Oh Baby, You're So Vicious

TAP's Robert Kuttner appears to have blown a fuse in his ongoing debate with Johan Norberg: He spends as much time in his most recent entry calling Norberg a "fundamentalist" as he does making actual arguments.

My favorite non–ad hominem part: "Sure, policymakers sometimes make mistakes but they actually learn over time. That's why there's been no great depression since the 1930s. " Of course, there also hadn't been a Great Depression before the 1930s, when FDR's policies just happened to coincide with the severe deepening of what might've been another routine recession.

Anyway, back when I was writing for Laissez Faire Books, I wrote a short bit on the "fundamentalism" argument, if anyone's interested.

Update: Reader Carole Newton suggests that the depression of 1893-97 counts as "great." Certainly it was quite severe, but also much shorter. I'll let y'all decide whether it's a counterexample to what I say above.

Update 2: Wow. Now Kuttner's trying to claim that Norberg was deliberately lying when he wrote "six percent" rather than "six percentage points," a mistake he immediately conceded and attributed to his writing in a second language. According to Kuttner, since Norberg's English is generally very good, he must have been "wilfully…distorting history." Now, that's the kind of mistake I'm sure I've made once or twice, and English is either my first language or my second by about 2 months…was I lying without knowing it? And what on earth would be the point of lying about a simple fact that can (and obviously would) be so easily checked? Just amazing.

Comments

[joe]

Uh huh. So it was just a routine recession through 1932? What amazes me is how FDR's policies were able to cause the collapse of other nation's economies - before he came into office.

You're going to hurt yourself reaching like that.

[Tommy_Grand]

i thought the lou reed ref was a reach

[Ray]

Oh, and before we get too far off on the re-education of our public school flunkies, Julian's more basic point is Kuttner's sceaming lack of logic.

[Mark A.]

Julian,

Wasn't there a deep recession/ depression or two during the 19th c. just in the U.S.? Who knows how many there may have been, worldwide, prior to Adam Smith and the birth of modern economics and consequently econmoists to name these things as 'recessions' and 'depressions'. I doubt that enough statistical data exist for any definitive conclusions to be drawn.

Also, don't you think that there might be some distortion of perspective due to the fact that it was the largest economic downturn in the history of electronic communications?

[joe]

The Depression was snowballing across the world before FDR came into office, Ray. It was already setting records in other countries. I've heard reasonable arguments that New Deal policies prolonged the depression - not entirely convincing, and they leave quite a bit out, but able to stand up on their own. But that's just looney.

Your criteria for believing things seems to amount to how nice they would be if they were true.

[Julian Sanchez]

Mark-
Yeah,that may be right. I've heard economists compare the GD to past downturns, but I don't know how good their data on those past downturns really was. Milton Friedman and Anna Schwartz described the 30s as "the only occasion in our record when one deep depression followed immediately on the heels of another," for whatever that's worth.

[Ray]

Mark A.

Econ 101; the business cycle. I'll try to keep this simple for everyone.

A healthy economy is also a dynamic economy, which means basically that there will be ups and downs. This economic health is a direct result of flexibility and when the economy flexes, so to speak, in response to unpredictable changes, this business cycle will cycle up or down.

The important part of this little remedial lesson is the flexibility inherent in a dynamic economy.

This is because what FDR's policies did was to essentially freeze the economy in place, taking the flexibility or the dynamism out of the economy. Factories were forbidden by law in many instances from laying people off and this eventually either drove them out of business or in the least kept them from properly allocating their resources.

[Ray]

joe,

I didn't deny that the recession was in full global domino affect. (People have differing definitions of recession and depression, so I'll stick to what we know for sure, regardless of semantics, FDR did indeed inherit a recession.)

The old adage of America sneezing and other countries getting seriously sick is exactly what you're saying. That an AMerican recession can and did cause depressions abroad.

None of this changes of course that if FDR had rid the US of its already onerous market conditions (tariffs, wage freezes and so on) that the recession would have subsided and we would have had a healthy economy by 37.

This would have helped bring the world out of their funk as well and indeed, Britain's economy showed marked improvements by 37, the same time America was turning south again because of our inability to economically "flex."

