Economics

The Depression That Wasn't

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There was an individualist interlude between World War II and the Cold War. With a brash new Republican Congress elected in 1946 and with a Soviet Union that still seemed more ally than enemy, the country leaned "right" on economics and "left" on foreign policy. Then the Cold War came along and that brief moment of relative peace and free enterprise was forgotten.

As the debate over federal stimulus rages, Jeffrey Rogers Hummel looks back at that postwar period and finds some "devastating historical evidence against fiscal policy":

The enormous decrease in government spending after World War II, followed by four years of surplus and a nearly 50 percent fall in the national debt as a percent of GDP, constitutes the most contractionary fiscal policy in all of U.S. history….If Keynesian theory were correct, there should have been a massive depression, which is what nearly all economists were predicting at the time. But the demobilization saw no real recession or significant unemployment.

As Hummel notes, this point was also made in Richard Vedder and Lowell Gallaway's Out of Work, a book with many sharp things to say about unemployment.

NEXT: 'We're Making This Up As We Go'

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  1. If Keynesian theory were correct, there should have been a massive depression…

    Because Keynesian theory is know for its support for high government spending at all times, especially during periods of low unemployment and booming consumer demand, like in 1945.

    WHAT??

    This is just an appallingly ignorant statement.

  2. So the decade following the massive stimulatory effect of WW2 spending, which brought our debt up to a quarter of a trillion 1945 dollars, was marked by strong economic growth.

    Huh. Well I’ll be.

  3. I would reccomend a book called Dogs and Demons.

    http://www.amazon.com/exec/obidos/ASIN/0809039435/reasonfoundation-20/

    It is about Japan in the 1990s. No one borrowed more or invested more in “infrastructure” in response to an economic downturn than Japan did in the 1990s. They basically paved over their entire countryside. No kidding. It did them absolutely no good and left them with anemic growth and the highest national debt of any industrialized country. Anyone who thinks that we can borrow our way to prosperity, needs to explain why such an approach failed so miserably in Japan.

  4. Rosie put down her rivet gun and picked back up her spatula, how much did this have to do with stabilizing the employment picture?

    And the transition off of wage and price controls was pretty rough; as it was inflation in 1946 was aound 18%.

  5. Anyone who thinks that we can borrow our way to prosperity, needs to explain why such an approach failed so miserably in Japan.

    Obama said it will work this time. Haven’t you been listening?

  6. So the decade following the massive stimulatory effect of WW2 spending, which brought our debt up to a quarter of a trillion 1945 dollars, was marked by strong economic growth.

    The piece argues that WW2 spending did not have a “massive stimulatory effect.” I guess I could have quoted that part too, but it’s a familiar argument in libertarian circles — especially recently — and I wanted to highlight the next chapter of the story.

    As for your first comment, I guess the easiest reply is to recommend the Vedder/Gallaway book.

  7. Joe,

    As the articles says, the advocates of Keynesianism predicted a massive recession/depression as a result of the contractionary fiscal policy following WW2. That’s a potent counter-example to the theory, and one you cannot simply hand-wave away.

  8. “Rosie put down her rivet gun and picked back up her spatula, how much did this have to do with stabilizing the employment picture?”

    But 12 million men were demobilized from the military so that kind of balances it out. Yes inflation went up, but as you point out that was a re-adjustment resulting from years of price controls. Also, there was so much pent up demand from war time control that demand was bound to outrun supply. No one could buy a new refrigerator or a car for almost four years. It stands to reason that they couldn’t make stuff fast enough to keep up with the demand and prices went up.

  9. Anyone who thinks that we can borrow our way to prosperity, needs to explain why such an approach failed so miserably in Japan.

    Because they didn’t clean out their banking sector.

  10. I should point out that Dogs and Demons is about more than economic theory and stimulus. It is also about the deterioration of Japanese culture as well. It is a really interesting book.

  11. “Because they didn’t clean out their banking sector.”

    What does one have to do with the other. True, they should have cleaned out their banking sectore. But, how does that mean that the stimulus did any good? Why couldn’t they have cleaned out their banking sector and avoided going into crushing debt? Regardless of how bad a down turn is, the long term effects of that kind of debt seems a lot worse. Do the proponents of stimulus honestly beleive that the only two choices facing a country in an economic downturn is depression or endless debt and anemic growth?

  12. semm,

    Economists of all varieties predicted such a recession, not just the Keynesians, so it’s not so much a blow to any particular school of economic thought, as to the level of knowledge in the economics profession as a whole at that time.

  13. Does the Vedder/Gallaway book talk about the Marshall Plan? I thought that was used to subsidize American industry, under the guise of “helping” the Europeans.

  14. John is right about this:

    Also, there was so much pent up demand from war time control that demand was bound to outrun supply. No one could buy a new refrigerator or a car for almost four years. It stands to reason that they couldn’t make stuff fast enough to keep up with the demand and prices went up.

    As opposed to 1930-1940, when there was no such demand.

