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Dr Strangelove
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I think that one of the major factors that prolonged the Great Depression was the Taft-Hawley-Smoot bill. FDR was not responsible for it, but he is responsible for not understanding how much it hurt the global economy and thence for not attempting to get it repealed.
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David Floyd
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The bottom of a large bottle of beer
Jan 1970
time: 05:28
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It basically raised tariffs, which is always bad.
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Berzerker
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topeka, kansas,USA
May 1999
time: 23:28
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Fez - quote:
This prevented industries from spending more or hiring more.. why wasn't the bill thrown out? |
The "populists" like tariffs because they ascribe to the "America" First" concept. They wanted to punish Americans for buying foreign goods; well, maybe they just wanted to "protect" American industries, but I can't help but see a vindictiveness in alot of these protectionists toward Americans who don't always buy American. I remember the flap Pat Buchanan got into when he was running for president and it was discovered that he or his wife had a Mercedes. OUCH!
Templar - quote:
I would remind him that the threat of court packing was the only thing that forced the courts to quit stonewalling modernization of the bureacracy. |
Hmm...so much for the Constitution... Those Framers just forgot to allow future generations to change it I guess. No, wait, they didn't forget...they installed a process for changing the Constitution - the amendment process. But FDR didn't want people trying to limit his power...strange you would point to a lying dictator wanna-be as someone worthy of admiration (assuming you do admire him).
quote:
And like Chegitz said - if the courts hadn't let FDRs programs through, communism would have won out here. |
I think you guys over estimate the leftist tendencies of Americans, it would take quite a while longer than 5-8 years to convince Americans to embrace communism.. but that's where Fabian Socialism enters the picture... I understand the USA has already implemented a large chunk of the Communist Manifesto, but I doubt we'll ever go all the way. But as Thomas Jefferson said, it is the nature of governments to grow and liberty to give way...
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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quote:
Originally posted by Fez
Certainly such a bill would prolong the depression. It reduced competition nationally in the US, and internationally aswell. This prevented industries from spending more or hiring more.. why wasn't the bill thrown out? |
Not necessarily. The developed economies were all in a depression.
If demand for products in Britain was not enough to support British industry then opening the borders to more trade would not necessarily have created more jobs in the US.
However, creating trade barriers did result in lost jobs because companies relying on exports, meagre as they were, lost access to markets.
In short, free trade would not have improved things, but increased trade barriers created resulted in some job losses.
The biggest problem was the perception people had of the economy and this is where Keynes was innovative.
Businesses stopped investing because they saw no signs of recovery and there was no signs of recovery because business stopped investing. The result is a downward spiral.
Lowering interest rates, which usually results in increase consumption and investment, would have no effect in this type of climate.
Keynes argued that increasing government spending would reverse the downward spiral. As government's spent money, businesses would hire more people and invest in order to get government contracts.
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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quote:
Originally posted by Berzerker
Does that mean increased trade barriers improved the situation?
If not, wouldn't that mean free trade would have improved the situation? |
No, given the economic conditions of the 1930s.
Normally, free trade allows companies to access new markets and to obtain cheaper raw materials.
In the 1930s, the removal of trade barriers would not have opened up substantial markets.
Lowering trade barriers would have resulted in more supply added to economies that already had excess supply.
The cheaper raw materials would not have made a difference because consumption was down and a lowering of price would not have sparked a significant increase in consumption just as lower interest rates did not lead to increased consumption and investment.
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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quote:
Originally posted by Berzerker
They didn't help. If you and your neighbor are exchanging goods and I walk up and impose a 60% tax on your deals, would you guys continue exchanging goods at the same rate especially when you can avoid the tax by dealing with someone else? I'm no economist, but I do know high tariffs inhibit trade. Btw, the economy was messed up because the Federal Reserve constricted the money supply, i.e., the same government that increased tariffs from ~20% to ~60% created the problem in the first place. |
I think there is general agreement among economic historians that the depression in the US was caused by the bursting of an economic bubble that led to the stock market crash. The bubble burst because perceptions changed, not because of increased tariffs.
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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quote:
Originally posted by Fez
Tingkai, I don't believe in Keynesism and do not think it works in the long term. Sure the government can put some money in the private sector but infringing upon it is wrong. |
When people say they don't believe in Keynesism, I figure they don't know anything about his theories.
Keynes argued that the war reparations that the Allies forced Germany to pay after WWI was an economic mistake. Is that something you don't believe?
He was the first economist to look at the effect of perception on economic forces, such as how the stock market will go down if people think it is going to go down. Is that something you don't believe?
Keynes played an important role in developing economic theory. Some of his ideas were later shown to be imperfect, but it was a necessary learning step.
As for government spending in times of deflation, there are times when it is useful, and times when it is completely counterproductive. You may disagree on ideological grounds, but that does not diminish the importance of his ideas.
