The Roaring Twenties and the Stock Market Crash of 1929

Posted by PITHOCRATES - April 23rd, 2013

History 101

The Roaring Twenties gave us the Modern World and one of the Greatest Economic Booms in History

When the steam engine hit the American farm it increased farm production.  By mechanizing the farm fewer farmers could farm more land.  Allowing American farmers to produce bumper crops.  Creating a boom in farm exports.  Especially during World War I.  As Europeans farmers exchanged their plows for rifles Europe had no one to grow their food.  So even though the mechanization of the American farm caused crop prices to fall the increase in sales volume brought in more farm revenue.  Life was good for the American farmer.  For businesses manufacturing all of that mechanized farm equipment.  And the banks making loans to farmers so they could mechanize their farms.

The1920 presidential election pitted a progressive Democrat against a conservative Republican.  The progressive promised to raise tax rates to pay down the war debt.  Andrew Mellon, Warren Harding’s treasury secretary, found that high tax rates were counterproductive.  They actually reduced tax revenue.  As wealthy people invested their money out of the country to avoid high tax rates.  So when Harding won the election they cut tax rates.  With no need to shelter their income the wealthy invested their money in the United States.  Pouring their money into the domestic economy caused great economic activity.  Great returns on investment.  And great income tax revenue.  The wealthy paid almost three times as much in tax revenue.  While the tax burden on the poor fell.  And the national debt fell by one third.

Harding died in office but Calvin Coolidge continued his policies.  He slashed government spending along with those tax cuts.  Pulling the government out of the private sector economy.  And the private sector economy responded.  Creating a lot of jobs.  Unemployment fell to as low as 2%.  And living standards soared.  For everyone.  Not just those in the unions.  In fact, this general rise in living standards weakened the unions.  For you didn’t need to belong to a union to live well.  It was the beginning of the modern world.  Brought about by a burst of innovation and manufacturing that lasted 8 years.  One of the greatest economic booms in history.  Henry Ford’s moving assembly line made the car affordable for the working man.  Auto registrations rose from 9 million in 1921 to 23 million by 1929.  An increase of 156%.  And keeping pace with the auto manufacturers were their suppliers.  Metal, steel, paint, lumber, leather, cotton, glass, rubber, etc.  And especially the oil industry.  That made lubricating oils and greases.  And the gasoline that powered all of these cars.  With so many jobs per capita income increased from $522 in 1921 to $716 in 1929.  An increase of 37%.  With people earning more home ownership soared.  And this boom in economic activity didn’t end there.

Herbert Hoover thought Government could better Manage the Economy than Messy Laissez-Faire Free Market Forces

Electric utilities were bringing the new electric power to industrial users and private homes during the Twenties.  Industry was using 300% more electric power than they were in 1899.  And it changed home life.  As electric clothes irons, vacuum cleaners, clothes washers, toasters and refrigerators became common household items by the end of the Twenties.  Households that had a telephone increased by 51% during the Twenties.  People were watching movies.  And saw the first talkies in the Twenties.  The radio also became a household fixture with some 7.5 million radio sets sold by 1928.   The economy was booming.  The middle class was expanding.  Consumer prices fell due to increases in productivity giving people more disposable income than they ever had before.  Causing an increase in consumer spending.  Allowing 1 in 5 Americans to own a car.  And increasing the number of people who could afford to fly from 40,000 in 1920 to 417,000 in 1930.  An increase of 943%.  So Americans were buying a lot.  But they were also saving a lot.  And investing.  Some 28% of American families owned stock.  Something once the exclusive privilege of the rich.  Wage earners were even buying life insurance policies to provide for their families in the event of their death.  Things were happening in the United States during the Twenties.  And the innovation and economic tsunami coming out of America had those in Europe worried.  So worried that they were discussing forming a United States of Europe to compete with the American system.