    This pretty definitively demonstrates that consumer demand increased a great deal during the years of high military spending, even if the economy wasn’t structured in a manner that allowed that demand to be met.

    What does one have to do with the other. True, they should have cleaned out their banking sectore. But, how does that mean that the stimulus did any good? That wasn’t the question you asked.

    What Japan’s experience shows is that a bank-induced recession will linger as long as the underlying financial-sector problems aren’t fixed. I’m not the one arguing one way or the other what it shows about fiscal stimulus; you are. All I’m doing is pointing out that the slow growth you’re talking about has a perfectly logical counter-explanation than the one you assert.

  15. But 12 million men were demobilized from the military so that kind of balances it out.

    Right, that was my point; 12 million newly unemployed men, but as well a great deal of jobs made available when a good chunk of the existing workforce traded boilermaking for babymaking. I agree with your cause of the immediate post war inflation.

  16. What does one have to do with the other.

    Nothing. The failure of Japan’s economy to grow while its banking sector was still clogged with bad investments has nothing whatsoever to do with economic stimulus. They are two completely different topics.

    That’s my point.

  17. “As opposed to 1930-1940, when there was no such demand.

    This pretty definitively demonstrates that consumer demand increased a great deal during the years of high military spending, even if the economy wasn’t structured in a manner that allowed that demand to be met.”

    Of course there was demand between 1930 and 1940. Yes, the demand wasn’t equal to what it was before the 20s but it is not like the entire economy shut down or even a majority of it. The figure just means that if you prevent people from producing or buying consumer products for four years, there is going to be a huge demand for them in first few years after. It says nothing about the level of demand for consumer products in 1943 versus 1933. No doubt if FDR had prevented people from buying anything for four years in the mid 1930s, the out year would have produced a big jump in demand.

    The war did not produce any real wealth. It produced tanks, and rifles and lives. But what it did do was force people to save a tremendous amount. Large numbers were employed in the military or making weapons but couldn’t spend their wages on much of anything beyond war bonds. Once they were able to buy things again, all of that pent up savings was turned into consumer demand and the economy boomed.

    I guess we could ban the production or sales of consumer goods for three years, put everyone to work on government programs, and make everyone save by buying bonds and then four years from now lift the restrictions. That is pretty drastic, but that is what you would have to do to recreate the effects of the war. The bottomline is that the World War II economy was a stimulus like none that could be done today. So it really is of pretty limited usefulness in determining what to do today.

  18. And our banking sector ISN’T still clogged with junk? Come again?

  19. The mistake Japan made in the banking sector was bailing out banks instead of letting them fail spectacularly. Fortunately, we arent following that pat…oh crap.

  20. Unlike Japan we don’t have stagnant population growth. So a Japanese 1990s-style economy will be way more painful for us.

  21. Anyone who thinks that we can borrow our way to prosperity, needs to explain why such an approach failed so miserably in Japan.

    Because they didn’t have Barack Obama-san and the other “right people” in charge?

  22. “Unlike Japan we don’t have stagnant population growth. So a Japanese 1990s-style economy will be way more painful for us.”

    Good point. I hadn’t thought of that. Japan allows almost no immigration.

  23. It’s not just immigration. Americans still have 2 or 3 kids, Japanese have 0-1.

  24. So the decade following the massive stimulatory effect of WW2 spending, which brought our debt up to a quarter of a trillion 1945 dollars, was marked by strong economic growth.

    Or the decade after we bombed all of our competitors flat was a good economic decade.

  25. What a lot of arguments over this issue illustrate for those who are very skeptical of economics is that macro isn’t based on terribly good foundations.

    joe,

    The failure of Japan’s economy to grow while its banking sector was still clogged with bad investments has nothing whatsoever to do with economic stimulus.

    Were they clogged with bad investments? As far as I know, the Japanese government gave its banking sector heaps and heaps of money to deal with the liquidity issues they were facing. And they kept on giving over a long period of time.

  26. John,

    Plenty of people move to Japan; what is difficult for them to do is become Japanese citizens.

  27. Yes, the demand wasn’t equal to what it was before the 20s but it is not like the entire economy shut down or even a majority of it.

    More relevantly, John, it wasn’t equal to what it was during the 40s, after the big war stimulus.

    The figure just means that if you prevent people from producing or buying consumer products for four years, there is going to be a huge demand for them in first few years after. But people weren’t prevented from producing or buying consumer products in, say, 1937-1940, yet the demand wasn’t there. Demand increased a great deal between 1940 and 1945, over where it was in late 1939.

    Not to mention, the period of 1940-1945 wasn’t just characterized by consumer demand being unmet, but by another whole, multi-hundred-billion-dollar field of demand being met – the government. If there was no net increase in demand (in the economic sense, that is – not just the wanting of stuff, but the existence of dollars chasing stuff), then there would not have been the pent-up demand in 1945 and 1946 that you’re talking about. Ergo, aggregate demand, from both consumer and government sources, increased dramatically from 1940 to 1945.