[joe]

OK, that's reasonable - and a lot closer to "extending" the depression than "causing" it. Let's close this out here, because the main topic of the the thread is a lot more interesting.

It's too bad Kuttner got so bitchy, because he really demolished Norberg. I used to think that the press labelled the protestors "anti-globalists" out of confusion and lack of a better term. But I'm starting to realize that people like Norberg look at a group of American college students wearing Navajo jewelery, sporting Maori tatoos, wearing kente-cloth shirts and playing Indonesion flutes, and think that they are actually opposed to communication and trading among different countries and cultures. Amazing.

[joe]

Norberg's argument about the self-correcting nature of the market, which renders irrelevant the idea of regulation:

"When word got out that Enron?s figures were made up, before authorities had done anything, its stock fell from $40 to zero."

Yes, and the poor shmucks who still owned stock (the stock their bosses had sworn was going to hold its value) gotted wiped out. Of course, the people actually resonsible for the behavior that caused the collapsed had cashed out by then, and were millionaires many times over. Yes, people interested in making an energy trading corporation profitable learned may have been cowed by the drop in stock price. But the only thing that seems to have cowed Ken Lay et al was the man with the subpoena walking out with his hard drive.

[Ray]

joe,

I'll buy "extended." But the numbers, in retrospect, definitely show that we would have been well in to a healthy economy by the end of the 30s if it were not for the economic rigormortis induced by FDR's policies.

I'll have to read the debate a little more in depth to comment on whether or not anyone is getting the better of someone but if Kuttner is arguing in favor of regulation in general, then he's simply wrong, regardless of Norberg's debating ability.

Providing that there is a legal infrastructure for the protection for our private property and voluntary exchange thereof, there is simply not much else needed. The qualifier of course is that we don't harm anyone else in the process. this is why the government is constantly redefining "harm." It enable them to find new ways to "protect" us.

One of my favorite Thomas Sowell books "Vision of the Anointed" spells out the invented crisis and subsequent government fix cycle that the liberals create in order to expand the government control.

[Ray]

joe,

That the Enron stock holder got burned doesn't invalidate the self correction of the market.

What Ken Lay and the Enron honchos did was illegal, even by the most strident free market advocate's definiton.

You don't have to hang out around libertarians too long to hear that the governments only valid responsibilty is to protect its citizens from force and fraud.

[Lefty]

Here's a pretty good account of the depression.

http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html

The economy tanks in '29 starts going back up in '32 (FDR's election), takes a short dip in '36 and then does nothing but go up and return to "normal". Monetary policy is fingered as the culprit.

[Ray]

Example of regulation gone awry;

Because some stock holders were defrauded in the last however many years, you cannot walk into my firm and open an account to "day trade" with less than $25K.

That's not company policy, that's the SEC. If I were an independent broker and wanted to take the risk of letting someone day trade with no more than 5K in holding, this should be perfectly legal if neither one of us (broker/client) engages in fraudulent practices.

I'm pretty much sick of people protecting me. I can make a fair amount of money from as little as $1000 if the regulators will get out of my way. But my otherwise legal income is restricted by a government body intending to protect me.

[Ray]

Lefty,

Kind of misses the point that if FDR hadn't restricted the economy, America would have never experienced the "Great Depression."

Wage freezes, laws against laying off workers, the implementation of farm subsidies heretofore unseen.

Do a google on "plowing under." Find the seemingly unfathomable amounts of food that were plowed under to keep prices high while millions of Americans were restricted to 3rd world diets because of the government induced scarcity.

[joe]

Wow lefty. A chart from Berkeley. I'll take it at face value. Thanks!

I don't suppose you have any links handy on how many millions of Ukrainians were saved from starving to death in the '20s and '30s by Lenin and Stalin? Maybe Berkeley or marxist.org would have that too?

[Ray]

Quoting from Thomas Fleming's "New Dealers' War:"

"Even more humilating were the statistics that showed the U.S. was lagging far behind foreign countries in recovering from the Depression. AMerican national income in 1937 was 85.8% of the 1929 high-water mark while England's was 124.3%. . . .Japan's employment was 75% above 1929's . . . Chile, Sweden adn Australia had growth rates in the 20% range, . . the U.S.'s was -7%"

I'll check out the Berkely study when I get back to work but there was a second "depression" in 1937 that Roosevelt blamed on the "economic royalists." Point being that the 37 down turn was acknowledged even then.

