The Economy

[kandrathe]

If you listen to the Krugman side of the argument (he is not alone, but is the public face) what the government is doing now (and should be doing more of) is what FDR kind of did in the New Deal, but not enough: spend money to kickstart the economy, and save balancing the budget for a time when doing so will not slow down recovery. In the Krugman story, one only need to look at the GDP and employment figures: GDP bottomed out in 1933, and rose quite dramatically in the years that followed, along with employment. The exception is during 1937, when FDR tried to balance the budget, causing the recovery to temporarily reverse.

While Krugman writes for the Times, in the Economy section, and has a Phd. in economics, and may very well win a Nobel prize some day, I don't really consider him an economist. If you read his writings, he demonstrates continually that he does not believe in the laws of economics. He is a (maybe THE most) devoted follower of Keynes. What Krugman seems to be to me is a socialist, and uses economics to shower praise upon socialist policies and he believes that all ills can be resolved through State intervention. One of Keynes (and Krugman) beliefs is that saving by wealthy people is one reason that aggregate demand dries up, therefore upper-income individuals must always be heavily taxed so their money will be spent and not saved.

It seems tough to me to argue that the 1933 plan was a mistake, considering the shape of the graph. Friedman, Mankiw and Taylor would no doubt disagree. And counterfactuals are hard to argue with: who really knows what would have happened had alternate policies been pursued? We can predict using one theory or another, but the evidence is from the results of the implemented policies, not alternate ones.

The hard part about looking at graphs like that, is that the line represents the results of many factors that may have been implemented 3 to 5 years before the fruits blossomed. I never attributed the tech bubble burst in the fall of 2000 to the newly elected Bush, but rather the result of policies carried out by prior administrations, including Bush Sr.

So, no, I don't know whether it's akin to what the government did in 1933, but then, there is no scholarly consensus about what the government did in 1933, nor what it should have done.

In a twisted way, it was Wilson who brought the US out of the Great Depression. By going back on his word and forcing Germany to sign a one sided armistice for WWI, it was actually Wilson (along with our allies) who set the stage for WWII, which brought us out of the Great Depression. Of course, FDR's socialist policies and the loss of freedom during WWII brought us the USA I rail against so often.

Well, there is one thing that there's more or less consensus on, Austrians aside: during the great depression, the Fed should have increased the money supply, and instead, they decreased it. That's Friedman for you: Inflation would have been good, too bad they didn't do that.

At least Von Mises is credited with forecasting the Depression and its causes.