus spending during a recession and cutting back in the future will smooth out the volatility of the economy. First, the government is great at the spending during the recession part, but terrible at cutting back during the recovery. Keynes’ idea was to run a budget deficit during recessions and a surplus during booms. Instead, government runs a deficit during booms and an even larger deficit during recessions. Second, the government has no idea how much to spend on stimulus during a recession and when to cut back on that spending. The government can only guess at how deep the recession will be, when it will start, when it will end, and how strong the recovery will be.

But the government will not let economics or history stand in the way of its grandiose ideas. As Stalin used to say, “We are bound by no laws. There are no fortresses which Bolsheviks cannot storm.”

History has proven that stimulus spending does not work, just as the great economists explained. Yet, time and again voters fall for the same trick and beg our “benevolent leaders” in Washington to take our hard-earned money from us to spend for us.

God willing, voters this November will learn to say NO to Washington and the politicians. “Fool me once, shame on you. Fool me twice, shame on me!” As those great political thinkers from The Who sang, “Won’t Get Fooled Again.”

Did World War II lift us out of the Great Depression?

We are constantly told that the economy was lifted out of its Great Depression because of World War II. While it is certainly true that the economic production recovered thanks to war production, I do not believe that the economy actually “recovered” during the war. Of course, it all depends on how you define an economic recovery. The statistical method of doing so is to look at Gross Domestic Product (GDP) or industrial production. However, looking at those figures, even adjusting for inflation, ignores things such as changes in population and demographics.

When World War II began, millions joined or were drafted into the armed forces. Their production was lost as they fought overseas. To make up for that loss, women entered the workforce and men worked longer hours. Yes, economic production rose, but the number of hours worked rose even more so. Americans were forced to work instead of spending their time in leisure or raising their families. This was of course good for the many who had previously been unemployed, but bad for those who had already had jobs, housewives who were caring for their children, the elderly who held off on retirement, and the young who skipped college to enter the army.

While hours worked were up, most of the increase in production went to war manufacturing. The United States churned out planes, ships, tanks, guns, and bullets. Japan and Germany had a ten-year head start in military production, but the United States quickly caught up once its economic wheels moved forward. Furthermore, much of the food, clothing, and other staples required for day-to-day living were shipped to troops overseas instead of staying within the country’s borders. The domestic economy of the United States was dominated by rations and shortages. This was not your typical economic recovery with new products available to consumers and increasing wealth. Instead, it was economic production designed to destroy (though for a good cause) instead of create. The billions of dollars spent on bombs, downed planes, sunk ships, shattered tanks, and bullets was capital forever lost to mankind.

With longer work hours, families separated for years, hundreds of thousands of killed soldiers, and production devoted to the military instead of consumers, the standard of living of the average American was no better during World War II than it was during the Great Depression and worse than it was in the 1920s.

But what about unemployment which went from 25% down to 1%? Gene Smiley writes, “The number of unemployed workers declined by 7,050,000 between 1940 and 1943, but the number in military service rose by 8,590,000. The reduction in unemployment can be explained by the draft, not by the economic recovery.” He continues, “Most estimates show declines in real consumption spending, which means that consumers were worse off during the war. Business investment fell during the war. Government spending on the war effort exceeded the expansion in real GNP.” Smiley does admit that economic measurement during this time was exceedingly difficult, asking “How can we establish a consistent price index when government mandates eliminated the production of most consumer durable goods?” Smiley concludes, “For consumers, the recovery came with the war’s end, when they could again buy products that were unavailable during the war and unaffordable during the 1930s.”

* All this says nothing about the need to enter the war against the Japanese and Germans. However, the idea that a war could lift an economy out of depression is tenuous. The economic recovery following World War II was the result of the newfound economic freedom in the United States but even more so overseas where countries such as Germany, Italy, and Japan experienced true freedom for the first time in many years.

UPDATED: Germany and Italy also “boosted” their economies with military production and conscription. Few would argue that their “economic recoveries” were sustainable or good.