    Now, there’s a fine argument to be made that the meeting the demand during the war, for destructive equipment and jobs that didn’t generate economic value, didn’t actually produce worthwhile consumer goods for people, or raise their quality of life. That’s surely true, it just beat the Germans and Japanese. It was, in a moral sense, less worthy demand.

    But that’s beside the point – we’re talking about the existence of demand, period. It increased, overall, during World War 2. As the mutual existence of both the government demand and the pent-up consumer demand demonstrate.

  28. Mike M.,

    I have recently heard that there is some discussion of cranking up the printing presses in an effort to cause inflation (I think it is called “quantity adjustment,” but I may be wrong about that). I am sure Hayek is spinning in his grave at this point over such a suggestion.

  29. But what it did do was force people to save a tremendous amount.

    Those same people were neither saving nor consuming in the five years before the war, at anything like the same level.

    Then, suddenly, there is all of this money going into savings. It’s not like war spending just replaced consumer spending – it generated new demand, where it didn’t exist before, because there wasn’t the money in the economy before.

  30. Economists are know for having a great prediction record. Check Krugs on the non-Oil bubble: http://www.nytimes.com/2008/05/12/opinion/12krugman.html Nailed it!

  31. BDB,

    BDB | February 6, 2009, 1:21pm | #

    And our banking sector ISN’T still clogged with junk? Come again?

    I never claimed otherwise. Our banking sector IS clogged with junk. THAT is the lesson to draw from the Japanese experience.

    robc | February 6, 2009, 1:21pm | #

    The mistake Japan made in the banking sector was bailing out banks instead of letting them fail spectacularly.

    To be more accurate, the mistake Japan made was to prop up the value of the bad assets.

    Or the decade after we bombed all of our competitors flat was a good economic decade. This is the most nonsensical of all of the anti-Roosevelt arguments I see. “We only had strong economic growth because our biggest trading partners’ economies were in a shambles.” Um, WHAT?!?

  32. Jesse Walker,

    As a somewhat procedural defense of the Keynesian position I would note that Keynesianism as it existed in the 1940s has been abandoned in part because it failed to predict a lot of things like this. Neo-Keysenianism seems to take seriously in ways that it predecessor did not a lot of the objections of the Austrian school as well as the monetarists, and has adjusted itself in light of those criticisms. So in a lot of ways we’re talking about two different creatures, though they share in common notions like the “savings paradox,” etc.

  33. Seward,

    The Japanese government gave the banks lots of help, but they didn’t make them take the losses on the bad debt. They allowed them to keep pretending that the financial instruments were still worth what they were before the bubble popped.

    Of course, everyone still knew that they were junk bonds, and that the banks holding them would eventually have to take losses, so nobody wanted to invest in those banks.

  34. So you’re saying we’re going to have another bank bailout AFTER the stimulus joe?

    Christ, we’re going to be in debt up to our eyeballs by 2012!

  35. Plenty of people move to Japan; what is difficult for them to do is become Japanese citizens.

    I’ve heard about third- and fourth-generation Korean-Japanese who still can’t get citizenship. People whose grandparents were born, lived, worked, and died in Japan.

  36. joe,

    The only way to get rid of bad assets is to let them fail. The U.S. government seems determined to avoid that. Setting up a “bad bank” – which doesn’t appear to be a priority now anyway – won’t really get us around that (even if it were possible to set up, which I’m skeptical about).

  37. BDB,

    So you’re saying we’re going to have another bank bailout AFTER the stimulus joe?

    No.

    Where do you keep getting these statements you attribute to me?

  38. Because I thought the purpose of TARP was to un-clog the junk out of banks? And it hasn’t worked?

  39. joe,

    …but they didn’t make them take the losses on the bad debt.

    Neither is the U.S. government I must add. Indeed, how can one make an entity take a loss while compensating them for that loss?

    What we should be doing is not bailing banks out; what the government should be doing is facilitating the orderly liquidation of the banks that are done for. Out of that liquidation good assets will be ferreted out and kept and the bad assets will be discovered. At this point there is really no incentive to do that.

  40. BDB- TARP was Bush. Mega-Stimulus is Obama. Nevermind the fact that Obama supported TARP.

  41. Seward,

    Let me admit first off that I’m not entirely clear on how a Bad Bank would work. You dirty, nasty bank. Get in the cage, slut!

    The only way to get rid of bad assets is to let them fail. Right, the assets. They need to fail. That money went bye-bye.

    But assets failing and banks failing are two different things. Banks could be propped up or nationalized, so their depositors’ money remains safe and their lending and other activities keep going, even as they take the losses on those bad assets.

    The Japanese didn’t do that, though. They refused to allow the assets themselves to fail.

  42. The only people with qualms about TARP, sadly, were the extreme right wing of the Republican Party and the left wing of the Democratic Party.

  43. BDB | February 6, 2009, 1:48pm | #

    Because I thought the purpose of TARP was to un-clog the junk out of banks? It is.

    And it hasn’t worked? Too soon to say.