But all was not good.  During the Twenties those Europeans traded their rifles back for plows.  Reducing the export market for American farmers.  And when European governments threw up tariffs on America farm goods that export market disappeared.  Putting great surpluses into the American market.  Causing crop prices to fall further.  Crashing farm incomes.  Making some farmers unable to service their debt for all of that mechanized equipment they financed.  And when they defaulted on their loans en masse banks in the farming regions failed.  And when they did the money supply contracted.  The Federal Reserve made no effort to stop this contraction.  Which had a cooling effect.  Tapping the breaks on an expanding economy.

Coolidge chose not to run for a second term.  His successor, Herbert Hoover, was a progressive Republican.  And was everything Coolidge was not.  Hoover favored a big government perfecting the country.  He was a professional bureaucrat.  He loved bureaucracies.  And he loved paperwork and forms.  Which he wanted to bury private business in.  He thought the government could manage the economy better than messy laissez-faire free market forces.  Those very forces that created the Roaring Twenties.  He wanted to partner government with business.  With the emphasis on government.  (As president he increased the size of the Commerce Department and deepened its reach into the private sector economy.)

The Smoot-Hawley Tariff caused Investors to Dump their Stocks causing the Stock Market Crash of 1929

The Federal Reserve misjudged the stock market.  They thought it was nothing but speculation.  Citing radio maker RCA’s stock price’s meteoric rise.  So the Fed tapped the breaks further to cool this ‘speculative’ fervor.  Further contracting the money supply.  But this wasn’t speculation.  The rate of growth in radio sales actually was greater than the rate of growth in the stock price.  Making it more likely that the stock was undervalued.  Not overvalued.  But the Fed went ahead and contracted the money supply anyway.  Making it difficult for business to get funding for continued growth.  Despite there still being people out there who hadn’t bought a car, a house, electric appliances or a radio yet.  And wanted to.

In 1929 a new tariff bill was moving through Congressional committees.  The Smoot-Hawley Tariff.  Which would raise taxes on imports by up to 30%.  Which would greatly increase the cost of business.  Because most if not all of American manufacturing used some imported raw materials.  Which would increase their selling prices.  Making them less competitive.  Worse, if the U.S. slapped tariffs on imports it was certain their trading partners would respond with some retaliatory tariffs.  Which would just shut down their export markets.  Much like those tariffs shut down the export markets for American farmers.  Then in the autumn of 1929 the Smoot-Hawley Tariff passed critical votes in committee.  Sending the tariff bill on its way to becoming law.  This was not good news for investors.

It was all too much.  The coming expansion of government regulation over the private sector economy.  Higher taxes to pay for this bigger government.  The contraction of the money supply.  And then the Smoot-Hawley Tariff.  Investors could read the writing on the wall.  None of this would be good for business.  It would just smother the economic growth of the Twenties.  For if you increase businesses’ costs and decrease their markets you will slash their profits.  Which will reduce the value of these companies.  And reduce the value of their stock prices.  As investors live by the adage of “buy low, sell high” they’d want to sell those stocks fast before the Smoot-Hawley Tariff sent their prices into a tailspin.  Which they did.  Causing a great selloff starting in October.  That led to the Stock Market Crash of 1929.

Now contrast that with a true speculative bubble.  The dot-com bubble.  Where investors poured money into these dot-com companies eager to find the next Microsoft.  Aided and abetted by the Federal Reserve that was keeping interest rates artificially low.  To encourage all sorts of investment.  Including ones driven by irrational exuberance.  So investors were bidding those stock prices into the stratosphere.  For companies that had no profits.  For companies that didn’t have a product or service to sell.  But these investors were looking with great anticipation at their future profits.  Even though they really didn’t understand the Internet.  They just knew that computers were involved.  Which is what made Microsoft rich.  Producing software to run on computers.  And every investor was sure their dot-com was going to produce something to run on computers.  Making that company rich.  And their investors.  But when the start-up capital ran out there were no earnings to replace it.  And the speculative bubble burst beginning on March 11, 2000.  And those highly overvalued stock prices began to fall back to earth.  With the tech-laden NASDAQ losing 78% of its value before it was all over.  Now THAT is a speculative bubble that the Federal Reserve should have tried to prevent.  Not the economic boom of the Twenties where companies were building real things that real people were buying.


