Global Financial Crisis :(

[PancaKe]

So I was thinking I should make a topic all about the stimulus packages and how we're getting free money from the government and how that means the government is in more debt but we can all afford plasma TV screens....


But then I thought that a global financial crisis thread wouldn't go amiss. So yeah.

Here are some points for discussion:
- How do you think it will be fixed
- What is the government doing wrong / doing right
- What are you spending your bonus money on?
- Anything else?


I reckon the Australian government are idiots for spending all our money nd getting our country into so much debt. >=( That's about it. I'm not very politlcally minded.

[Asilynne]

WHAT bonus money >.> I dont see anything coming my way -.-

[Roy Karrde]

I believe we get 5 dollars added onto our paychecks. Seeing how I get 100 Dollars in taxes taking out. It...well isnt worth it.

[shazza]

The stimulus packages handed about by the Rudd government in Australia will keep GDP levels at a modest level as millions use the money to invest into the economy, as I have personally done so. However, he originally argued that the stimulus packages will prevent the Australian economy from going into recession which is a foolish assessment to make as GDP in Australia is already in negative.

[Mikachu Yukitatsu]

The global financial crisis has affected me to a certain extent. But the main reason why I have been losing extra money during 2007 and especially 2008 is that I have made purchases more than ever. I bought Playstation 3, a bed, an expensive sofa, a shelving, Nintendo Wii and a laptop, among other things. I did get some extra money because my father died and stuff, but I have lost so much. Anyways, here in Finland, food costs now more and that's why I have less to spend on other things. Even where I usually eat lunch has raised the price of food. It used to be 3 € for everyone, but now it's 3.50 € for members and 4.50 € for others. But that's what has happened everywhere.

It seems that the politicians are planning what to do right now, but generally, some say too much and others try to do too much alone. And what I'm really worried about is that economical problems take all the attention and the counteracts on the greenhouse phenomenon are forgotten, though they are as important.

[RedStarWarrior]

Federal employees still got a raise in the US. Hehe...

Also, don't buy a plasma television. They suck.

[Gavin Luper]

I think no degree of economic stimulus via cash injection can magically make a country avoid what looks like the biggest recession/depression since the 1930s, especially not when consumers are constantly told (probably truthfully) that more jobs will be lost and that things are going to get worse. People are going to get their free money and plenty of them are going to use it to pay off their credit cards, personal loans and mortgages, especially if they're behind in their repayments, as a lot of people are right now. According to the news, what happened with the last stimulus late last year is that most people did exactly that: pay off their debts or save up for the rainy days ahead, not spend recklessly.

It's nice that Rudd is trying to do something, though. And free money will make him very popular with a lot of voters. But ultimately, I don't think there is a way to "fix" this - it's a natural low in an economic cycle, except this time the low has been exacerbated by the sub-prime lending dealio, negative gearing, etc etc.

I'm not an economist, but I guess time will see us hit rock bottom and then slowly crawl back up toward the surface.

Or, if things get really bad, it's possible that global governments will either use capital works programs and militarisation to pull themselves out of the recession (a la Germany in the 30s). But hopefully (really hopefully) another World War won't be required to solve this economic crisis. :S

[classy_cat18]

Federal employees still got a raise in the US. Hehe...

You sure? I would've heard something from my mom since she works in the Social Security Administration.

Anyway, we're too broke over here to get a plasma screen. Shoot, we had to get a normal screen secondhand. And we both me and my brother in college, it's not going to get any better for now.

[Jeff]

This past winter was hard for us. We have been doing whatever we could to conserve energy, which means, among other things, keeping the thermostat down. I would sometimes have to go to bed in temperatures as low as 55 in my room. Even now, it's supposedly spring, but it's still pretty cold outside.

I don't know how we're going to get out of this. I'm pretty sure the solution isn't going to be what Congress is doing now, which is spending tons of money on pet projects. That's only going to help construction workers and whatever other specific interests that the money will go to. Yes, I realize that new roads will benefit everyone, but only if everyone has a job to drive to. Everyone now knows that FDR didn't save the economy with the New Deal, what really pulled the world out of that mess was something I hope we don't see again, a world war. Of course with North Korea, Russia, and Iran all being run by lunatics, it doesn't seem too far out an idea.

As for what I spent last year's stimulus money on. I'm typing this on it.

[Mew Master]

Wow...extra 5 bucks... I already get paid 700 a month... not much of an increase. :/

[Heald]

There are two main problems really, and neither ought to be involved in this whatsoever: the hysterical media and inept politicians. Most politicians do not have any form of financial, mathematical or economic qualification, mostly because there is much better money to be earned in business with such qualifications than in politics. Therefore, whenever politicians make a decision regarding the economy, they have absolutely no idea what they are doing and are often only sticking to their political affiliations, rather than what would actually benefit the economy. Sure, they have 'advisers' who probably do have some sort of qualification, but these advisers are completely unaccountable and will usually only tell the politicians what they want to hear, mainly because they're not rated on their performance, only how sycophantic they are. If they give a politician bad advice, that politician will most likely be removed before they have a chance to dismiss the adviser.