    I still don’t follow you.

  44. BDB,

    The TARP was supposed to buy up all the bad assets; which we quickly learned wasn’t possible because there was a classic Hayekian knowledge problem standing in the way.

    So then it was used to “liquify” the banks, but that didn’t succeed. I’m not quite sure why it hasn’t worked, but I suspect it is because the engineers of the TARP are missing some important knowledge about how banks work. Until that bit of information is internalized by the outsiders trying to “fix” the system, we’ll continue to circle the drain as it were.

  45. Seward,

    Indeed, how can one make an entity take a loss while compensating them for that loss? You’re still not getting the point – the banks and those assets are two different things.

    Hypothetical: A bank writes its MBSs and CDOs down to zero. This leaves it deep in hole. The government lends it money to keep above water. The rest of the bank’s activities keep going, and the bank gradually pays the government back.

    Or, the government buys a bunch of stock in the bank, which the bank uses to keep itself above water. The rest of the bank’s activities keep going, and the bank turns a profit. After some number of years, the government sells that stock in a healthier economy.

    BTW, the above two situations can also be applied to banks that never bought MBSs or CDOs, but lent money to those who did and can no longer pay their debts.

    Point is, it is not necessarily so that the only way to clear the bad debt from the system is for all of the banks that go into the red because of the collapse of that debt’s value need to fail.

  46. anti-joe | February 6, 2009, 1:50pm | #

    BDB- TARP was Bush. Mega-Stimulus is Obama. Nevermind the fact that Obama supported TARP.

    Don’t you think it makes you look a bit silly when you keep writing these things while I make actual, informed, intelligent points about the economy and policy? Oh, wait, obviously you do, since you won’t post a recognizable handle.

    I can talk about something other than political parties. You?

  47. Anyone who thinks that we can borrow our way to prosperity, needs to explain why such an approach failed so miserably in Japan.

    Because they didn’t clean out their banking sector.

    And neither are we. Last I looked, priority one of the bailout program (well, priority two, after funding pent-up Dem demand) is saving banks. No one is really working anymore on cleaning out bad assets or any of that – its all pure capital injection to keep them solvent.

    Its not too soon to say that TARP failed to get the bad assets out of banks, because it no effort was made to use it for that purpose.

  48. joe,

    Banks could be propped up or nationalized, so their depositors’ money remains safe and their lending and other activities keep going, even as they take the losses on those bad assets.

    I see no reason for a bank to right its balance sheet as long as it can continue to get “free money” from the government. Moral hazard comes here as an important thing to consider.

    As for nationalization, well, I have no desire for some government bureaucrat to have control over or access to my assets; the banking regulations we have to deal with today are intrusive enough. The civil liberties aspect of such a decision are fairly immense.

    Finally, nationalization of any industry wherever it has been tried has been proven itself to be a disaster. There is a long, long track record of this.

  49. I don’t know whether there was an actual recession in the immediate postwar period, but a kids’ biography of Harry Truman I once read had a contemporary political cartoon that showed Harry Truman riding in a taxi, on a road labeled “1945.” The road was lined with big rocks labeled “War,” “The Bomb,” “The Russians,” etc. One of the rocks was labeled “Recession.” Harry Truman was looking at the driver and saying “Gosh, what a bumpy ride!” or words to that effect.

  50. joe,

    You’re still not getting the point – the banks and those assets are two different things.

    No, I get your point, and I don’t agree with it. The bank and its assets – and this includes its reputation I must add – are in fact intimately related. Honestly, it is a bit like saying that a ship building company and the dry docks it uses (either by owning them or renting them) are two different things. They aren’t two different things; they are intimately related.

    Anyway, it is highly unlikely that any government program, bureaucracy, etc. could ever ferret out which are and are not the bad assets. Which is why the government abandoned that idea rather quickly and why we don’t hear any more about now.

  51. Alright, I’ve got to add some more value to the economy.

  52. Where do you keep getting these statements you attribute to me?

    Hey kettle you’re black! Hahahaha!

  53. RC,

    I don’t think you understand the issue very well. The government doesn’t have to do anything for the value of MBSs to be written down.

    The TARP is saving banks who have taken hits because their bad assets have been written down, causing them large losses.

    Seward,

    I see no reason for a bank to right its balance sheet as long as it can continue to get “free money” from the government. Moral hazard comes here as an important thing to consider. Indeed. Such write-downs, or some other mechanism to prevent this, is going to have to be part of how the TARP is done, or there’s no point.

    As for nationalization, well, I have no desire for some government bureaucrat to have control over or access to my asset…and therefore, they should go into receivership and bankruptcy, because none of those nasty government bureaucrats you’ve read so much about would have anything do with managing them. Um, WHAT?!?

    BTW, that’s a nice, broad, ideologically-convenient statement about nationalization. Now, tell the truth: had you ever read a single word about Sweden’s bank nationalizations before you saw that comment of mine? If not, you might want to consider not making so many nice, broad, ideologically-convenient statements about the subject before learning a bit about it.