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Ben Bernanke defends QE3 before Congress even while Admitting it won’t Create any New Jobs

Posted by PITHOCRATES - October 6th, 2012

Week in Review

Ben Bernanke, Federal Reserve Chairman, is a student of the Great Depression.  And of Milton Friedman.  Who he cited often to support his policies when speaking before Congress.  Insisting that their expansionary monetary policy will only stimulate growth.  Not inflation.  Of course, he has already tried quantitative easing one and two and they failed.  As demonstrated by the need of QE3.  Yet these Keynesians always go back to the tried and failed Keynesian policies.  Increase the money supply to lower interest rates.  To encourage people to build and sell new housing while the market is still flooded with homes left over when the housing bubble burst back in 2008.

Economics is not like trying to cure a hangover.  A little hair of the dog (drinking more alcohol to mitigate the effects of a hangover) doesn’t work in economics.  More bad monetary policy does not cure previous bad monetary policy.  At least, it hasn’t yet.  Nor does it appear that it ever will (see Bernanke presses Congress to support US economy by AFP posted 10/2/2012 on Channel News Asia).

Federal Reserve Chairman Ben Bernanke said on Monday he is confident the US economy will continue to expand, but he urged the US Congress and the White House to act to support stronger growth…

However, he said the economy is growing at a weak 1.5-2 percent rate, not fast enough to lower the employment rate, and that the Fed’s stimulus efforts need to be backed up by action from the rest of the government…

“Many other steps could be taken to strengthen our economy over time, such as putting the federal budget on a sustainable path, reforming the tax code, improving our educational system, supporting technological innovation, and expanding international trade,” Bernanke said.

“In particular, the Congress and the administration will soon have to address the so-called fiscal cliff, a combination of sharply higher taxes and reduced spending that is set to happen at the beginning of the year.

“According to the Congressional Budget Office and virtually all other experts, if that were allowed to occur, it would likely throw the economy back into recession,” he warned.

Bernanke is on to something here.  He acknowledges that the new taxes of the fiscal cliff could throw the economy back into recession.  So if more taxes will prolong or deepen the recession what can we infer from this?  Would not fewer taxes have the opposite effect?

This is the frustrating thing about all of these students of the Great Depression.  They only look at what the Fed did when they were contracting the money supply.  And nothing else.  They don’t talk about a massive increase in tariffs (the Smoot-Hawley Tariff Act of 1930) in Congressional committee during 1929.  Before the Stock Market Crash of 1929.  Nor do they discuss the progressive policies of Republican Herbert Hoover.  And his interference into market forces.  Trying to raise prices everywhere to help farmers earn more and allow employers to pay their employees more.  And the near doubling of federal income tax rates.  Talk about your economic cold shower.

This was a 180-degree turn from the pro-business polices of the Warren Harding and Calvin Coolidge administrations.  That let the Twenties roar with solid economic growth.  Yes, there were some inflationary monetary policies.  The Fed was no angel.  But the growth was strong even after the effects of inflation were factored in.  It was all those tax and tariff increases that turned a recession into a depression.  And then the bad Fed policy destroyed the banking industry on top of it.  Unfortunately, that’s the only part that any Keynesian ever sees.  What the Fed did.  Not the solid economic growth generated by low tax rates and a business-friendly environment.

The Fed’s artificially low interest rates pushed house prices into the stratosphere.  And because they were so high in 2008 they had a very long way to fall.  Which is why the Great Recession has been so painful and so prolonged.  Now they’re trying to stimulate the housing market again.  The very thing that got us into this mess in the first place.  Here’s another lesson the Keynesians need to learn.  Their expansionary policies make recessions longer and more painful.  And there is more to the economy than low interest rates.  For no matter how low they are if the environment is too business-unfriendly they won’t stimulate economic activity.  Lower tax rates and deregulation will.  But not lower interest rates.  That’s what Warren Harding/Calvin Coolidge did.  What JFK did.  What Ronald Reagan did.  What George W. Bush did.  Who all had much faster recoveries following bad recessions than President Obama is having under his Keynesian policies.

