Do you think there could be a second Great Depression?

[LizzieMaine]

^
Brilliantly put.

 

[Guttersnipe]

That is a Keynesian argument. The fiscal stimulus back then was an absolute failure that did nothing to change the facts that we still had a 15% unemployment rate and $100,000,000 deficit in 1937.
In fact, in 1939, ten years after the crash on Wall Street, the Secretary of the Treasury, Henry Morgenthau, Jr., told the House Ways and Means Committee:

“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!”

More than likely it was caused by three factors then. The federal reserve tightened the money supply (by increasing the federal reserve requirement three times!) far too soon thinking that the crisis was over because a small hiccup in the figures indicated a recovery (just as we had a few months ago). That created a credit crisis at the time in a very short time.
Another thing that caused a decrease in spending and money in circulation was several taxes or tax increases were implemented in 1937 (sound familiar?). The top marginal rate was increased from 59% to 75%! Second, President Roosevelt implemented a tax on the undistributed earnings of companies which he argued were shielding income from taxation by refusing to increase dividends. Finally, the new Social Security program with 2% payroll deductions (half was paid by employees and employers) was instituted in January 1937. (this is surprising in the sense that we are seeing the same failed tactics being used today).
Lastly, the 1935 Wagner Act passed. Real wages did indeed increase but so did work stoppages and strikes that reduced GDP output.

I don't think anyone who seriously understands economics would ever argue that the Keynesian economic policies of FDR/The New Deal cured the Great Depression, rather they eased its effect . . .

. . . case in point 15% unemployment '37 is bad, but compared against estimates of 25 - 33% unemployment in 1933, it's a clear improvement.

Even at the time people knew stock market dips and unemployment spikes of 1937 - 38 were the direct result of New Deal money drying up -- they even called it the Roosevelt Recession!

 

[jamespowers]

I don't think anyone who seriously understands economics would ever argue that the Keynesian economic policies of FDR/The New Deal cured the Great Depression, rather they eased its effect . . .

. . . case in point 15% unemployment '37 is bad, but compared against estimates of 25 - 33% unemployment in 1933, it's a clear improvement.

Even at the time people knew stock market dips and unemployment spikes of 1937 - 38 were the direct result of New Deal money drying up -- they even called it the Roosevelt Recession!

The New Deal extended its effects not eased it in any way. It sucked up all the money in the economy and left smaller amounts of private capital avaialble for business and the consuming public. What cured the Depression was WWII.
More like 25% at the top and 17% in 1937. The percentage decrease is almost negligible and it went right back up in the following years before the war.
It wasn't a recession---it was still the same Depression. They were fooling themselves if they thought differently. However, as I mentioned earlier, increasing taxes and tightening the money supply was his fault.

 

[Atticus Finch]

This is a gross over-simplification, but Keynesian theory dictates that the economy can be best controlled through fiscal policy...i.e., taxation and government spending. The idea is that controlled deficit government spending is good to stimulate a sluggish economy. Conversely, controlled taxation and surplus accumulation is good to slow down an over-inflated economy. The problem is that politicians have traditionally employed only half of Keynes' theory. They spend, spend, spend in times of economic contraction, and they spend, spend, spend in times of economic expansion. This is because republics such as ours reward big spending politicians with more votes at election time, and punish big-taxing politicians with fewer votes. Remember when poor old Walter Mondale got on TV and admitted that he would support a tax increase were he to be elected? Well, he wasn’t.

Bottom line is, after decades of spending, spending, spending, here we are. We can no longer afford to spend, no matter how grim the economic forecast. Our debt burden is now simply too great. Keynesian theory is dead…or might as well be...not because it doesn’t work, but because it was never properly employed.

AF

 

[jamespowers]

This is a gross over-simplification, but Keynesian theory dictates that the economy can be best controlled through fiscal policy...i.e., taxation and government spending. The idea is that controlled deficit government spending is good to stimulate a sluggish economy. Conversely, controlled taxation and surplus accumulation is good to slow down an over-inflated economy. The problem is that politicians have traditionally employed only half of Keynes' theory. They spend, spend, spend in times of economic contraction, and they spend, spend, spend in times of economic expansion. This is because republics such as ours reward big spending politicians with more votes at election time, and punish big-taxing politicians with fewer votes. Remember when poor old Walter Mondale got on TV and admitted that he would support a tax increase were he to be elected? Well, he wasn’t.

Bottom line is, after decades of spending, spending, spending, here we are. We can no longer afford to spend, no matter how grim the economic forecast. Our debt burden is now simply too great. Keynesian theory is dead…or might as well be...not because it doesn’t work, but because it was never properly employed.

AF

It was properly employed during the Depression and it still didn't work. Taxes were raised and spending was raised to no avail.
That being said, I completely agree that thee has certainly been a spend, spend spend period and it needs to stop and stop fast before we crucify our world class ecomony on the cross of debt.