  54. The bank and its assets – and this includes its reputation I must add – are in fact intimately related. Is “intimately related” a different term for “not the same thing?” Everyone understands that the banks own those things.

    Honestly, it is a bit like saying that a ship building company and the dry docks it uses (either by owning them or renting them) are two different things. No, more like saying that a ship building company and a stack of sheet-steel in its warehouse are the same thing. Which is, obviously, inaccurate.

  55. The stimulus may or may not help, but ultimately what I think we’ll end up with is a two-tiered currency system:

    http://www.marketwatch.com/news/story/do-we-need-north-american/story.aspx?guid=D10536AF-F929-4AF9-AD10-250B4057A907&dist=SecMostRead

  56. Every talking point you have seems to come directly from the DNC. Its not hard that hard to discern a partisan hack. Were you initially backing up the TARP legislation?

    You may know me by my other name, Neu Hamper-shitter.


  57. the big war stimulus.

    Broken window fallacy.

  58. So, instead of having any rebuttals to anything I have to say, you’ve decided to note that I’m a liberal Democrat.

    I wouldn’t put my name on such an obvious admission of intellectual incapacity, either.

    Since you asked, I was and remain deeply ambivalent about the TARP bill, but I’m not remotely surprised that you decided to assign a position to me, troll.

  59. FWIW- Only a fool (e.g. joe) would think he could control or direct an economy (of any size let alone one) as diverse and large as that of the United States. Meteorology is more grounded in science than Economics. So, until you admit that fact you will continue to be ridiculed and trolled, since that’s what partisan hacks deserve.

  60. Broken window fallacy.

    Once again, a righty who doesn’t know what the term “stimulus” means, and has it confused with long-term economic growth.

    The funny thing is, these people all think they really understand economics.

  61. It’s cool to hate

  62. Oh, look, now a retreat into vagueness.

  63. Yeah, well, you’re just wrong cuz you think wrong and stuff.

    And also too: DEMOCRATS!

  64. So you’re saying we’re going to have another bank bailout AFTER the stimulus joe?

    Yes, yes there will be. And joe will be here to defend it. And AFTER that next bank bailout there will be another stimulus. And again, joe will be here to defend it. And AFTER that stimulus…

  65. Fresno Bob, if that happens this country won’t make it another eight years w/out a Soviet-style bankruptcy.

  66. “The funny thing is, these people all think they really understand economics.”

    Oh enlighten us, joe maynard keynes. I’m sure reading Krugs and Delong have made you an eggspurt. Krugs = no. 1 nobel winning troll.

  67. Wow! You’ve ventured into double negative territory. Right on!

  68. Once again, a righty who doesn’t know what the term “stimulus” means, and has it confused with long-term economic growth.

    Since when did I become a righty? I only care about the long-term. As Ive said before FUCK THE SHORT TERM.

    The funny thing is, these people all think they really understand economics.

    I understand it better than you. I understand that “stimulus” doesnt work, because it doesnt make the long-term better. I also understand that a 0.8 multiplier, which WW2 spending has been measured, in at least 1 study, to have cant possibly stimulate, in that it is worse than the minimum of 1.0 that the money would have done otherwise.

  69. joe, don’t sweat it. I dislike SIV and John also. It seems like they don’t have all day to post like you do. The video store must be slow nowadays. Damn you Netflix!

  70. A true “stimulus” package, if it is possible, would boost the short-term, leading to growth in the middle and long terms. It would help all 3.

    I think joe is conceding the last 2 wont be helped. $900B or whatever is a long-term problem. I will gladly take the short term hit to avoid that problem.

  71. Oh enlighten us, joe maynard keynes.

    OK. “Stimulus” is a term used to refer to the use of fiscal policy – whether spending on project or transfers (tax-based or not) – to prop up demand.

    It is distinct from the concept of long-term growth.

    Savings, for example, can do a great deal for an economy’s long-term growth. It provides investment capital, and creates a pool that can be drawn on during tough economic times, in order to avoid big drop-offs in demand and economic activity. However, saving money isn’t stimulus – it doesn’t increase demand for anyone’s goods or services.

    This isn’t exactly a Nobel-worthy observation, but there seems to be quite a bit of confusion about what stimulus is, even among people who perceive themselves to understand economics enough to insult other people for having the gall to understand what the term means.

  72. I understand it better than you. I understand that “stimulus” doesnt work, because it doesnt make the long-term better.

    This isn’t actually a point about economics, but about politics. You are making a value judgement about long-term vs. short-term value, but holding that opinion doesn’t actually demonstrate that you know anything about economics.

  73. Unlike Japan we don’t have stagnant population growth. So a Japanese 1990s-style economy will be way more painful for us.

    The differences between Japanese and American (composite) birthrates are not quite as dramatic as you say downthread; immigration is far greater a factor in the population growth difference over the last few decades.