If only we could learn the objective lessons of history.  For as George Santayana (1905) said, “Those who cannot remember the past are condemned to fulfill it.”


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Great Depression, Monetary Expansion, Keynesian, Smoot Hawley Tariff, Gold Window, Subprime Mortgage Crisis and Great Recession

Posted by PITHOCRATES - October 2nd, 2012

History 101

There was Real Economic Activity in the Twenties so the Great Depression should only have been a Recession

The Great Depression began with the Stock Market Crash of 1929.  Which led to a period of record unemployment.  On average the unemployment rate was 13.46% during the Thirties.  Or, if you don’t count all of the make-work government jobs, 18.23%.  So what caused this unemployment?  Was it the expansionary monetary policy of the Twenties?  The Keynesians thought so.  Even the economists from the Austrian school of economics thought so.  The only ones to have predicted the Great Depression.  So were they right?  A little bit.

Yes, there was monetary expansion during the Twenties.  So a recessionary correction was inevitable.  But a depression?  When you look at the economic activity of the Twenties, no.  The Roaring Twenties were a transformative time.  It was when we began to say goodbye to the steam engine.  And said hello to electricity.  We said goodbye to the horse and buggy.  And said hello to the automobile.  We said goodbye to the horse and plow.  And said hello to the tractor.  As well as said hello to radio, motion pictures, air travel, electric lighting and electric appliances in the home, etc.  So there was real economic activity in the Twenties.  It wasn’t all a bubble.  So the Great Depression should have only been a regular recession.  But it wasn’t.  So what happened?

Government.  The government interfered with market forces.  Based on Keynesian advice.  They said the government needed to increase aggregate demand.  As that demand would encourage businesses to expand and hire new workers.  Thus lowering the unemployment rate.  And part of increasing demand was keeping wages from falling.  So people had more money to spend.  Of course, if employers were to continue to pay higher wages that meant that prices could not fall.  Like they normally do during a recession.  So the Keynesian advice was to prevent the market from correcting prices to match supply to demand.  Prolonging the inevitable recession.  But there was more bad government policy.

The Keynesian Cure for Unemployment is Inflation

The stock market was soaring in the late Twenties.  Because of that real economic growth.  So what happened to that economic growth?  Well, in part, the Smoot Hawley Tariff of 1930.  Which was in committee in 1929 before the great crash.  But investors saw it coming.  And they knew tariffs rising as much as 50% were going to cool those hot earnings they’ve been enjoying.  As well as Herbert Hoover’s progressive plans.  Who would go on to double income tax rates.  When Herbert Hoover won the 1928 election the writing was on the wall.  And investors bailed.  Especially when the Smoot Hawley Tariff was moving through committee.  Because raising the cost of doing business does not help business.  So the great earnings ride of the Twenties was ending and the investors sold their stocks to lock in their profits.  Precipitating the Stock Market Crash of 1929.  And the record unemployment that would follow.  And the Great Depression.

So the Keynesians got it wrong during the Thirties.  Their next grand experiment would be in the Seventies.  As government spending took off thanks to the Vietnam War, the Great Society and the Apollo moon program.  There was so much spending that they had to print money to pay for it all.  As they did, though, they devalued the dollar.  Which became a problem.  As the U.S. at the time agreed to exchange gold for dollars at $35/ounce.  So when the Americans made their dollar worth less our trading partners decided to take our gold instead.  Gold flew out of the gold window.  So to stop this gold flow out of the country Nixon did what any Keynesian would do.  No, he didn’t cut back spending.  He decoupled the dollar from gold.  Slamming the gold window shut.  Without any advanced warning to the world.  So we now call this action he took on August 15, 1971 the Nixon Shock.  The Keynesians were thrilled.  Because they now had no restraint in printing new money.