Now, onto the current crisis. At the moment, there are three main problems: deflation (i.e. a fall in the general level of prices), unemployment and a drop in spending. Deflation may sound like a good thing (cheaper goods? Yum!), however, it generally means that businesses will earn less, and since wages normally cannot go down, it is easier to sack people, thus increasing unemployment. More unemployment means people have less disposable income, which leads to less spending. If there is less spending, businesses will have to lower prices in order to attract customers.

As you can see, it is a self-perpetuating cycle: deflation -> unemployment -> fall in spending -> deflation

The good news is that persistent deflation is quite a rare occurance as there are usually automatic stabilisers built into most economies in order to prevent it. The bad news? When it does happen, it is due to exogenous factors (i.e. factors not within the economy) and since you cannot affect exogenous factors, it is an utter bitch to fix.

Because of global trade, foreign demand is a big exogenous factor and because of the extent of this crisis, foreign demand for all economies has taken a big hit across the board. This affects countries that really more on exports than others. Normally, if your prices fall, you will sell more overseas, but if prices fall everywhere, or if prices in a foreign country remain the same but foreign demand falls, then exports will remain the same. That is why in this case exports will not help any economy.

Another big exogenous factor is consumer confidence. This is where the hysterical media comes in. Normally with short-term deflation, demand will rise and therefore deflation will be nullified. However, demand tends to not rise when every tabloid, newspaper and news outlet is screaming 'DON'T SPEND ANY MONEY, THE ECONOMY IS ANGRY AND WILL MURDER YOU AND YOUR FAMILY IF YOU SPEND ANY MONEY'. Here is a fact: this crisis would never have happened if the news corporations hadn't announced there was a financial crisis in the first place. People tend to base their financial decisions on how they think the economy is doing, except most people are not familiar with how the economy actually works, so they read newspapers and rely on them to tell them. The trouble is, most newspapers have no idea how the economy works either.

So here is the problem: newspapers that know nothing about the economy tell people who know nothing about the economy that the economy is going to fail. These people then stop putting money into the economy and the economy actually does fail. Then, politicians who know nothing about the economy have to try and fix the economy. This invariably always makes things worse.

The most useful tool in fighting deflation is controlling interest rates, specifically, lowering them. High interest rates discourage spending and investment, whereas low interest rates encourage spending and investment. Therefore, interest rates have to remain low during the fight against deflation. In a world without hysterical media, this would lead to spending, although thanks to our hysterial media, spending will not rise until they tell people to start spending. However, low interest rates also mean people stop saving with their bank and are more likely to take out a loan, therefore banks will lose money. This is why governments are stepping in left right and centre in order to save banks. The worst thing that could happen is a bank to fail and millions of people to lose all their money.

So, the government has two options left: decrease taxes or increase spending. Unfortunately, these will increase their deficit and will lead to higher taxes once the crisis is over. Of course, if the crisis does not stop, then they are just left with a huge hole and a poor population unable to repay the debt. Therefore, any tax decrease or spending increase has to be sensible, in that it either safeguards people's money (bailing out banks) or jobs (bailing out businesses such as car factories), creates jobs (such as infrastructure investment) or increases spending (such as a sales tax reduction). That said, too small a change in either policy and nothing will happen.

This is what has happened in the UK: instead of a big tax cut and useful tax breaks on those hardest hit, the government approved a 2.5% sales tax reduction across the board. 2.5% is, to be frank, absolutely useless. To put this in perspective, a £10000 car would only be £250 less expensive, so £9750. Likewise, a £250 TV is now only £243.75. That's if businesses decide to take account of the tax cut when charging people. For many small businesses, and quite a few big businesses, a tax cut as minimal as 2.5% is so miniscule they would only be losing money if they decided to reprint price tags or menus. As such, the UK government has been soundly ridiculed around the world for such a pathetic gesture.

Imagine the scene in Lord of the Rings where Gandalf is fighting the Balrog. Now imagine Gandalf is the UK government and the Balrog is the economy:

ECONOMY: (breathing fire) RAAAAGH! RAWR! RRRRRRRRRRAGGGGH!
UK GOVT.: YOU...SHALL NOT...PASS! (slams down a 2.5% tax decrease)
Nothing happens.
Awkward Silence.
ECONOMY: RAAAGH! (eats UK GOVT.)
Credits roll

It will also take a while for any sort of government spending increase to take effect. $1trillion sounds like a lot of money, but how quickly can you feasibly spend $1trillion in a useful way (instead of superfluous nuclear deterrants and pointless wars in the Middle East)? It takes time to recruit people, and if you're trying to employ people, you won't just pay them all en masse $1trillion. It takes time. Eventually, any useful spending will take effect, but for now, it is just a case of weathering the storm.

