By the year 1937 industrial production was again approaching and in some instances exceeding the previous all-time high in 1929. At this stage the spokesmen of business, still imbued with the doctrines of the economists concerning the efficacy of 'confidence' and apparently unaware that the government spending was the only important source for making up the deficit in the business budget, set up a hue and cry for the government to balance its budget. Promises to balance the budget were made and the excess of government expenditures over receipts was reduced from 4.8 billions of dollars in 1936 to 2.8 in 1937. The immediate consequence of this was the most drastic curtailment of industrial production yet known. Between September, 1937 and January, 1938--but 4 months--the volume of industrial production dropped by an amount which in the 1929 'crash' required the 20 months from October, 1929 to July, 1931.
Thursday, October 8, 2009
Exit Strategy?
M. King Hubbert, 1940:
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7 comments:
This particular point needs to be driven home by all members of the economics profession in harmony. And those that disagree need to be disciplined by exposure as the charlatans they are. The record and correlation is simply to clear to be ignored.
The rightarded will attempt to raise the issue of the coincidental tax increase on incomes over, in today's money, over a million dollars. (This increase occurs in 1936 legislation). Unfortunately for the morons, that tax hike was never repealed. Yet the recession was ended by the restoration of the spending that had been cut. Pictures of this (graphs) are needed. I did one of the spending but it isn't real good.
Then Wikipedia gives us a picture of the GDP. I don't have the graph of the tax rates yet but I keep telling myself I will make one.
I am not sure what the point of this post is. Government stopped spending and the economy tanked. Does this mean government should have continued spending; or, does it mean the revival of industrial output was artificial and destined to collapse?
The point is: don't try to balance a budget in the middle of a depression or recession.
Or, don't try to balance a budget without having an exit strategy from the stimulus. On the other hand, don't try to keep those stimuli rolling in eternally, one after the other. Perpetual emergency is not a strategy.
Anonymous: "The point is: don't try to balance a budget in the middle of a depression or recession."
You can't get off that easy. Balancing a budget in the middle of a depression always worked before the Great Depression. And, in the case of the vast majority of governments, it is what works today. Indeed, only the "owner" of the currency increases its deficit during times of a depression.
Or, are you suggesting California begin deficit spending? Argentina? France?
Shouldn't you have to show that we are in a situation similar to the Great Depression before advocating deficit spending???
Given the massive problem with debt, if we are now at some sort of high unemployment equilibrium, shouldn't we exhaust other non-deficit methods of addressing this, and leave deficit spending to the point where it becomes absolutely necessary?
Anonymous II: "Balancing a budget in the middle of a depression always worked before the Great Depression."
That depends on what your definition of "worked" is. Sure, given enough time and hardship, depression will eventually go away or there'll be a war or revolution. That's comforting.
"Shouldn't you have to show that we are in a situation similar to the Great Depression before advocating deficit spending???"
No.
"Given the massive problem with debt, if we are now at some sort of high unemployment equilibrium, shouldn't we exhaust other non-deficit methods of addressing this, and leave deficit spending to the point where it becomes absolutely necessary?"
Yes. That's what the Sandwichman has been saying all along. Reduce the hours of work. But nobody's listening. So second best is take the deficit placebo... and then reduce the hours of work.
"But nobody's listening. So second best is take the deficit placebo... and then reduce the hours of work."
Second best????? And, was leeches the second best cure for pneumonia. For what was bleeding the second best solution????
I deleted the rest of this response, but you get the idea...
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