The reason Keynesians were happy to be able to print more money was because that was their cure for unemployment.  Inflation.  When the economy goes into recession it was just a simple matter of expanding the money supply.  Which lowers interest rates.  Which makes businesses who had no intention to expand their businesses borrow money to expand their businesses.  So to pull the economy out of recession they inflated the money supply.  And did it work?  No.  Of course it didn’t.  It just raised prices.  Increasing the cost of business.  As well as leaving consumers with less real income.  So, no, the economy didn’t improve.  It just stagnated.  The average unemployment rate during the Seventies was 6.21%.  While the average inflation rate was 7.08%.  Also, the top marginal tax rate of 70%.  Which didn’t help the anti-business environment.

The Subprime Mortgage Crisis and the Great Recession were Direct Consequences of Bad Monetary Policy

So the Keynesians failed.  Again.  Their inflationary monetary policy only made things worse during the Seventies.  All of that inflation just kept pushing prices ever higher.  Ensuring that the inevitable recession to correct those prices would be long and painful.  Which it was.  In the early Eighties.  Then Paul Volcker rang out all of that inflation.  And Ronald Reagan began bringing the top marginal tax rate down until it was at 28% by the end of the decade.  Making a more favorable business environment.  So business grew.  And began to hire new workers.  Teaching an economic lesson some in government refused to learn.  Keynesian inflationary monetary policies did not work.

During the Nineties the Keynesians were back.  Inflating the money supply slowly but surely to continue an economic expansion.  Making money available to borrow.  And borrow it people did.  Creating a long and sustained housing boom that would last for about 2 decades.  That expansionary monetary policy gave us cheap mortgages.  Making it very easy to buy a house.  Housing prices rose.  And continued to rise during those two decades.  Then President Clinton had his Justice Department tell banks to lower their standards for approving mortgages for the unqualified.  So everyone could buy a house.  Even if they couldn’t afford to pay for it.  Ushering in the subprime mortgage industry.  Further increasing the demand for houses.  And further driving up housing prices.  Making the inevitable correction a long and painful one.

Meanwhile, there was something new in the market place in the Nineties.  The Internet.  And new Internet start-ups (dot-coms) flooded the market.  Investors poured money into them.  Even though they didn’t have a product to sell.  And had no earnings.  But investors were exuberant.  And irrational.  Kids flooded into universities to get degrees in computer science.  To staff all of those Internet start-ups.  Companies went public.  Creating a stock market bubble as investors scrambled to buy their stock.  They raised a boatload of money from those IPOs.  And spent it all.  Many without producing anything to sell.  And when that money ran out they went bankrupt.  Bursting that stock market bubble.  And throwing a lot of computer scientists out of a job.  Causing a painful recession in the early 2000s that George Bush helped mitigate with tax cuts.

And low interest rates.  People were back buying houses.  But this time they were buying McMansions.  Because that easy monetary policy gave us cheap mortgage rates.  And subprime, no-documentation, zero down loans, etc., made it easier than ever to buy a house.  Housing prices soared.  And builders flooded the market with more McMansions.  Pushing prices ever higher.  Fannie Mae and Freddie Mac were buying those toxic subprime mortgages from banks to encourage them to approve more toxic subprime mortgages.  Pushing the inevitable correction further and further out.  Running up prices so high that their fall would be a long and painful one.  Which it was when the subprime mortgage crisis hit.  As well as the Great Recession.  Direct consequences of bad monetary policy.  And the government’s interference into market forces.