[Ray]

That - wasn't a line break, the U.S. economic growth rate in 37 was -7%.

[joe]

Ray,

There were plenty of Americans on third world diets or worse prior to Roosevelt's coming into office. Large numbers of people dropping dead of malnutrition isn't good for business, you know. There is absolutely no chance of a recovery under those conditions, and a pretty good chance of a genuinely illiberal political turn. The amelioration of widespread suffering is not only decent, it is also smart - even if it blunts the upticks for a little while.

[joe]

Ray,

Unless you're claiming that England under Labor, Sweden, and Imperial Japan were more libertarian than the United States, you've just shot yourself in the foot.

[Joe]

Hey other Joe. It's ok if we all live in the cesspool (equality) as long as nobody is allowed to climb out (liberty). I remember that wonderful phrase from our 1st war: "Give me equality or give me death!" Had such a nice ring. I'll take supply side thank you.

[bennett]

I will start off by professing my biases. I consider myself a libertarian, and a believer in Capitalism. So I definately have my biases and beliefs. However, I also know enough about the study of logic to know that each of Kuttner's "responses" were textbook examples of fallacy, and each would make great additions to logic textbooks as examples of different types (strawman, appeal to authority, emotional appeal, ect.) Since I'm at work right now, I don't really have the time to point out specifics, but read and they are there.

[joe]

OK, zootsuit, exactly how many American corpses are worth 1% higher growth?

Trick question: you can't have the corpses and the growth.

[Rod]

joe,

" ... exactly how many American corpses are worth 1% higher growth?"

You're operating under the assumption that government intervention was the best (or only) way to ameliorate their plight.

It's a strong likelihood that not implementing the policies that extended the depression and allowing growth (or at least a chance for it), would have been more beneficial overall. As is said, 'A rising tide raises all boats.'

Even if one can make a valid argument that government intervention was truly the only remedy, that intervention should have been targeted only at the problem (and only for as long as needed) and not incorporated as a policy that contributed to a more invasive government, and continues to detrimentally affect us in that context to this day.

[joe]

Sorry I wasn't clear, Ray. By "before Roosevelt," I was referring to the end of the Hoover administration. Most of Roosevelt's policies weren't a calculated attempt to create a new model for the economy, but ad hoc responses to a crisis that needed to be addressed pronto.

[joe]

The tide wasn't rising. That's the problem. Hoover spent three years waiting for the Invisible Hand to save the country, and it wasn't. Would it have eventually, without interference from the government? Even if the answer was yes, the human cost and political instability that would have ensued would not have been worth it, and likely would have resulted in communism (the real kind, not "I want lower taxes"), fascism, or civil war. None of which are good for business.

Regardless of the long-term benefit/harm of Roosevelt's policies, the situation was in such a crisis mode, that it required a response by a very visible hand.

[Lefty]

Sometimes, Ray, you startle me in your wrongness.

"Kind of misses the point that if FDR hadn't restricted the economy, America would have never experienced the "Great Depression."

1928 - FDR becomes Governor of New York.
1929 - Black Friday and the GD begins.
1932 - FDR becomes President.

Now, granted, Wall Street is located in New York and FDR was Governor there at the time...

[Rod]

That's largely because the tide wasn't really being allowed to rise (to further stretch this analogy :O))

Even as a libertarian, I can accept that there will be situations (EXTREMELY few in number) where only an entity with the resources of a federal government can address a situation with the least amount of harm. The problem with that kind of action is that it is very much like letting the camel talk himself further and further into your tent, sooner or later, you're the one on the outside.

However, placing arbitrary limits on the factors that encourage growth is counterproductive, and most likely extended the problem even longer than it might have persisted.

There really wasn't an effective 'free hand' at the time, due in part (as you state) to the actions of previous administrations.

As I stated before, even if one could argue convincingly that such governmental intervention was required, that intervention should have been properly targeted and properly expired when a clearly predefined set of criteria was met.

Long term damage is still damage, and is all the worse, because it fosters the idea that it's okay to foist the cost of an action on those who had no hand in choosing the course of action.