Luckily for me, I'm a student, meaning that my tuition fees are fixed and unaffected by the crisis, and I've got a guaranteed loan from the government that I don't need to pay back until I've actually got a job.

EDIT Thought I'd nip this in the bud:



I don't know how we're going to get out of this. I'm pretty sure the solution isn't going to be what Congress is doing now, which is spending tons of money on pet projects. That's only going to help construction workers and whatever other specific interests that the money will go to. Yes, I realize that new roads will benefit everyone, but only if everyone has a job to drive to.
Spending money in areas that will increase employment for unskilled labourers will actually affect you, even if you don't. The whole point about building new roads in order to combat a recession is not actually about building roads, believe it or not, it is about employment. Increasing employment in the sector of unskilled workers will mean they then have more disposable income. They will then use this money and shop in the retail and services sectors, which will increase employment in those sectors.

Everyone now knows that FDR didn't save the economy with the New Deal, what really pulled the world out of that mess was something I hope we don't see again, a world war. Of course with North Korea, Russia, and Iran all being run by lunatics, it doesn't seem too far out an idea.
The general consensus amongst economists and economic historians is that FDR's New Deal was a success, however, it is generally agreed that World War II hastened the recovery, however it was not the sole cause, the country was on the road to recovery thanks to the New Deal, WWII just gave it a much needed boost.

This recent nonsense that's been circulating recently thanks to comparisons by conservatives to Obama and FDR is from a report by a single team of economists who, judging by their comments, are conservative economists and not above taking pot shots at a dead Democrat. It should not be regarded as a fact and has been widely disagreed with. However, news outlets will always sex up reports about 'What-if' rather than 'It was' stories.

[Roy Karrde]

Spending money in areas that will increase employment for unskilled labourers will actually affect you, even if you don't. The whole point about building new roads in order to combat a recession is not actually about building roads, believe it or not, it is about employment. Increasing employment in the sector of unskilled workers will mean they then have more disposable income. They will then use this money and shop in the retail and services sectors, which will increase employment in those sectors.

Except it isn't that easy, especially in the United States. As you have local and state, and even national buracracy which stops the money from flowing to these roads. For example money from the Stimulus could possibly not reach projects till 2011.

Worst yet is that unlike many other countries, the jobs you mentioned "Building Roads" is a job that is usually given to Illegal Immigrants. Who inturn send most of their money back to Mexico instead of spending it here. A good amount of the stimulus money wont go to US Citizens, and wont even be spent in this country as it will be shipped back to Mexico. Especially in projects for border states.

http://www.usatoday.com/money/economy/employment/2009-03-08-immigrant-jobs_N.htm


The general consensus amongst economists and economic historians is that FDR's New Deal was a success,

Not really, even FDR's own Treasury Secretary said at the time that the New Deal was not a success. And there is a growing number of economists who actually look at the facts and are coming to the right conclusion that it prolonged the great depression.

"We have tried spending money. We are spending more than we have ever spent before and it does not work ... After eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!" - Henry Morgenthau FDR Treasury Secretary


however, it is generally agreed that World War II hastened the recovery, however it was not the sole cause, the country was on the road to recovery thanks to the New Deal, WWII just gave it a much needed boost.

And of course you will back these up with facts and figures right?


This recent nonsense that's been circulating recently thanks to comparisons by conservatives to Obama and FDR is from a report by a single team of economists who, judging by their comments, are conservative economists and not above taking pot shots at a dead Democrat.

A: Just because he is dead does not mean we cannot go back and look at his work

B: Their Political Stripe has nothing to do with the facts. It is Political Bigotry on your part to believe it does

C: Their report came out in 2004 as found Here (http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?RelNum=5409) I do not believe Obama was even a national figure when it came out.

D: Another report called Out of Work: Unemployment and Government in Twentieth-Century America again in 1997, before Obama. Also claimed the same thing, that Unemployment went higher because of the New Deal.

"The Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of New Deal programs" Pg 141 of their report


It should not be regarded as a fact and has been widely disagreed with. However, news outlets will always sex up reports about 'What-if' rather than 'It was' stories.

Nor should it be regarded as a "Fact" that it actually brought us out of the great depression as you tend to believe.

[Heald]

Except it isn't that easy, especially in the United States. As you have local and state, and even national buracracy which stops the money from flowing to these roads. For example money from the Stimulus could possibly not reach projects till 2011.

Worst yet is that unlike many other countries, the jobs you mentioned "Building Roads" is a job that is usually given to Illegal Immigrants. Who inturn send most of their money back to Mexico instead of spending it here. A good amount of the stimulus money wont go to US Citizens, and wont even be spent in this country as it will be shipped back to Mexico. Especially in projects for border states.
I agree, as I mentioned before, stimulus projects that don't stimulated anything are just wastes of money, I was just using building roads as an example. Stimulus plans in order to safeguard millions of American jobs in industries such as car manufacturing, if successful, will have all the effevts I detailed.