    There is also the possibility (one I don’t entirely subscribe to) that the lower (or negative) Japanese pop growth rates may have prolonged and/or enhanced the ‘malaise’ as it led to lower agregate demand.

  74. Again, here’s the problem. Stimulus won’t solve it.

  75. joe is really goping to bat for snake oil Keynesian theory.

    Of course when I offered that in Jan ’11 the misery index* would be higher than it is today, and he agreed and opined that as long as it is trending down then, this is a success.

    It’s not a very high bar.

    * Unemployment + inflation

  76. Once again, a righty who doesn’t know what the term “stimulus” means, and has it confused with long-term economic growth.

    But then there are those that make the obverse error:

    “Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.” (italics added to italicize)

  77. J sub D | February 6, 2009, 2:39pm | #
    joe is really goping to bat for snake oil Keynesian theory.

    Of course when I offered that in Jan ’11 the misery index* would be higher than it is today, and he agreed and opined that as long as it is trending down then, this is a success.

    It’s not a very high bar.

    * Unemployment + inflation

    What kind of statistical trickery are you trying to pull? My General Theory of Employment proves that you can not have both occurring at the same time. Liquidity trap! Liquidity trap! Liquidity trap!

  78. Fresno Bob,

    No, stimulus won’t solve that problem, just as a shock to the heart won’t solve your blocked arteries.

    Nonetheless, it’s a good idea when someone’s heart has stopped.

    joe is really goping to bat for snake oil Keynesian theory mainstream economics.

    FTFY. Or screwed up the tags. One or the other.

    Kolohe,

    I see nothing wrong with that statement. We’re sliding towards a depression. It we act quickly, it can be avoided. After a certain point, we will be unable to arrest that slide.

    That’s a perfectly true statement.

  79. Of course when I offered that in Jan ’11 the misery index* would be higher than it is today, and he agreed and opined that as long as it is trending down then, this is a success.

    I never agreed to that; I said I didn’t know, and that there are situations when an increase in inflation higher combined with a drop in unemployment would be a good thing.

    I make actual arguments, you know. You could try addressing those.

  80. The one advantage of having interests rate effectively at zero, is that when inflation indicators start to appear again, the fed has the full leverage of its tools.

    So I don’t think the misery index (esp if one uses U6) will be higher in 2011 than it is today.

  81. What’s with all the meta-crap, anyway?

    Is it really that essential to note that my arguments comport with a liberal political outlook?

  82. Remind me to let me drive if you think putting on the brakes is the same thing as putting the car into reverse.

  83. After a certain point, we will be unable to arrest that slide

    We past that point long ago. But we’ll keep trying just the same.

  84. ???

    Uh, yeah, I’ll be sure and do that. I’ll write you a note.

  85. We’re sliding towards a depression. It we act quickly, it can be avoided. After a certain point, we will be unable to arrest that slide.

    We came out of all the previous depressions, none lasted for all eternity. They were all reversible.

  86. Savings, for example, can do a great deal for an economy’s long-term growth.

    I’m rather surprised that you admit that, given your advocacy of policies that punish savers.

    -jcr

  87. No, stimulus won’t solve that problem, just as a shock to the heart won’t solve your blocked arteries.

    To use that analogy, if we were about to go Zimbabwe then I would support “stimulus”. Of course, when about to go Zimbabwe, a $900B debt and spend package aint the proper shock that is needed.

  88. We came out of all the previous depressions, none lasted for all eternity. They were all reversible

    This is true. The question at hand though, is how much our anointed leaders are going to drag this one out before people like Joe will admit that they don’t know what they’re doing.

    -jcr

  89. joe,

    You’ve mentioned Sweden’s 1930’s bank nationalizations several times.

    Having never heard of that, I hunted for information on that episode on teh tubez. I find lots of articles about successful nationalization in the 1990’s. I find fewer about changes in Swedish monetary policy in the ’30’s, but none on “nationalization” at that time.

    Can you provide a link to a good history?

  90. JCR,

    Well, since our current leader thinks this one will never end, we already know it doesnt know what he is doing.

  91. Another area where joe demonstrates his deep and profoundly enlightened understanding of widely disparate subjects (which is oddly always in line with current DNC positions).

    Seriously, how can one guy know so much and be so expert on so many subjects? (Granted, his expertise is more biased by Team Blue partisanship than actual facts – much less the fundamentals of economic theory.)

    On the one hand, I’m awe-struck by the time and energy spent arguing here. On the other hand I’m starting to suspect, conspiracy-theory style, that there’s a room with 15 guys sitting around 5 computers who are paid to be “joe” on HNR.

    Is the poster known as “joe” actually a DNC-funded team of online commentators operating out of an underground, nuke-proof bunker similar to the one they hid Cheney in on 9/11? Maybe we’ll find out in the final episode of “Lost.”

  92. I never agreed to that; I said I didn’t know, and that there are situations when an increase in inflation higher combined with a drop in unemployment would be a good thing.

    Actually, what you and I said is on record and we both misrecalled.