PS: Wanting lower taxes (for example) isn't ANY form of communism. Wanting to keep more (if not all, preferably) of what I work for is a decidedly individualistic point of view.

[Ray]

joe,

You said that Hoover was sitting around waiting for the invisible hand.

This is wrong though it may be presented that way in schools today, I don't know.

Hoover was an isolationist (as was the entire GOP) and this caused the economy to stiffen when the recession came. He couldn't grasp the idea of an invisible hand anymore than Kuttner can now. There were tariffs, and such and a general tuck and cover attitude by the Hoover administration.

The political instability that was present took place precisely because of government interference. Hoover's govt. restricted the economy so the natural recovery process couldn't take place. Had he actually been waiting on the 'invisible hand' people would have been too busy working to be upset with the govt.

I'm starting to repeat myself because we're looking at everything from two completely different angles; whether you realize or not, your thinking from the view point of centralized planning and thus the government always has to "do something" for us to prosper.

I'm leaving now but here are two good books on these subjects, Thomas Fleming's "New Dealers' War" and Friedman and Schwartz' book, of which I forget the title off the top of my head.

It's been fun.

[Ray]

Ok, I lied.

One more recommendation to everyone.

You can find James Gwaltney's economic text book for (macro or micro) on amazon for less than $10. This is the same Gwaltney from freetheworld.com where they have the Economic Freedom index. Outstanding book, and the site is great as well.

[Dan]

Yes, and the poor shmucks who still owned [Entron] stock (the stock their bosses had sworn was going to hold its value) gotted wiped out.

That's impossible. The SEC and IRS regulates how companies companies track and report revenue to stockholders. So there's no way the stockholders could have been defrauded.

... oh wait, they were. Which illustrates how little good regulation does here. Regulation rewards companies who cheat -- it makes honest businessmen less productive, encouraging corruption. The less of it, the better.

exactly how many American corpses are worth 1% higher growth?

Hm... probably a few thousand, I'd guess. I forget what the calculated "value" of an American human life is, but if I recall correctly it's a few million dollars.

Remember, you can look at it two ways: "sacrificing lives for money", or "paying money to keep people alive". It's not worth, as a general rule, spending more to keep someone alive than the average person contributes to the economy. If you do, eventually everyone ends up penniless and we all starve. This is why the government does not spend billions of dollars on each on curing every hospital patient.

[Reginleif the Valkyrie]

Uh, Lefty, it's been pointed out numerous times on this page that although the market crash preceded FDR's presidency, his policies prolonged the problem, rather than ameliorating it.

Had this not been the case, yes, the late '20s would have ushered in a severe recession. But it would not have deepened into a depression, let alone The Great Depression.

[Reginleif the Valkyrie]

Bennett: ...each of Kuttner's "responses" were textbook examples of fallacy, and each would make great additions to logic textbooks as examples of different types (strawman, appeal to authority, emotional appeal, etc.)

As well as out-in-left-field non sequitur, as when Bolshevik Bob started ranting about cancer patients who'd inhaled pollution. By the collapse of the Soviet Union, Eastern Europe was an environmental disaster, but it was hardly due to laissez-faire policies.

By the way, did anybody else catch this one: "How can an intelligent person who reads the newspapers possibly believe that?"

Maybe because intelligent people don't read the newspapers these days, Bob. They get their news online. But it would be hard to get this concept across to a guy who approvingly quotes an article on economics that appeared in the NYT.

[Kevin Carson]

Ray,

Another great source on Hoover's alleged "invisible hand" is the chapter on Hoover in Rothbard and Radosh, eds., A New History of Leviathan. Hoover, in fact, was a corporatist and a social engineer who put great stock in government-business partnership. Like most of the intelligentsia, he was inspired by Wilson's "war collectivism" to envision an economy rationally organized by engineers and planners. He just wasn't willing to take it as far as FDR.