And there is a growing number of economists who actually look at the facts and are coming to the right conclusion that it prolonged the great depression.
This is a flat out lie. I have no idea where you picked this up from. If by 'growing numbers' you mean 2 people that met that conclusion (and having looked at their findings and other economists' findings on the report, there are many glaring errors and statistical flaws that they made).

And of course you will back these up with facts and figures right?
You first Roy, at least I actually know (having read text books and seen various reports) that what I say is the truth.


C: Their report came out in 2004 as found Here (http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?RelNum=5409) I do not believe Obama was even a national figure when it came out.
I know that but that report has seen an increase in circulation recently since Obama became the President-Elect with people trying to link Obama to FDR. I know the report itself did not but people have been trying to link the two.


Nor should it be regarded as a "Fact" that it actually brought us out of the great depression as you tend to believe.
I don't believe it brought the USA out of the Great Depression but it definitely did put the USA on the road to recovery, rather than stifle America's recovery.

The fact is, it cannot said concretely whether or not the USA's recovery in during the Great Depression was helped or hindered by the New Deal, however, the figures, the facts and the majority view amongst economists and economic historians is that the New Deal benefited the country and helped it, rather than prolonged the Depression.

[Roy Karrde]

I agree, as I mentioned before, stimulus projects that don't stimulated anything are just wastes of money, I was just using building roads as an example. Stimulus plans in order to safeguard millions of American jobs in industries such as car manufacturing, if successful, will have all the effevts I detailed.

Except the problem with the Car Manufactures are two fold.

A: The Government continues to poke their head into their business, causing them to make cars that people tend to not want to buy. For example Hybrids. The Government also puts heavy standards on them which raise the cost of manufacturing. For example allowing states to set their own emission standards instead of having one uniformed emission set.

B: The Unions have essentially turned these companies into Health Care Industries for retirees. Making them very unprofitable.

In the end Government needs to realize they are part of the problem not the solution, and if anything need to allow these companies to go under so that they can renegotiate or get out of the Union Contracts in Bankruptcy court. Because as we have now learned with GM, some auto companies are unable to even survive and we are just throwing tax dollars down a hole to prop them up.



This is a flat out lie. I have no idea where you picked this up from. If by 'growing numbers' you mean 2 people that met that conclusion (and having looked at their findings and other economists' findings on the report, there are many glaring errors and statistical flaws that they made).

I would be that even two would be a growing number. But in reality it would be 4, the two from Cali-Berkley, and the two from the 1997 report. Not to mention many of the other reports I have not mentioned here.


You first Roy, at least I actually know (having read text books and seen various reports) that what I say is the truth.

I believe I asked you to back up your post. If you are unable or unwilling to do that then just say so.


I know that but that report has seen an increase in circulation recently since Obama became the President-Elect with people trying to link Obama to FDR. I know the report itself did not but people have been trying to link the two.

The report has been in circulation since it made waves in 2004 and made people begin to look at the New Deal again. Only reason it has increased now is because Obama has tried to look like FDR and has been using rhetoric such as making a "New New Deal"


I don't believe it brought the USA out of the Great Depression but it definitely did put the USA on the road to recovery, rather than stifle America's recovery.

Increased Unemployment, Unconstitutional Acts, disregarding Antitrust laws, limited competition, Forced Higher Wages resulting in less Employment etc etc. Doesn't sound like the road to recovery to me.


The fact is, it cannot said concretely whether or not the USA's recovery in during the Great Depression was helped or hindered by the New Deal, however, the figures, the facts and the majority view amongst economists and economic historians is that the New Deal benefited the country and helped it, rather than prolonged the Depression.

Well for one I have asked you to produce these facts and figures and you have not. Second the "Majority view" tends to be a load of shit, and is more in line with "We believe this is what happened and we do not give a shit about what anyone else says." How many times in the history of this planet has the "Majority view" been absolutely wrong when confronted with new evidence?

Hiding behind "Well its the majority view" doesn't work and you know that.

[Heald]

In the end Government needs to realize they are part of the problem not the solution, and if anything need to allow these companies to go under so that they can renegotiate or get out of the Union Contracts in Bankruptcy court. Because as we have now learned with GM, some auto companies are unable to even survive and we are just throwing tax dollars down a hole to prop them up.The Double-Edged Sword: People bitch about the Government throwing money at keeping firms afloat, but if they didn't, millions would go unemployed, drastically putting a burden on the taxpayer through unemployment benefits and demand falling even more sharply than it already is. More unemployment and less demand are two things that would make the situation much, much more dire, and it would be just as expensive to allow these people to become unemployed.

I believe I asked you to back up your post. If you are unable or unwilling to do that then just say so.
You're asking me to produce you all the books and economic journals I had to research last year for my Economic History module in order to do a coursework on this very subject so you can go and find all these books to find out I'm right...well, I'd doubt you could be bothered to locate these books to be honest.