    J sub D,

    I don’t think the economy has bottomed out yet, and don’t know how bad it will get over the next year. If it’s bad enough, a higher misery index on 1/20/11 than on 1/20/09 could represent a solid, ongoing recovery. [italics added]

    Here’s what joe is doing, if the misery index is not at a 3 year high in Jan. 2011, he’ll claim vindication. “See it worked!” he’ll cry. “We bottomed out 2 months ago and are on the beginning of a solid economic resurgence”.

  93. seriously, i don’t get paid for this shit. i’m suckling on the teet of unemployment.

    ps- this post was not joe boyle, fo reelz!

  94. Joe is right. Not about the economics, but about the ad hominem attacks on him. Who cares if he’s a Democrat?

  95. We came out of all the previous depressions, none lasted for all eternity. They were all reversible.

    The slide into a depression might not be reversible. It’s nice that we come out the other side, but it would be even better not to go into one. We can still avoid a depression, but if the downward spiral keeps going, it will be unavoidable.

    I’m rather surprised that you admit that, given your advocacy of policies that punish savers. Yes, John, it’s almost as if you don’t actually understand what I’m writing very well. Almost.

    rob | February 6, 2009, 3:10pm | #

    Another area where joe… blah blah blah blah blah blah blah.

    Great minds talk about ideas. Mediocre minds talks about things. Small minds talk about people. Oh, hi, rob.

  96. Here’s what joe is doing, if the misery index is not at a 3 year high in Jan. 2011, he’ll claim vindication. “See it worked!” he’ll cry. “We bottomed out 2 months ago and are on the beginning of a solid economic resurgence”.

    Wheras if the economy begins turning around 8 months after the stimulus bill is passed, and we’re in a solid recovery in two years, there is no chance J sub D, or anyone else, will say “See, we didn’t need a recovery, the economy would have done this on its own.”

    None. Zero. Zip. There is absolutely no chance of that happening.

  97. if the downward spiral keeps going, it will be unavoidable.

    This is true.

    Also true: If the downward spiral reverses, growth will be unavoidable.

    Whether the downward turns before depression or not, I do not claim to know. Either way, we will come out of it.

  98. Wheras if the economy begins turning around 8 months after the stimulus bill is passed, and we’re in a solid recovery in two years, there is no chance J sub D, or anyone else, will say “See, we didn’t need a recovery, the economy would have done this on its own.”

    I can’t say for anybody else, my prediction is higher inflation and higher unemployment in Jan. ’11. I’ll add to that. Wwe will not see two consectitive quarters of real GDP growth prior to that.

    If I’m wrong, I’m adult enough to admit it.
    Others here should emulate that.

  99. The major problem is there is NO control group. If things turn around post-stimulus, see it worked! If not, stimulus wasn’t big enough. On the other side, similar logic can be employed.

  100. you know, if you people would ignore him, he would eventually go away.


    FaqChecker
    But, SalamionryeBakedLays, isn’t merely talking about him contradicting your advice?

    No, you see. I am not addressing the person in question, which is the essence of what it means to ignore that person, I am addressing you FaqChecker, whose post above mysteriously disappeared, but not to worry, I saw it, even if no one else did. In fact, it would likely irritate the hell out him if you made mention of him, but ignored his attempts at a response.

    Give it a try, sometime, it will likely be a nice change of pace. Libertarians who avoid this forum because of the immature bickering the person in question constantly starts up may find reason to come back some day.

  101. Friggin’ close italics tag. Grrrr.

  102. joe,

    If it turns in 8 months, it wont be due to the stimulus package. Or TARP.

    Heck, even you claim it is only short-term.

  103. If it turns around in eight months all the people predicting ZOMG! GREAT DEPRESSION II! are going to look like total morons.

  104. The slide into a depression might not be reversible.

    Now I see the disconnect. I read this passage:

    Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.

    as talking about trying to change the first derivative. You see it as trying to change the second derivative.

    I still say that most ‘ordinary people’ will see it my way; that ‘a crisis that is irreversable’ is a depression without end.

  105. and I believe the second derivative of the economy’s ‘displacement’ is already positive, or at least zero.

  106. robc,

    Typo. 18 months.

    Kolohe,

    Oh, I follow. You’re reading Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse. as something that might happen after the parade of horribles he lists. I think he’s talking about that parade of horribles as what will happen if we don’t reverse course.

  107. Another thread taken over by Teh Joe Hatedom.

  108. Whoops.

    Kolohe,

    Which thing do you think is positive? People losing jobs? People losing their homes? People losing their savings? 5 million jobs disappearing?

  109. “But 12 million men were demobilized from the military so that kind of balances it out.”

    And then they went to college and bought homes on the GI Bill.

    As for Japan, I recall reading not long ago that Japan’s bailout happened after a lot of dithering, whereas a similar bailout by either Norway or Sweden happened swiftly and was effective.

  110. Jesse Walker | February 6, 2009, 3:23pm | #
    Joe is right. Not about the economics, but about the ad hominem attacks on him. Who cares if he’s a Democrat?