The "laissez-faire" thing is just part of a branding strategy by goo-goo court historians like Art Schlesinger to distinguish their guy from the old, bad guys. And on the other side of the mirror-image, the big business interests who claimed to favor "rugged individualism" and "laissez-faire" wanted just the opposite. The "economic royalist" line was just more marketing strategy to sell a fundamentally corporatist, pro-Big Business policy to the public in phony "populist" packaging. Rothbard, G. William Domhoff, and Thomas Ferguson have made an excellent case that Big Business interests were the prime movers behind most of the New Deal. All that squealing was about as genuine as Brer Rabbit begging "please don't fling me in the briar patch!"

[bennett]

Finally, someone who wants to discuss the merits of the actual debate. Thanks.

[Anonymous]

Hoover spent three years waiting for the invisible hand to bail out the country?

LOL.

[Pat Curley]

Will whoever is claiming that FDR took office in 1932 please cut it out? Roosevelt was ELECTED in 1932, but he did not take office until March 4, 1933. So it is bogus to claim that the turnaround in the economy in 1932 was related to Roosevelt.

[arjay]

Thank you, Kevin Carson.

I was wondering when someone would point out what an interventionist Hoover was. Ray and others touched on it but were too busy demonising FDR to deal with it fully. It was Hoover's "engineering" that turned the '29 downturn into a full-blown depression. Roosevelt added cash relief payouts and extensive make-work projects to the mix. The fact that people now had cash made their lives better but didn't do anything for the economy. In addition the programs and the propaganda surrounding them let people know "that someone was finally doing something" .

Many of his programs were struck down by the Supreme Court, and what survived were to a large extent retreaded Hoover programs. One of his most brilliant strokes had to be The Writers Project, what could be better than having a bunch of leftist hacks on the payroll writing about how wonderfully our leader was handling things.

Hmm, Herbert Hoover and Jimmy Carter, both engineers and probably the most decent and compassionate men to hold the office. Next time an engineer runs for president, just say no. I have the same reservations about Dean, somehow I get the feeling that he thinks we're all patients and we'll all get better with the right medicine.

For a readable and non-scholarly look at the subject try Paul Johnson's "Modern Times"

[Michael S.]

On a slightly different tack...
The founding fathers created an essentially libertarian society, not merely because they desired prosperity, but because they desired Liberty. The "efficiency of the free market" arguement is lovely, but somehow tangential to why I consider myself a libertarian. My version of libertarianism is essentially a political system with economic overtones, not the other way around. Power must be atomized, even if it means that certain social problems remain intractable. In a nutshell... laissez-faire capitalism run amuck yields cronyism and Ken Lay. Statism run amuck yields cronyism and Hitler/Stalin/Mao/Saddam.

This is what irritates me the most about Kuttner and other State apologists -- they refuse to grapple with the utter corruptability of their systems. Even if Kuttner is correct and State intervention would be effective in this situation or that, I still would probably oppose it simply on the basis of the perils of Statism. The power to redistribute wealth is nothing more than the power to reward one's friends and beggar one's enemies.

I think a historical argument could be made that tyranny IS the natural order of human society. Remaining free is like fighting gravity (or the regression to the mean, or whatever other analogy you choose). God save us from well meaning Utopians.

I realize that these comments are rather generic, and not terribly germane to the question of "who is to blame for the Great Depression," but I thought I would throw them out there.

[arjay]

Jean Bart

We didn't want to be told that the USA is not the center of the of the Universe.

We were having this "fdr sucks", "does not, but hoover bites", "does to".......and you have to spoil the party with all this stuff about how the events of the 20's & 30's were a series of complex and interrelated events for which no single actor or group of actors can be held exclusively responsible.

Killjoy, did you at least bring some beer?

[Kevin Carson]

arjay,

It's been a while since I've read anything about the money backing specific political figures in the last decade or so. I believe, though, that Ken Lay had close personal ties with Dubya going way back. So maybe it's a case of honor among thieves.

You might like Thomas Ferguson's book Golden Rule, which covers the factions of organized capital that put the money together for presidential candidates from FDR to Clinton. One interesting insight of his is that urban real estate magnates tend to back Democrats, because their policies tend to pump huge amounts of government money into urban development programs.

He used pretty much the same sources as Domhoff to show that FDR's backing came from large, capital-intensive, export-oriented manufacturers: since labor was a relatively small component of their costs compared to plant and equipment, they were willing to pay significantly higher wages; in return, union bureaucrats and the NLRB would enforce contracts, punish wildcat strikes, and guarantee the stability and predictability needed for long-term planning.