Increased Unemployment, Unconstitutional Acts, disregarding Antitrust laws, limited competition etc etc. Doesn't sound like the road to recovery to me.
Unconstitutional acts and laws regarding firms have no relation in how well a nation recovers from an economic crisis. Also, unemployment actually decreased year on year from the introduction of New Deal policies. Employment reached 1929 levels of employment in 1938 and it was only when FDR was pressured into relaxing New Deal policies in 1937 that there was a blip when unemployment rose slightly (although nothing compared to the unemployment of 1933). GNP and national output reached all-time highs and inflation was steady. Another important fact is the New Deal heavily improved the USA's infrastructure and industry and had the New Deal not have been implemented, the USA would have had far less capability to quickly mobilise when World War II broke out and thus thanks to the New Deal the USA was far more prepared to enter a war.

I am not hiding behind a majority view. There are no concrete facts about events in economic history due to the subjective nature of the science behind economics and how politicised a lot of it is. However, the majority of views I have studied across the spectrum of this and the research I myself did have all pointed towards the New Deal being a success. It has its criticisms and I accept that, but I do not accept that it wasn't a success, as much of the evidence points towards it was.

[Mew Master]

You're asking me to produce you all the books and economic journals I had to research last year for my Economic History module in order to do a coursework on this very subject so you can go and find all these books to find out I'm right...well, I'd doubt you could be bothered to locate these books to be honest.

Don't mean to butt in here, but some sources from both of you would be nice. I don't mean reproduce the entire article. More along the lines of some cites in the form of a bibliography would be useful. If not for this discussion, than for the rest of us.

[Roy Karrde]

The Double-Edged Sword: People bitch about the Government throwing money at keeping firms afloat, but if they didn't, millions would go unemployed, drastically putting a burden on the taxpayer through unemployment benefits and demand falling even more sharply than it already is. More unemployment and less demand are two things that would make the situation much, much more dire, and it would be just as expensive to allow these people to become unemployed.

It is a double edged sword, thing is that these companies are just utterly unsustainable. And partially the Government is to blame, partially the Unions, partially the Car Owners who buy only certain types of vehicles. But we do need to go through some pain to get past this.


You're asking me to produce you all the books and economic journals I had to research last year for my Economic History module in order to do a coursework on this very subject so you can go and find all these books to find out I'm right...well, I'd doubt you could be bothered to locate these books to be honest.

It's called the Internet I am sure you can do a bit of research.


Unconstitutional acts and laws regarding firms have no relation in how well a nation recovers from an economic crisis.

Oh but they do. See the New Deal pretty much allowed companies to work with eachother in the setting of prices and wages. Allowing for less competition to occur between companies when it comes to hiring employees. By ignoring Anti Trust laws, by passing the NIRA, which the Supreme Court struck down after finding it unconstitutional. The new law to be passed pretty much did the same thing although in a constitutional way, but allowed the Justice Department to turn a blind eye to collective arrangements by industries that paid High Wages.


Also, unemployment actually decreased year on year from the introduction of New Deal policies. Employment reached 1929 levels of employment in 1938 and it was only when FDR was pressured into relaxing New Deal policies in 1937 that there was a blip when unemployment rose slightly (although nothing compared to the unemployment of 1933). GNP and national output reached all-time highs and inflation was steady. Another important fact is the New Deal heavily improved the USA's infrastructure and industry and had the New Deal not have been implemented, the USA would have had far less capability to quickly mobilise when World War II broke out and thus thanks to the New Deal the USA was far more prepared to enter a war.

Oh I do not argue that there was a recovery in the United States already in motion before the New Deal was implemented. Problem becomes is that the New Deal also weakened the recovery.

Some numbers you also tended to not mention are also: Total Hours Worked, another indication of recovery was at 27% below its 1929 level in 1933. And by 1939 it remained 21% below its 1929 levels.

Also investment was significantly down during the New Deal. Averaging about 60% below trend between 1933-39.

Now as with Unemployment, I do not deny that there was a recovery already in motion when the New Deal came about. The market was correcting itself. The massive rise in unemployment was already steadying by the time the New Deal took effect. Problem is that the New Deal did slow a recovery that should have had us out of the Great Depression by 1936. Now if the New Deal was truly the driving trend behind the Unemployment numbers and not partially behind it. Would you agree that in 1934 when much of it was declared Unconstitutional by the Supreme Court we should have seen a rise in those numbers instead of a general downward trend?

Also it should be noted that the reason why they began to pull money out in 1937, which as you seem to think caused Higher Unemployment. Was because they were not getting a good enough recovery. As seen by the quote from the Treasury Secretary that I posted before hand.


I am not hiding behind a majority view.

That was your argument in your previous two posts. So yes, you are.


There are no concrete facts about events in economic history due to the subjective nature of the science behind economics and how politicised a lot of it is. However, the majority of views I have studied across the spectrum of this and the research I myself did have all pointed towards the New Deal being a success. It has its criticisms and I accept that, but I do not accept that it wasn't a success, as much of the evidence points towards it was.