 

[Atticus Finch]

It was properly employed during the Depression and it still didn't work. Taxes were raised and spending was raised to no avail.
That being said, I completely agree that thee has certainly been a spend, spend spend period and it needs to stop and stop fast before we crucify our world class ecomony on the cross of debt.

Actually, it did work. As you observed, WWII spelled the end of the Depression. WWII required the greatest deficit spending of our nation's history, up to that point. It was, in effect, a huge New Deal project that injected millions of dollars into our economy and provided millions of government jobs to the unemployed.

AF

 

[jamespowers]

Actually, it did work. As you observed, WWII spelled the end of the Depression. WWII required the greatest deficit spending of our nation's history, up to that point. It was, in effect, a huge New Deal project that injected millions of dollars into our economy and provided millions of government jobs to the unemployed.

AF

That is not quite the same thing. Nothing involved there involved the New Deal Policies. In fact, many were quite the opposite--especially that of the NIRA codes.
By that estimation then Germany of the same time period did the same thing without the New Deal.

 

[LizzieMaine]

Indeed. Tax rates during the war years were the highest they'd ever been, private industry was subsidized by gigantic government contracts, millions of unemployed men were drafted into the armed forces, and private citizens were encouraged to put every surplus dollar they had into Government securities.

FDR himself, in early 1942, declared that "Dr. New Deal" was dead, and would be succeeded in his practice by "Dr. Win-The-War." In fact, the two "doctors" were graduates of the same school.

 

[Guttersnipe]

Folks, we probably ought not discuss the effects of the NEw Deal any further as they've already clearly crossed the line into politics; perhaps not to the laymen, but certainly to those with formal education in economics.

Live eBay links may not be permissible, politics are still taboo . . .

 

[jamespowers]

Indeed. Tax rates during the war years were the highest they'd ever been, private industry was subsidized by gigantic government contracts, millions of unemployed men were drafted into the armed forces, and private citizens were encouraged to put every surplus dollar they had into Government securities.

FDR himself, in early 1942, declared that "Dr. New Deal" was dead, and would be succeeded in his practice by "Dr. Win-The-War." In fact, the two "doctors" were graduates of the same school.

Actually the Win the War part was the opposite in many ways to the New Deal. Private industry was not at all subsidized by the New Deal. In fact, it was thwarted with the NIRA codes. Private citizens were not at all encouraged to save money before the war either. They were actually encouraged to spend money to bolster the economy.
Giving private industry a leg up and increasing the investment reserve of capital was actually much better than anything the New Deal did for the economy and it decreased unemployment to near full employment figures.

 

[HadleyH]

I don't know if there could be a Second Great Depression .... but .... as we speak ....the second London Blitz is already here!:eeek:

'Don't forget Grandad's old Vera Lynn records.'

 

[jamespowers]

I don't know if there could be a Second Great Depression .... but .... as we speak ....the second London Blitz is already here!:eeek:

'Don't forget Grandad's old Vera Lynn records.'

And this Blitz is from within.:eeek::eusa_doh:

 

[HadleyH]

And this Blitz is from within.:eeek::eusa_doh:

Exactly .... oh dear! :dizzy:

 

[scotrace]

OK, that's starting to cross the line. Let's stay out of, at least, current politics.

 

[Undertow]

This article may be of some interest:
Only 1.2% Of American Spending Actually Ends Up In China

The original research piece is here:
The U.S. Content of “Made in China”

 

[SGT Rocket]

^^^ I still try to buy "made in the U.S.A." whenever I can. I just feel good about it. I think it's a similar feeling most people get when they recycle; I may not be having much affect, but I'm doing something.

 

[jamespowers]

This article may be of some interest:
Only 1.2% Of American Spending Actually Ends Up In China

The original research piece is here:
The U.S. Content of “Made in China”

On the other end of that though, China owns 907 billion in Treasury bonds and Japan owns 877 billion with the UK coming in at a meager 478 billion. Owning our debt has us beholding to them for quite a bit. The US never had that problem in the 1930s. During WWII most of the debt was owned by Americans who purchased most of the debt needed to finance the war.

 

[SGT Rocket]

As far as the original question "Do you think there could be a second Great Depression?" I think we are already in it.

 

[dhermann1]

I think that whatever happens will only somewhat look like the Depression of the 30's. I don't expect unemployment to reach quite the levels it did then, and I think that there are still industries that will continue to show strong growth right along.
I also think that there will be some regions, especially the ones with the really disastrous housing bubble problems (Nevada, Arizona, Florida, etc.) where things will get VERY bad, and many areas where things will only be moderately bad. It will be more like a muddling through, like the stagflation of the 70's.
Things are going to be very bad for some minorities. African Americans were very disproportionately hit by the housing collapse. That's a real tragedy.

 

[AtomicEraTom]

If things continue the way they are, I know I will still have some work. We have contracts to produce Government Cheese.