[Dan A]

Mark A? Is my brother posting on economics again? If so, to my utter amazement, he has a good point this time. The 1930s depression is called the great one, because other depressions have occurred before -- and because the people who labeled it that, were too young to remember the previous ones, so naturally their own depression became exceptional. The business cycle used to be much more vicious than it is now, there were multiple sharp, severe depressions that happened in the US and Britain in the 19th century, with huge losses in jobs, financial empires collapsing left and right, banks closing with depositers losing their savings -- and deflation, which used to be a routine part of depressions. It is hard to compare, because modern economic data gathering didn't exist back then, and when most US professionals talk about economic and financial history, they are really only talking about the US in the 20th century. However, I don't think any of those 1800s depressions lasted as long as the 1930s one, FDR may or may not have been the reason for that. Modern economic practices with active government interventions on balance have reduced the severity of economic downturns, though, there is a strong case to be made that it is at the price of long term real growth, and that our GDP would be substantially higher without it, even if the cyclical downturns were more severe.

[arjay]

Kevin Carson

A NPR report (I believe Terry Gross ("Fresh Air")) gave the figure of something like $8M to various Bush family/Republicon interests (1994+/- to 2001). I believe also that KL felt some affinity to Dubya as a fellow "energy tycoon" and close friend in the Texas "Good Old Boy" network. However Enron was also committed to the CO2 trading rights (You and I could debate the whole issue of artificial property rights, but this post hasn't enough room) contained in the Kyoto agreement, and pretty much had a deal with Clingore to implement Kyoto without ratification. Clinton had exerted considerable influence on the Indian govt with respect to a hydro project eg.

Was he hedging bets or just stupid. I don't know, but I believe if algore had become prez Enron would have been bailed out both to protect KL and the democrap shareholders who had speculated so wildly in this venture. Pure speculation and you can dispute it and I'll accept any argument that shows anything contrary.

The question is then, did KL consider the GWB/republicons more reliable to deliver what he wanted over the clingores? Or was he blindly loyal and just plain dumb?

Your observation about real estate reminds me of my experience in the early '80's when many RE people went Reagan in a big way until he started reforming the tax code in a way that reduced the profitability of RE investments.

I recall that when the first media stories of Donald Trump appeared he was cast as a Liberal Democrap until the ascendancy of the Reaganite "free market" era.

Forgive my recasting of the spellings of the two major US political parties, this is in keeping with my insistence that the son of the current Head of State of the UK and the British Commonwealth be referred to as Mr Charles Windsor.

[Jean Bart]

Dan A,

There were two economic "crises" in the 1870s that hit the US and Europe especially hard; railroad speculation and a collapse in agricultural prices are often viewed as the main culprits.

[arjay]

Since Kevin Carson brought up Big Business backing of the New Deal and other regulation and joe brought up Enron, maybe one of you could answer this.

Since Bill Clinton and Al Gore had already promised to give Ken Lay practically everything he wanted and had facillitated Enron's growth, why did he give Bush millions in contributions when Bush (rhetorically, anyway) had promised to give him nothing? Is he, like, really stupid as well as really crooked?

OK I know Dubya doesn't really mean all that stuff about the free market but he talked a good game until the farm bill and the steel tarriffs (which I here from one study have destroyed more jobs in steel consuming industries than there are in all the domestic steel industry)

[Jean Bart]

Economists should stop trying to do history; unless of course they are economic historians. 🙂

To be frank, it was the sneezing that was occurring in Europe as much as the sneezing in the US that was creating the problem.

First, it cannot be stated enough that the world economic crisis known as the Great Depression (its acute phase occuring between 1929-1933) was an outgrowth of the First World War (Great War).

Though its onset is generally found with the Stock Market crash of October, 1929, where the market underwent a much needed, if extremely painful, "correction," the warning signs were apparent with the land speculation collapse of 1926-1927 in the U.S., the agricultural collapse in eastern Europe in 1928, as well as the downturn of production that occurred in Europe and the U.S. in 1928. However, this decline was already from a rather low plateau; though by 1929 the economies of Europe had returned to pre-war levels, the rate of growth was far slower than would be expected from Europe's increased population growth, and Europe's share in world trade was less than it wad been before 1914 (partly due to rising worldwide competition, partly because Europe had spent four years eschewing exports in favor of weapons to kill each other, and partly because Russia exited the world economic system, which was especially to France, as she lost 100s of millions in Francs in loans to the Russian government).