Then I would guess you also accept that it produced Anti Trust Lawsuits? That it artifically inflated wages causing less jobs to be created. That it created stifled competition by allowing companies to work together.

Edit:
Don't mean to butt in here, but some sources from both of you would be nice. I don't mean reproduce the entire article. More along the lines of some cites in the form of a bibliography would be useful. If not for this discussion, than for the rest of us.

Well I have already provided two sources.

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?RelNum=5409

and

Unemployment and Government in Twentieth-Century America

If you want the numbers and math behind the first source I would suggest checking out their full 50 page report and sources.

http://www.economics.hawaii.edu/research/seminars/02-03/02-21.pdf

[Heald]

Oh I do not argue that there was a recovery in the United States already in motion before the New Deal was implemented. Problem becomes is that the New Deal also weakened the recovery.
I was not arguing that, if we consider March 9 1933 the first day of the New Deal policies, many of the economic indicators, such as GDP, national output, inflation and unemployment, had continued to worsen since 1929. It wasn't until mid-1933 that many of these trends were reversed, especially GDP. In fact, thanks to the New Deal, the USA during the Presidency achieved the highest annual growth rate in GDP in the history of any country.

There's also the policies that did much good in the USA: closing the banks until they were certified saved millions of people from poverty and restored much-needed confidence in the banks. The Tennessee Valley Authority modernised one of the poorest and most impoverished areas of America. Trade unions were empowered in order to fight the exploitation of millions of America's poorest by the few and saved many from poverty. Child exploitation was outlawed, and as mentioned previously, much needed infrastructure and industry modernisation ensured the USA was ready to enter World War II.

On the off-chance that business could have gotten its act together more quickly than FDR (which is completely hypothetical and even the economists who argue that the New Deal stifled recovery admit that there was a good chance this may not have happened), growth would have been unregulated and unsustainable, leading to a collapse around the 1940s, just as the USA was entering World War II. Considering under the New Deal the country was recovering at a decent and sustainable rate, if it could've possibly grown faster without regulation, there would have been a high chance of unsustainable levels of growth that would have ballooned and collapsed, severely hindering the USA, which, given the timing of the Second World War, would have been disastrous.

[Roy Karrde]

There's also the policies that did much good in the USA: closing the banks until they were certified saved millions of people from poverty and restored much-needed confidence in the banks. The Tennessee Valley Authority modernised one of the poorest and most impoverished areas of America. Trade unions were empowered in order to fight the exploitation of millions of America's poorest by the few and saved many from poverty. Child exploitation was outlawed, and as mentioned previously, much needed infrastructure and industry modernisation ensured the USA was ready to enter World War II.

There was also the policies that did much harm to the USA, that I have already mentioned here. Encouraging and then allowing companies to break Anti Trust laws. Discouraging investment, etc etc. While you see the empowering of Trade Unions as a good thing, it also helped bring about less employment in companies, which caused more people to go into poverty. Now if you want we can go round and round as to the good and bad that the New Deal brought. But it was not all sunshine and roses.


On the off-chance that business could have gotten its act together more quickly than FDR (which is completely hypothetical and even the economists who argue that the New Deal stifled recovery admit that there was a good chance this may not have happened),

Well for one it wasn't much of a off chance, and I would love to see the quotes of these economists that say that.


growth would have been unregulated and unsustainable, leading to a collapse around the 1940s,

And of course you plan to back this up?


just as the USA was entering World War II. Considering under the New Deal the country was recovering at a decent and sustainable rate, if it could've possibly grown faster without regulation, there would have been a high chance of unsustainable levels of growth that would have ballooned and collapsed, severely hindering the USA, which, given the timing of the Second World War, would have been disastrous.

You also should preface this with "I believe" or "I guess" as you have absolutely no proof that a sustained recovery completely unhindered by the growth slowing policies of the New Deal would have led to a Financial Bubble Burst just 5/6 years after we got out of the Great Depression.

Edit: You also have not backed up your arguments with sources as Mew Master has asked.

[Heald]

While you see the empowering of Trade Unions as a good thing, it also helped bring about less employment in companies, which caused more people to go into poverty.People were already being paid wages that left them below the poverty line anyway. Empowering trade unions allowed them to negotiate fair wages. Yes, trade unions do adversely affect employment, but it's better to have some people earning a decent wage rather than everyone being exploited and earning next to nothing, but I will concede the New Deal wasn't all great, I'm just saying it's not the horrible Depression-extending myth that you're perpetuating.


Well for one it wasn't much of a off chance
Err, actually it was. The banks were screwed, millions were unemployed, in exploitative employment, impoverished and the situation wasn't looking like improving (unemployment, GDP and output were all stagnant for a year until the summer of 1933 when the effect of several New Deal policies kicked in). We're not talking 21st century impoverished where people think not earning enough to buy a plasma screen is 'poverty', I'm talking literally peanuts a day and having to line up after work at the soup kitchen. Would the banks have sorted themselves out? No. Would businesses paid their workers a fair wage? No. Would the infrastructure and industry of the country sorted itself out? No. Would the Tennessee Valley be modernised? No. Would all farmers be exploited and impoverished due to oversaturation of the market? Yes. Would the US be in a far worse position to enter World War II? Yes.