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Roaring Twenties, Farmers, Mechanization, Smoot-Hawley Tariff, Stock Market Crash, Great Depression and Taxi Medallions

Posted by PITHOCRATES - June 12th, 2012

History 101

The New Economic Reality of Farming was that we needed Fewer Farmers in the Age of Mechanization

The Roaring Twenties was a decade of solid, real economic growth.  The world modernized during the Twenties.  Electric power, telephone, radio, motion pictures, air travel, etc.  So much of what we take for granted today became a reality during the Roaring Twenties.  But there was a downside.  Farmers borrowed money to mechanize their farms.  As farms mechanized they produced great crop yields.  Bringing bumper crops to market.  There was so much food brought to market that prices plummeted.  Reducing farm incomes so much that they couldn’t service the debt they incurred to mechanize their farms.  They defaulted.  Causing banks to fail.

By the late Twenties all the European farmers who fought in World War I were back on the farm.  And were feeding Europe again.  So not only were the Americans producing bumper crops they were losing a large export market.  Forcing farm prices down further.  There were simply more farmers than the economy was demanding thanks to the new efficiencies in farming.  But because there were so many farmers they were an important political constituency.  They were still casting a lot of votes.  So the politicians stepped in.  With a complete disregard to economic principles.  And tried to help the farmers.  With rent-seeking policies.

The farmers were hurting.  So they wanted to transfer some wealth from the masses to the farmers.  As in rent-seeking.  As opposed to profit-seeking.  Instead of creating wealth (profit-seeking) they were transferring wealth (rent-seeking).  And they did this with price supports.  They raised the price of their crops above market value.  Forcing Americans to make sacrifices in their lives so they could afford to pay higher food prices to help the farmers.  So the farmers wouldn’t have to adjust to the new economic reality of farming.  We need fewer farmers in the age of mechanization.  But it just didn’t end with higher prices.  The government would buy excess food grown by these ‘too many farmers’ and destroy it.  Or pay farmers NOT to grow food.  Then they took it up a notch.  And slapped tariffs on imported food.  Further raising the price of food.

In an Effort to raise Farming Prices the Rent-Seekers caused the Great Deflation of the Great Depression

Food tariffs were just one part of the Smoot-Hawley Tariff Act.  This act pretty much raised the tariff on everything the U.S. imported.  Greatly increasing the cost of all imports.  To protect the domestic producers from cheap foreign competition.  But there was a problem with increasing the cost of all imports.  It increased the price of whatever we built with those imports.  So much so that when they were discussing this act in Congress businesses across America knew the boom of the Twenties would end.  As did investors investing in these companies.  So even before the bill became law it caused a huge stock selloff.  Which led to the stock market crash of 1929. 

At first the higher prices helped American businesses.  Their revenue increased.  Everyone thought the tariff act was a success.  But as prices went up costs went up throughout the manufacturing pipeline.  Prices grew so high that people stopped buying.  Inventories accumulated so they cut production.  And then laid people off en masse.  Causing a great recession.  Then further rent-seeking solutions (more governmental intervention into the free market) turned that recession into the Great Depression.  What started out as a problem for overly efficient farmers turned into a national crisis.  In an effort to raise farming prices they caused the great deflation of the Great Depression.  As prices fell so did revenues.  Making it very difficult to service debt.  More people defaulted on their debt.  And more banks failed.

When the Smoot-Hawley Tariff Act became law our trading partners answered in kind.  Leading to a great trade war.  So on top of everything else what limited export markets we had shut down as well.  As the trade barriers went up economic activity decreased.  David Ricardo’s Comparative Advantage worked in reverse.  Increasing opportunity costs.  When international markets closed less efficient domestic industries took their place.  Pulling resources from more efficient uses.  Raising the cost of those resources.  Adding these cost increases on top of the tariffs.  Which further increased prices.  And further lowered economic activity.  Adding further woe onto the Great Depression.

The Medallion System dates back to the Medieval Guilds and Restricts Entry into the Cabbie Market

As the Great Depression languished on few people filled the streets of New York City (NYC).  At least few people with money who had to go places.  There were more cabs than people needed.  Supply exceeded demand.  Putting a downward pressure on taxi fares.  And increasing the time a cabbie had to work to earn some decent money.  Usually the market steps in and corrects such a situation.  Forcing some cabbies out of the cabbie business.  But not in NYC.  There they used the power of government to address this surplus of supply.  And introduced the medallion system.