Accordingly, the economic boom that did occur in the latter half of the 1920s (remember Europe went through a recession during the first half of the decade, with extreme inflation in Germany during that period as well) was a narrow one; unemployment problems were never really elimated for example and what profits were made were largely from modernization rather than market expansion. Thus the boom of that period lacked the strength to withstand a serious blow.

Falling agriculutral prices in 1928 immediately affected the economies of countries like Bulgaria and Rumania; which contained small farms with with high production costs; this made competition outside the Balkans by these farms impossible. Furthermore, since the price of industrial goods did not fall at the same rate as agricultural goods, the people in these countries were caught in what economists term a "price scissor" because of this disparity. With decreased demands for industrial goods due to lower incomes in Eastern Europe, a general shrinking in industrial production occurred in Europe, and this was only exacerbated by the introduction of protective measures against foreign goods. Thus Eastern Europe's problems proved to be just as key as America's to industrial powers like Britain, France and Germany.

This industrial production crisis took an even greater turn for the worse because of the financial crisis that spread like a fast-moving cancer out of the US. This American financial collapse had immediate repercussions especially and most importantly in Germany. American loans had been granted to the Germany government for the settlement of reparations, as well as to private and semi-public enterprises there. Such capital been drawn to Germany due to high interest rates, which Germany was able to cope with due to the low labor costs there. With the crash, this influx of American money ended and US banks demanded repayment as soon as loans became due.

In a time of decreasing exports (which Germany depended upon heavily for its recovery from 1925-1929) this financial crisis came as a serious blow; the problem was especially acute because the German government as well as private enterprises had used the short-term US loans for long-term investments (a bad business practice for both the banks and the debtors; which men like Reichsbank President Schact had warned against). With the withdrawl of US money, German banks and businesses, as well as the German government, came under greater pressure to spend what liquid reserves they had, which in turn endangered Germany's gold reserves (American banks did not marks after all). Events reached a crisis in the summer of 1931, when the German public started to a run on the banks. Because Germany was the center of foreign investment at the time, largely as a result of the reparations scheme created by the Dawes Committee, the difficulties in Germany meant great losses for banks in other countries (particularly the US and Great Britain). The result was a severe restriction of credit, with capital for investments impossible to find.

By 1933, Germany's industrial production had been halved from its 1929 levels, and there were three times as many unemployed; in 1931 there were almost three million unemployed in Britain; France dealt better with the depression because it was more self-sufficient than the rest of Europe, however by 1933 the depression was having its effects, creating the sort of political crisis that would weaken the French government just in time to distract France from the happenings in Germany. In fact, the economic crisis awakened and strengthened extremists of both the left and the right in Europe (as well as the US - think of Governor/Senator Long of Louisiana), undermined liberal forces in Europe, and re-ignited German militarism.

[Nicholas Weininger]

A couple of comments:

1. On the first update: The 1893-1897 period might fairly be described as a depression, given that there were mass migrations of the unemployed and that the US Treasury came very close to defaulting on its debts. However, it is not a very good example for an economic interventionist to cite. This is because the US got out of the depression without any major remediating government action, thanks to President Grover Cleveland, who stood firmly against the various schemes proposed by the populists of the time. Cleveland's iron-willed defense of Constitutional restraints on federal power stands as a salutary contrast to FDR.

2. The Kuttner-Norberg debate is rapidly turning into an "empiricist vs. theorist" squabble, which is ultimately uninformative and can be misleading. Norberg has sounder theory, Kuttner has more data at his fingertips, and so they're *still* arguing past each other. I wish that the free-market side were represented by a serious economic historian like Robert Higgs, who would be able to match Kuttner data point for data point.

[SteveMG]

Okay, whether statism or free markets is the way, whether FDR's policies exacerbated or mitigated the Depression, whether we had economic collapses of a similar magnitude before or not, can we all agree that if we must take a cross-country bus trip, all of us do NOT want Bob Kuttner sitting next to us?

