Up to a couple months ago I believed the Austrian economists were correct about economics. I read Robert Murphy’s the politically incorrect guide to The Great Depression, and that solidified my believe even more, then I read Paul Krugman’s End This Depression Now, and after having an open mind I think the Keynesian economists are right about most things. The Facts are that during the great depression when the govt started spending during the first part of the Great Depression unemployment fell it only rose again due to the stoppage of spending a few months later, also that if credit contracts you will get very high unemployment as seen during the Great Depression, and that deflation during a finanical crisis is horrible. And most importantly that WW2 got us out of the Great Depression.
Some people might say, like I even used to that say’s law makes govt spending useless, well say’s law isn’t true, because if you have idol resources and people start to save their money, and banks freeze credit than your economy is not at operating as efficiently and using labor and capital that it would usually use so when you know your economy is suffering from a lack of aggregate demand it’s best for the economy that the govt vastly increases spending.
One objection of Austrians and conservatives is that the debt is too big well that’s just plain false as many countries have a debt to gdp ratio far higher than the USA such as Japan theirs is 208% so we can afford to spend many more trillions on a new stimulus.
During the golden age of capitalism there were no serious recessions, and the financial industry was very regulated much more so than today. Just look it up.
What periods are you talking about here? Can I have evidence of the changes in government spending?
“During the golden age of capitalism there were no serious recessions, and the financial industry was very regulated much more so than today. Just look it up.”
When was the “golden age of capitalism?”
Welcome to the forums by the way.
It is pointless to use idle resources in the economy. They are idle for a reason. People dont need to use them.
Employing the use of an idle resource and ONLY TARGETING THAT SPECIFIC RESOURCE is nearly impossible.
Even something simple as making a pencil requires thousands of workers involved.
The government will have to buy these idle resources which will draw money from taxpayers, hurting the economy even more by employing something that obviously the economy didnt have any use for.
Specifically during 1935, Congress authorizes creation of the Works Progress Administration in the same year unemployment falls to 20.1 percent to 25 percent, he next year unemployment falls to 17 percent, Roosevelt, however, fears an unbalanced budget and cuts spending in1937. That summer, the nation plunges into another recession. Despite this, the yearly GNP rises 5.0 percent, and unemployment falls to 14.3 percent, but the next year unemployment rises to 19 percent and gnp falls, in 1939
- The United States will begin emerging from the Depression as it borrows and spends $1 billion to build its armed forces. From 1939 to 1941, when the Japanese attack Pearl Harbor, U.S. manufacturing will have shot up a phenomenal 50 percent!
- The Depression is ending worldwide as nations prepare for the coming hostilities.
also Sweden and England end their depression much earlier than the rest of the affected countries.
here goes the link for my info
Also Just look at a WW2
The Golden age of capitalism lasted from the end of WW2 until the early 70’s when we went off the Keynesian Bretton Woods system.
Unemployment being low doesn’t mean anything. I can cure unemployment tomorrow by saying that if you’re unemployed you will be exectuted. Likewise, I can mandate that everyone be drafted to the military and unemployement plummets to WWII levels.
If unemployment numbers are your guide, then you sure will come to be against the Austrian ideas. We do not guarantee 0% unemployment, especially when there are so many active government interventions to the contrary.
“The Golden age of capitalism lasted from the end of WW2 until the early 70’s when we went off the Keynesian Bretton Woods system.”
Why is that denoted as the “golden age of capitalism?”
Did you forget the fact that by June 1930 unemployment had dropped to 6.3 percent from a 12 month peak of 9 percent, i.e. a peak that is less than half of what you consider the recovery, before the government began to intervene greatly?? That shows that the recovery was already underway due to market forces, and was only thwarted by the intervention of the Hoover and Roosevelt administrations.
You mean the closing of the Gold window??
I am not really getting the meaning of what your saying, is it that when people don’t but things that they don’t need them?
that doesn’t make sense, if somebody gets laid off why would they get another job?
I am not talking about Resources as in coal I am talking about human resources, and capital
I am not saying that the govt should go make bread or mine coal Im saying that when people are unemployed they ae being wasted, their talents, current labor usage, and skills are being wasted.
Thats the point. Their work is no longer needed (because of a bubble brought up), and therefore they must find a job that fits in the market economy, not some artificially created government bonanza.
while many millions of men were drafted during WW2 that doesnt account for the excellent economic growth of GDP and low unemploymnet for people who weren’t drafted.
But we don’t want or need another draft we need high speed rail and infastructure and lots of other things
Things that may not be in demand at the moment. It is best to let the free market consumer demand, demand for these things before they can be effectively built..
In 1931 there was a very big banking panic which made unemployment go up.
And what govt intervention are you talking about
David Silva,
Employing the use of an idle resource and ONLY TARGETING THAT SPECIFIC RESOURCE is nearly impossible.
And even if it could, this does not matter. When slack industries will be finally able to hire some workers, skilled or non-skilled, thanks to public spending, part of them are likely to come from another job. Also, when slack industries get the money they will be able to compete, and out-compete, their competitors for resources such as nails, steel, or lumber. Crowding-out still occur, even in a recession when the so-called “idle resources” increase in volume.
andrewfelekos,
I think you could read this paper “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis”.
You claim to have read Murphy’s book on the Great Depression. You are either lying about that fact or did not comprehend it in the slightest. As for Hoover: spending, taxes, tariffs, subsidies, preventing wages from falling.
Dear David Silva, I don’t have the time to read this full paper right now but just from skimming through it, I understand the resarchers point of view but I doubt that these policies are the sole reason on why the recovery was so slow, and more advanced econometric testing is needed which is hard to do because of lack of certain stastistics to fully understand cause and effect in the macroeconomy. But we have sort of a depression going on now and these policies aren’t policy now and yet we still have a slow recovery.
And the reason we have a slow recovery now is because of lack of aggregate demand, if we only would of spent enough to cover the output gap then we would’ve been fine just like after WW2.
But thanks for that paper, i’ll try to get to it later
The article i gave you was only cobncerning about the idle resources in a depression
Look I am sure they played a role but you can not simply say that those are the only reason for the depth and severity of the Great Depression currently we haven’t had those things but were still in a non technical term recession to some people feels like depression.
I never said that the use of idle resources wre the mainstay of the depresssion.
Cheap credit expansion by the fed made boom which turned into a depression, and fdr, and hoover made it great.