If you're claiming there was a high chance business would have sorted all that out, you're far less informed on economics than I thought.



You also should preface this with "I believe" or "I guess" as you have absolutely no proof that a sustained recovery completely unhindered by the growth slowing policies of the New Deal would have led to a Financial Bubble Burst just 5/6 years after we got out of the Great Depression.
It's called educated speculation. Most economic models have automatic stabilisers in them in order to contain unrestricted growth that would damage it in the long-run. It's that same educated speculation that those UCLA economists to come up with the what-if scenario of what would happen if the New Deal hadn't taken place. If you're going to refute the argument I'm presenting because it's speculation, then you must refute the argument that the UCLA guys presented. You can't 'prove' any speculation or theoretical models in economics: you just have to come up with educated models. One of the key flaws I've seen presented by economists arguing with modern-day theories on the New Deal hindering the USA's recovery is that they have the benefit of hindsight and modern-day economic theories that in the 1930s they did not have access to. Therefore, even if there was a better alternative to the New Deal, they probably had no idea what it was, simply because the theory had yet to be devised. Economic theory was a very young science in the 1930s (the roots of Keynesian economics had yet to be established firmly, as nowadays it is considered core to economic theory) and it is still quite young. I bet in 200 years time when it has become even more advanced, they'll laugh at us for being so slow in sorting out this financial crisis.

EDIT On presenting sources, I studied many journals and books last year on this subject for one of my modules and there is no chance of citing them on the internet. Believe it or not, most economists don't spend years writing books and then publish them for free on the internet, you actually have to pay or go to the library in order to read them. My bibliography is with my coursework which is saved on an external hard drive which is in my university house (I'm on Easter break at the moment) so while I could present a list of journals and books, it wouldn't do much good (I'd doubt any of you would really want to go looking for them anyway to try and prove a guy on a Pokemon forum wrong about economic theory). My intention is not to deceive you but to promote awareness about this kind of thing, however if you want to believe that I am lying, go ahead.

[Roy Karrde]

People were already being paid wages that left them below the poverty line anyway. Empowering trade unions allowed them to negotiate fair wages. Yes, trade unions do adversely affect employment, but it's better to have some people earning a decent wage rather than everyone being exploited and earning next to nothing, but I will concede the New Deal wasn't all great, I'm just saying it's not the horrible Depression-extending myth that you're perpetuating.

Well first I would say lets remember that words have meaning. It was a Depression Extending piece/s of legislation. Calling it a myth is very poor debating.

Second while you are right in that it allowed for fair wages. In many times it created wages far above what they should be. And as you pointed out that created more unemployment than what could have happened if the Trade Unions were not given so much power.


Err, actually it was. The banks were screwed, millions were unemployed, in exploitative employment, impoverished and the situation wasn't looking like improving (unemployment, GDP and output were all stagnant for a year until the summer of 1933 when the effect of several New Deal policies kicked in). We're not talking 21st century impoverished where people think not earning enough to buy a plasma screen is 'poverty', I'm talking literally peanuts a day and having to line up after work at the soup kitchen. Would the banks have sorted themselves out? No. Would businesses paid their workers a fair wage? No. Would the infrastructure and industry of the country sorted itself out? No. Would the Tennessee Valley be modernised? No. Would all farmers be exploited and impoverished due to oversaturation of the market? Yes. Would the US be in a far worse position to enter World War II? Yes.

And 90% of those are guesses on your part. Markets do work themselves out that is a undeniable fact. Yes unemployment was high, yes the banks were in trouble. But to say that they would not have sorted themselves out, that businesses would not pay fair wages, or that the US would be in a far worse position is a guess on your part at best. And a dishonest lie at worse.


If you're claiming there was a high chance business would have sorted all that out, you're far less informed on economics than I thought.

So you deny that markets correct themselves, that Big Daddy Government was the only way for businesses to sort themselves out? That they cannot restructure, cut costs, merge, and yes for some go under because they are unsustainable? To believe that in the end businesses would not have been able to sort this out is naive at best.


It's called educated speculation. Most economic models have automatic stabilisers in them in order to contain unrestricted growth that would damage it in the long-run. It's that same educated speculation that those UCLA economists to come up with the what-if scenario of what would happen if the New Deal hadn't taken place. If you're going to refute the argument I'm presenting because it's speculation, then you must refute the argument that the UCLA guys presented. You can't 'prove' any speculation or theoretical models in economics: you just have to come up with educated models.