Affirmed? Any dissenting voices?

SMG

[Marten Barck]

Let me just point out a small Kuttner quote on the Swedish model:

"And, given Sweden's superb (state) system of schooling..."

This is so far from the truth it is possible to be. Everybody in Sweden, including those who defend public schools against private schools, agree that the current Swedish system of schooling is disastrous.

Indeed, the Swedish model as a whole is fast disintegrating. Kuttner is simply wrong on this one. If he stated that the Swedish school system is "superb" here in Sweden, people would just stare in wonder at him.

[Kevin Carson]

Nicholas,

"Cleveland's iron-willed defense of Constitutional restraints on federal power stands as a salutary contrast to FDR."

He used scabs to run the trains during the Pullman Strike. He must have discovered the same previously hidden grant of power in Article I Section 8 that Truman used to seize the steel mills.

[Rotten Little Socialist]

So, why has there not been a depression repeat?

[arjay]

Ray

In 1944 my father was a career naval officer (USNA class of 1936, the smallest of the 20th century & most distiguished in WWII due to Herbert Hoover's budget cuts because of the '29 downturn). At some point in that year his ship (a heavy cruiser of the Baltimore class, OK it was USS Baltimore) returned from service in the SW Pacific, including having been shot at & being damaged by Japanese fire, to San Francisco, whereupon they were ordered to take the President fishing in Alaska. Of course, 4 destroyers were dispatched to protect & screen Baltimore as she steamed to a destination that had only been recently liberated by gallant American & Canadian troops from Jap occupation. The republicons had a field day when one destroyer had to be returned to retrieved the prez's lost dog. I am not sure that my dad was aware of the lost dog episode (he died some yrs ago in a traffic accident, so I can't ask him), but what he did see was that FDR was a dying man, and that the Democrat party would do anything, including running a dying man, to retain power.

Unlike most Naval Officers of the day (FDR had been a popular SECNAV) my dad rejected the New Deal as a scam, & ended up resigning his commission & and moving to another country.

[Nicholas Weininger]

Kevin: The account I read said that Cleveland based his authority during the Pullman strike on the power to keep the mail being delivered, and that in fact he had refused to intervene against the strike unless and until the strikers held up the running of mail trains.

Now I will grant you that the postal service power is perhaps the dumbest of the enumerated federal powers in the Constitution; but at least it's there.

[Kevin Carson]

Nicholas,

The American Railway Union offered to organize work details for the specific purpose of running mail trains. That constitutional hook was as much a reach for Cleveland as "national defense" was for Ike's interstate highway system.

And BTW, the enumerated power technically only gives Congress the power to specify federal postal routes, I believe--not to enforce a federal monopoly on mail service.

[Jim]

Kevin,
I don't know what constitution you're reading, but mine (Article I, Sec. 9) gives Congress the power "To establish post offices and post roads." If you want to argue that the power to establish post offices doesn't include the power to allow those offices to actually deliver the mail, feel free. However, don't narrow the Constitutional language to bolster your argument.

[Don]

"There were plenty of Americans on third world diets or worse prior to Roosevelt's coming into office. Large numbers of people dropping dead of malnutrition isn't good for business, you know. There is absolutely no chance of a recovery under those conditions, and a pretty good chance of a genuinely illiberal political turn. The amelioration of widespread suffering is not only decent, it is also smart - even if it blunts the upticks for a little while."

And when FDR destroyed crops and livestock, that led to "amelioration of widespread suffering "?!

Hey, the FDR fascists made my dad plow under part of his tomato crop -- he wasn't supposed to sell it or even give it away (he told the neighbors there was nothing he could do if it was stolen).

[Ryan]

What caused the recession in the 1890's?

Thanks, Ryan

[Ryan]

What caused the recession in the 1890's?

Thanks, Ryan

[Ryan]

What caused the recession in the 1890's?

Thanks

[Ryan]

What caused the recession in the 1890's?

Thanks

[Ryan]

What caused the recession in the 1890's?

Thanks

[Allocco Kate]

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DATE: 12/21/2003 02:08:13
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[Bivins Jason]

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