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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quote:
Originally posted by TheStinger
The increase in tarriffs turned a recession into a depression. When the US put up barries so did europe and the British Empire. When your internal market collapses, reducing your export markest is the most stupid thing you could do.( well not quite, trying to balance your budget by cutting sopending as in the UK was pretty stupid too) |
The British Empire had tariffs in the 19th century, such as the corn laws. That's why David Ricardo developed his theories about free trade.
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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But do you understand why he advocated increased government spending?
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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quote:
Originally posted by Fez
Yes I do... correct me if I am wrong, but the reason he gave was to counter deflation or a recession? |
The situation he mainly wrote about was a depression, although it could have applied to a recession.
But the question is why did he advocate government spending.
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The Templar
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People's Republic of the East Village
Oct 2001
time: 00:28
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quote:
Originally posted by Berzerker
They didn't help. If you and your neighbor are exchanging goods and I walk up and impose a 60% tax on your deals, would you guys continue exchanging goods at the same rate especially when you can avoid the tax by dealing with someone else? I'm no economist, but I do know high tariffs inhibit trade. Btw, the economy was messed up because the Federal Reserve constricted the money supply, i.e., the same government that increased tariffs from ~20% to ~60% created the problem in the first place. |
Of course, if you neighbors have no money or goods with which to trade, a 0% tax on the transaction won't spur trade. If you have over 20% unemployment - those people won't be spending a hell of a lot. Nor will most of the rest who worry about joining the ranks of the unemployed. If underpriced foreign goods are undercutting domestic industries to too great an extent, then people won't have jobs. The tarriffs were implemented as a way of protecting jobs and raising revenue for interim solutions. Not a bad idea in itself.
Moreover, you can expand your money supply to kingdom come, but in the climate of a depression, you won't see a lot of investment no matter how much money is floating around. Nobody is going to risk what they have until things improve. But you will also increase inflation if capacity remains stable at low levels as in a depression and you increase the money supply. This will negatively impact anyone living off of savings and will encourage debt (for those who can obtain credit) since the real value of the debt will get progressively lower.
The great depression was not a monetary problem. It was a self reenforcing cycle of investor trepidation combined with deteriorating conditions brought about by lack of consumer confidence and rampant unemployment - each making the other worse. No invisible hand was going to right the situation. In fact, the war (not a market phenomena) put idle capacity to work without the necessity of investor risk to an extent greater than the new deal. Ergo, government action is responsible for ending the great depression.
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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IIRC, yes, Keynes did talk about downward price resistance (prices fall slower than they increase because people are more reluctant to decrease prices than to increase them).
I don't recall if Keynes said wages only change once a year. It doesn't sound like something he would say. Whether a Keynesian economist said something like that I don't know.
The problem that Keynes saw was that under classical economic theory, a fall in prices increase demand. So in theory, if interest rates drop, the cost of investment declines so business will start to invest. Similarly, the cost of borrowing money declines so consumers will borrow more money and spend it.
In the 30s, interest rates were dropping, prices were dropping, but spending was also dropping. So what was happening?
Keynes argued that people's expectations were the key. If people thought that prices were going to continue to fall then they would hold off spending in hopes of getting a better price tomorrow.
One way to counter this is through government spending. If a business gets a contract to build a road then it will invest money and hire people and buy equipment. The workers will start spending money because they believe their jobs are secure. Other businesses will likeliwise follow suit.
The problem with government spending is not Keynes' theory, but how it was applied. In the 70s, governments started spending money when unemployment was rising. But the problem then was caused by the inflation (which led to decrease consumption) and the inflation was caused by oil price hikes. It was a completely different situation then Keynes was talking about.
I should add the caveat that I did my economics degree 15 years ago so my memory is likely fuzzy.
Imran would be a better at providing a more accurate and thorough discuss of Keynes' theory.
But you should note that things are not always black and white in economic theory. Keynes' theories can be effective in certain situations, while being counter-productive in other situations.
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Tingkai
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To find the Northwest Passage
Aug 2001
time: 13:28
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quote:
Originally posted by The Templar
Moreover, you can expand your money supply to kingdom come, but in the climate of a depression, you won't see a lot of investment no matter how much money is floating around. Nobody is going to risk what they have until things improve. But you will also increase inflation if capacity remains stable at low levels as in a depression and you increase the money supply. This will negatively impact anyone living off of savings and will encourage debt (for those who can obtain credit) since the real value of the debt will get progressively lower.
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I agree with what you wrote except for the above part.
If the government increases the money supply by borrowing money that is sitting idle in a bank and then spending it, wouldn't this create economic growth?
And in a depression, isn't there excess capacity that would absorb inflation effects?
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04-06-2003 01:58
. He also believed that deficit spending wasn't the bad thing that classical economists believed it to be. He thought that it could 'prime the pump', which basically means it may be the engine of economic growth (after all, investment is investment, whether it be in factories or roads)... and not just in recessionary times either.
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