    Given he has insulted three of your Reason colleagues with ad hominem attacks just today alone in their thread posts, what’s the deal?

  111. joe, 5 million?? It feels like 500 million jobs to me. Yep, the math checks out 5 mil + feelings = 500 mil

  112. The economy = (x)
    The economy is contracting (dx/dt < 0 )
    -> people are losing jobs, homes savings, etc.

    The rate the economy is contracting is slowing = (d2x/dt2 > 0)
    -> the credit crisis indicators are well off their peaks
    -> the consensus estimate for the 4th qtr contraction (approx 5.4%) was 1.6% higher than the measured value (3.8% iirc)

  113. Ho ho ho ho, I get it!

    She said million instead of thousand!

    That’s so crazy!

    Ah, man, I gotta tell the guys at work about that.

    Ho ho ho, “Million.” Get it? Get it?

    Cuz, like, that’s a lot.

  114. On the Depression, WWII, etc. I recommend the following:

    Robert Higgs, Depression, War, and Cold War: Studies in Political Economy

  115. …ho ho ho ho hooooooooo, boy!

    “million”

    Oh, man. They’re gonna play that video at here retirement roast.

  116. kolohe,

    My guess is that the 2nd derivative went/will go positive sometime between mid 4th Q 2008 and mid 1st Q 2009. Unless the debt package passes in which case I have no clue.

  117. NARCISSISTIC PERSONALITY DISORDER

    Diagnostic Features
    Narcissistic personality disorder is a condition characterized by an inflated sense of self-importance, need for admiration, extreme self-involvement, and lack of empathy for others. Individuals with this disorder are usually arrogantly self-assured and confident. They expect to be noticed as superior.

    Complications
    Vulnerability in self-esteem makes individuals with this disorder very sensitive to criticism or defeat. Although they may not show it outwardly, criticism may haunt these individuals these individuals and may leave them feeling humiliated, degraded, hollow, and empty. They may react with disdain, rage, or defiant counterattack. Their social life is often impaired due to problems derived from entitlement, the need for admiration, and the relative disregard for the sensitivities of others.

  118. “Great minds talk about ideas. Mediocre minds talks about things. Small minds talk about people. Oh, hi, rob.” – joe

    joe,
    I think my irony meter just smashed itself to bits trying to measure the irony of a man whose partisan blinders hamper his every thought process.

    Real minds spend most of their time engaged in real work in the real world.

    It’s good to be a member of the real world, rather than just a member of the Internet’s self-appointed “reality-based community.” You should give it a try.

    You might find that it makes a pleasant change of pace to your usual 24-hour routine of endlessly posting comments to those you clearly and condescendingly believe to be in desperate need of your insights.

  119. joe,
    People who work with math and shit find it both humorous and disquieting when a politician doesn’t automatically recognize the differences between large numbers.

    We sometimes even use prefixes to make it easier. Kilojobs ? Megajobs.

  120. Then I read the comment at 4:16 p.m… That makes my comments look like a pat on the back!

  121. Still talking about me, eh?

    Why do you think that is?

  122. Need for admiration – that’s it. That’s why I comment here; because of the admiration.

    Heh.

    I wonder if the troll is married, has a kid, has a house…I don’t know. Being obsessed with someone you’ve only ever known as text on a screen suggests Their social life is often impaired.

  123. I’d probably never post about you again, joe, if you’d just explain how you manage to post about EVERYTHING, EVERY DAY, ALL DAY LONG.

    Maybe you’re the Internet version of Bruce Wayne, using your wealth to patrol the Internet and keep those rowdy libertarians in line?

    Although having read the Ron Hart article Nick Gillespie references in “Think About The Grnadkids…” you probably work for the Department of Commerce.

    Wait a minute! You’re clearly RANDALL HINTON!

    “State employee: I get $93,803 for no work
    Native American claims retaliation by state superiors”

    http://timesunion.com/AspStories/story.asp?storyID=767070

  124. On joe v. the world:

    Conversations here are voluntary. Everyone gets out of these conversations what they want to get out of them. Such is the beauty of a free market in speech.

  125. We’re unintentionally hilarious!

  126. Seward | February 6, 2009, 5:57pm | #
    On joe v. the world:

    Conversations here are voluntary. Everyone gets out of these conversations what they want to get out of them. Such is the beauty of a free market in speech.

    There is nothing wrong with encouraging people to shape up.

  127. Good work, Jesse. Now, just post something on the 1920-1921 depression, and we’ll be set.

    Btw, most majors wars since the World War I have been followed by recessions.

  128. Wow, I missed a great thread. damn.

  129. Don’t feel bad, domo. It became truly tedious towards the end.

  130. Economist:
    Your comments prove it. Gee can you provide us with another of your brillant insights such as most major wars are followed by recessions.

    Such brillance. Did you win a Noble prize for such an insight?

    Politicians that spend trillions of dollars bankrupt their nations and destroy generations of work. But we will have bread and circuses.

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