This was the kind of rent seeking that dated back to those medieval guilds.  The medallion restricted entry into the cabbie market.  By limiting the number of cabs in NYC.  Every cab (at least those who can pick up passengers who hail a cab at the curb) must have a medallion permanently affixed to their cab.  Which they must purchase from the city.  Or transfer from another cab.  Currently, if you want to drive a taxi cab in NYC you better have some deep pockets.  Or have the kind of credit that lets you get a very large mortgage.  For the medallion system exists to this day.  And that medallion may cost you close to a half million dollars.

If you ever wondered why it sometimes takes so long to hail a cab in NYC this is the reason.  Rent-seeking.  As in the medallion system.  Which works just like tariffs.  Reducing supply.  And increasing prices for consumers.  So the rent-seekers can use the power of government to transfer wealth.  Instead of using innovation to create wealth.  And bringing that wealth to the market place to trade.  Instead they choose to take more wealth from the market place than they bring to it.  With the help of government.  And their rent-seeking policies.  Thus reducing overall wealth in the economy.  Which reduces economic activity.  And does nothing to help lift an economy out of recession.  Or out of a Great Depression.


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President Obama is not Telling the Truth about our Economic Past

Posted by PITHOCRATES - March 31st, 2012

Week in Review

President Obama attacks rugged individualism.  Entrepreneurialism.  And the American spirit.  What he calls ‘you’re on your own economics’.  Lying about what hasn’t worked in the past.  For he is either lying or he is incredibly uninformed when it comes to American economic history (see Obama: “You’re On Your Own” Economics Doesn’t Work posted 3/30/2012 on Real Clear Politics).

“It’s been tried in our history and it hasn’t worked,” Obama said. “It didn’t work when we tried it in the decade before the Great Depression. It didn’t work when we tried it in the last decade. We just tried this. What they’re peddling has been tried — it did not work!”

When the government left people alone in the Twenties that decade roared.  The ‘leave the people alone’ policies of the Harding (and then the Coolidge) administration gave us the Roaring Twenties.  A remarkable decade of technological growth.  Both in the cities and on the farms.  We mechanized.  We electrified.  We talked to people all over the country on the new telephones.  We went mobile in our new automobiles.  We listened to the radio in our homes.  We used electric appliances in our homes.  We went to theaters to watch the new motion pictures.  People flew in airplanes.  The Roaring Twenties were a seminal time.  It marked the beginning of the modern world we know today.  And it was full of real, solid economic growth.  Until the progressive Herbert Hoover took over.  And after he got rid of ‘you’re on your own economics’ everything went to hell.

The Great Depression was a wholly made government disaster.  Massive interventions into the private sector economy.  Price supports.  A horrendous tariff bill (the Smoot-Hawley Tariff Act).  And the resulting trade war.  And then in the midst of all of this the Federal Reserve System destroyed the banking system.  By NOT being the lender of last resort.  Causing a cascade of bank failures.

The Seventies was Keynesian Economics at its pinnacle.  It was everything President Obama believes in and wants today.  Massive government spending.  Paid for by massive taxes, borrowing and printing.  The polar opposite of ‘you’re on your own economics’.  Which were an abject failure.  Even Keynesian Economists have to qualify the Seventies to explain away the stagflation (high unemployment AND high inflation) their policies gave us.  Ronald Reagan fixed the Keynesian train wreck with exactly ‘you’re on your own economics’.  It was so successful that Keynesians call it the decade of greed.  A moniker no one can place on the Seventies.

So why is the president saying things that aren’t true?  Because they want those failed Keynesian polices back.  They want to tax and spend like there’s no tomorrow.  For they like the power.  The control.  And the ability to buy votes.  Which is the only way they can win elections.  Because no one will willingly vote for their failed policies of the past.


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