I'm kind of short on time, but here's a few things for you to consider. First, I don't know squat about the economics, demographics, etc. of Ireland, Greece, or Great Britain....three places that do seem to be "slashing" spending. In reading about them though, I do share Krugman's reservations and said so the other day. A more gradual approach might be wiser and only time will tell. I would favor a longer term, more gradual, across the board approach for the US that combines a whole lot of things, inc. targeted tax increases.
As for the bond vigilantes, just because they aren't here now doesn't mean they aren't coming. It's simply a matter of if and when our debt hits a certain level. I said several years ago when I joined this thread that my benchmark re my own investments was 100% of GDP. The closer we get to that level the more those bond vigilantes line up....ha....like sharks catching the scent of blood.
What’s the evidence for the belief that fiscal contraction is actually expansionary, because it improves confidence? (By the way, this is precisely the doctrine expounded by Herbert Hoover in 1932.)
You might want to get yourself familiar with the facts and timelines of the Great Depression, i.e. who did what and when. Just read the facts, not some author who's trying to interpret history, argue causality, and lay blame. Wiki is the place to start. As for Hoover, he did respond to the collapse of the economy with lots of spending programs. He created the Federal Home Loan Bank Act which provided moeny to stop foreclosures and lend for new construction. He passed the Emergency Relief and Construction Act which funded a lot of public works acts, for ex. the Hoover Dam. FDR only picked up and expanded the public works construction projects that the Hoover administration had started. The Hoover administration also created the Reconstruction Finance Corp. which made available govt. secured loans to banks, railroads and farmers.
I'm not going to waste time arguing for or against Hoover, but he's possibly become a convenient historical scapegoat. His only legitimate mistake may have been letting the Smoot-Hawley bill pass which led to trade wars, but I haven't studies any of this in detail.
As for FDR, he's probably been mischaracterized, too. He picked up and expanded on the Hoover administration relief efforts. I haven't studies at all what each program was and if it made sense, etc. But one does have to wonder why the Depression went on for such a long period of time and by that I mean why it took so very long to get back to full employment. (The Depression was actually a series of recessions.) FDR took office in 1933 and immediately started adding to the Hoover programs. My sense is that FDR got all the legislation and funding he asked for, nevertheless it was actually nearly 1945 before the country reached full employment and the economy was ginning. The war years were still marked by shortages and rationing of all kinds of consumer goods, as well as relatively high unemployment.
The question then becomes: If it took the US almost 15 years to get back to the employment and production levels that existed in 1928, how does that recommend taking a Keynesian approach to things?
I'm just getting started in learning more about the Great Depression, but so far I'm realizing things I assumed were true are not necessarily so. My sense of things so far is that the enormous losses and debt loads that existed throughout those years just had to be worked down and overcome and that takes a lot of time, on average.
What I'm most curious about is how public debt got so high by 1929. Mortgage rates were in the 5% range back then and credit cards weren't available. So I'm wondering how the public had managed to become so indebted back then. |