Difference though between you and the UCLA economists though when it comes to "Educated Speculation" is that they have provided basis for their speculation through mathematical equations based on the facts available. As well as mountains of proof to back up your theory. You on the other hand have provided nothing while dismissing the UCLA economist's theories as being "Conservative".


One of the key flaws I've seen presented by economists arguing with modern-day theories on the New Deal hindering the USA's recovery is that they have the benefit of hindsight and modern-day economic theories that in the 1930s they did not have access to. Therefore, even if there was a better alternative to the New Deal, they probably had no idea what it was, simply because the theory had yet to be devised.

There are a wide variety of factors in the New Deal that were so horribly bad, so destructive to growth that I would think would be common sense. Are you saying that they did not have the idea or theory that by destroying Anti Trust laws that it would hurt competition? Are you saying that they did not have the idea or theory that by granting more power to the unions that companies would have to concede further to the unions and higher less workers?

Edit: And on sources, I would suggest using Google to find a alternate source. As you said many economists do not publish their information free on the internet. Yet so far I have been able to provide two sources, one of which displaying a full list of the math used for them to arrive at their conclusion. I would assume you could do the same.

[Heald]

So you deny that markets correct themselves, that Big Daddy Government was the only way for businesses to sort themselves out? That they cannot restructure, cut costs, merge, and yes for some go under because they are unsustainable? To believe that in the end businesses would not have been able to sort this out is naive at best.
On the contrary, look at my first post, markets ought to and can work themselves. Free-market economics is far more effective in general than the government taking control, however, players have to play by the rules. Oversupply and overinvestment as well as malfeasance led to the Great Depression in the first place. The economics of today has built-in automatic stabilisers that did not exist in the 1930s, therefore businesses could not be relied on to act in the interests of the country. I know you right-wing Americans love the free-market and consider it heresy to speak ill of it but even economists know that a complete lack of regulation leads to disaster.

I'm going to stop arguing about the Great Depression here because of this point: you cannot compare the Great Depression to the financial crisis of today, the world and the economics behind it are completely different. Regardless of whether an economist writes a report speculating that the New Deal may have lengthened the recovery, it is still speculation, not concrete fact, and if you dare to call any of what I said a lie, to say as an irrevocable fact that the New Deal caused the Great Depression to last longer, as you have been saying, is an outright lie. There is evidence for that view, I can concede that, however, there is also evidence against that view, and I have intelligently studied both points of view and drawn my own conclusions. You have only viewed the reports that you find acceptable to your political stance and you have already made your mind up. Honestly, it'd be great if the economy could do better without regulation, but that is not a fact today, a level of regulation is needed, and that was definitely not a fact back in the 1930s when the situation was much more different and the stakes of the government not regulating the economy were much higher.

[Roy Karrde]

I wouldn't have called it that, it was a pretty spirited discussion on the Great Depression. And I don't know about Heald but it did cause me to do quite a bit of research in the hours we debated. Which is what I love about these intellectual debates is that you come away having learned alot.

[PancaKe]

Thanks for contributing to discussion Blade. Oh , wait...

Yeah so nobody is making you read this, so go whine somewhere else.


In news related to the depression - I don't really know how these things work (so I've learnt heaps from reading Roy and Heald's posts). I always assumed that the end of the 1930's depression was because they invested in heaps of infrastructure, giving people jobs and money to burn while the prices are low etc. And I'm all for the free money, and for the government to be spending on things which will help in these hard times; but right now the Australian government seems to think it's a priority to put in an optic fibre broadband network right across Australia in order to make people have faster downloads - which will cost heaps once we have it and cost heaps to make sure everyone has it in the first place. That and my sister apparently now has a laptop, thanks to some promise that every child would have a laptop ; regardless of whether they need it or not. Thanks, how much did that cost?

But I'm not totally aware of all the politics behind these choices, so I could just be making a fool out of myself by saying all this.

I haven't really been affected yet. I worry for my dad's company though, and I've begun to hear stories about people losing jobs and money which is nice and scary. But the media is loving this ; studying journalism, everyone is latching on to the GFC because it'll sell papers, attract viewers, rack up the hits on your blog site, etc.

[firepokemon]

You're all screwed and the big stimulus packages your governments have created will eventually lead to huge inflation. In New Zealand we're ignoring the rest of the world and going our own way.

[Roy Karrde]

You're all screwed and the big stimulus packages your governments have created will eventually lead to huge inflation. In New Zealand we're ignoring the rest of the world and going our own way.

It's scary when I am in absolute agreement with firepokemon..... some one hold me ;.;

[RedStarWarrior]

You sure? I would've heard something from my mom since she works in the Social Security Administration.

Anyway, we're too broke over here to get a plasma screen. Shoot, we had to get a normal screen secondhand. And we both me and my brother in college, it's not going to get any better for now.
As a Federal employee, yes. It's nothing substantial and it's a yearly thing.

Also, DON'T GET A FUCKING PLASMA. They suck, really.



And to the guys that aren't contributing: I'm going to be deleting your posts. Keep it up and worse will happen.