Thread: Stop Coddling the super Rich

Originally Posted by Mahasattva

In other words America should not rely on Asian capital to finance its debt. Duh! Asian capital investing in American businesses is a very good thing.


That is what the Harvard study concluded. It did not assert claim or conclude that our trade deficit “caused” the housing market collapse or that it “caused” the financial market meltdown that was tied to the housing market.


:rolleyes: There is nothing wrong with common sense regulations and no one is preaching for anarchy. Government has its required place, especially in this secular world, it is how we have learned to live together beyond mere blood and kinship relations -- but governance has the distinction of being the organizing collective where it is and has the power to threaten and carry out sanctioned censure, imprisonment, or violence upon the individuals of that community. With the potential power of becoming threats of sanctioned theft, of sanctioned rape or of sanctioned torture or of sanctioned murder -- with the will to carry such acts out on a collective level (Iraq, Syria, Libya, and etc.).

Common sense regulation makes sense, but those regulations should not become obstacles to innovation progress, and growth -- as they have become. From: http://www.cbo.gov/ftpdocs/69xx/doc6...rporateTax.pdf “The corporate income tax is a significant part of the United States’ tax system. Federal corporate income tax revenues in 2004 were $189.4 billion, or 1.6 percent of gross domestic product (GDP).1 Federal plus state corporate income tax revenues in 2004 totaled $225.8 billion, or 2.1 percent of GDP.”

“But those are taxes which go to the running of our government,“ you say. Yep 2.1 percent of GDP makes up federal and state corporate tax revenues. How many billions are spent to complying with those corporate federal and state taxes? None of which goes into increasing productivity or innovation or real economic growth.

Common sense regulation makes sense, like the common sense regulations Bush and the Treasury wanted to put in place to limit the liabilities that Freddie and Fannie were saddling the nation with, but no the Dems who controlled the House and the Senate and the House Banking Committee, wanted to hear anything of it. An as usual the the Dems cried racism rather than listen to anyone who challenged them on their affordable housing campaign.



I don’t know if the writers are aware that it is a cultural habit of the Chinese to save. Regardless of any changes in the structural inefficiencies of the Chinese financial markets the Chinese will most likely continue to be high savers. Like our great grand parents who went through the Great Depression or WW II, the Chinese who went through Mao’s mad reign and the Cultural Revolution, experience taught that saving is a good habit. It’s a habit we should make our own, as it once was.



Good ideas. So, Mike, could you explain how any of their recommendation would improve our trade imbalance with the rest of the world? Can you show me where in the study the writers mention anything about the practice of out sourcing? Their discussion is mainly about the imbalance within the global financial markets and not about trade (free or regulated). As usual, you are showing me something that does not support your claims.

tashi deleks,

M

Below is the solution that is determinant ... not codeterminant. Read it ... what does it say? It says the surplus must be managed and avoided.

Can this quote make it clearer for you? This is the solution.

The solution is to mitigate global imbalances.

"What changes in the international financial system might mitigate global
imbalances in the future?"

What changes in the international financial system might mitigate global
imbalances in the future? We see at least two first-order agenda items.

The first is domestic financial development in the poorer economies. In some emerging-market countries, notably China, high saving is promoted by
underdevelopment and inefficiencies in financial markets. Structural shortcomings tend to raise both corporate and household saving rates. For example, if typical Chinese savers had access to relatively safe instruments offering higher rates of return, huge positive income effects would in all likelihood swamp substitution effects, resulting in lower, not higher, household saving. The result would be higher household welfare in China, as well as a reduction in China’s foreign surplus.

The second agenda item is the regulation of internationally integrated financial markets. Now that the fig leaf of constructive ambiguity has been torn away, development of a globally more effective framework for financial regulation is an urgent priority. It is well understood that a rational and politically robust regulatory framework will have to be based on more extensive international cooperation than currently exists –
notwithstanding the considerable progress made since the initiation of the Basel process in the 1970s. Given their significant and growing importance in world trade and finance, the emerging markets will rightly be full partners in any new arrangements.
As the 2009 Pittsburgh G-20 summit illustrated, however, international agreement on further concrete common measures is far away. While this is the case, large global imbalances will remain dangerous as possible manifestations of underlying financial excesses. Macro-prudential regulatory stringency that responds forcefully to financial
booms will be the most important lever for avoiding financial busts in the future. Some observers have suggested that emerging markets use countercyclically intensive regulatory oversight in response to big financial inflows (Mohan and Kapur 2009; Ocampo and Chiappe 2003). Richer countries can usefully apply the same precepts in the face of big current account deficits.

Did I say America shouldn't value capital from a trade deficit? Or was I sarcastic at the suggestion?

If you feel the need for more regulations ... go for it, I'm not going to support calls for bigger government ... justify more regulations by calling them what you want ... common sense, needed, ... whatever, justify it how you want to ... its friggen capital that's needed.

The Chinese save ... hmmm ... good for them, as they have the goods and services we exported to them to earn additional savings.

your quote:

Their discussion is mainly about the imbalance within the global financial markets and not about trade (free or regulated)

Hmmmm So a "global" imbalance of trade ... is not about trade? I'm discussing the trade imbalance and the devastation caused by it ... our recession.

your quote

Good ideas. So, Mike, could you explain how any of their recommendation would improve our trade imbalance with the rest of the world?

1.The result would be higher household welfare in China, as well as a reduction in China’s foreign surplus.

2. The second agenda item is the regulation of internationally integrated financial markets. Development of a globally more effective framework for financial regulation is an urgent priority
It is well understood that a rational and politically robust regulatory framework will have to be based on more extensive international cooperation than currently exists.
While this is the case, large global imbalances will remain dangerous as possible manifestations of underlying financial excesses.

You do understand the solution don't you? You are asking me to explain it for you ... it's in black and white. Did you read the solution? You didn't just copy and paste it did you?

Originally Posted by Mahasattva

And this is another example of why I get the impression that you see my posts as a prompt to post rather than as a post to read. Again, quoting Sowell, : Thomas Sowell: The myth of how the Great Depression was resolved | Thomas Sowell | Op Eds | Washington Examiner Those who think that the stock market crash in October 1929 is what caused the huge unemployment rates of the 1930s will have a hard time reconciling that belief with the data in that table.
Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash. Unemployment peaked at 9 percent, two months after the stock market crashed-- and then began drifting generally downward over the next six months, falling to 6.3 percent by June 1930.
This was what happened in the market, before the federal government decided to "do something."
What the government decided to do in June 1930-- against the advice of literally a thousand economists, who took out newspaper ads warning against it-- was impose higher tariffs [the Smoot-Hawley Tariff], in order to save American jobs by reducing imported goods.
This was the first massive federal intervention to rescue the economy, under President Herbert Hoover, who took pride in being the first President of the United States to intervene to try to get the economy out of an economic downturn.
Within six months after this government intervention, unemployment shot up into double digits-- and stayed in double digits in every month throughout the entire remainder of the decade of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started. …
While the market produced a peak unemployment rate of 9 percent-- briefly-- after the stock market crash of 1929, unemployment shot up after massive federal interventions in the economy. It rose above 20 percent in 1932 and stayed above 20 percent for 23 consecutive months, beginning in the Hoover administration and continuing during the Roosevelt administration.

The stock market crash occurred in Oct. 1929 and the unemployment rate never rose above 9%, by June 1930 the unemployment rate had fallen to 6.3%. Smoot-Hawley was enacted and in 6 months the unemployment rate was in double digits. In 1932 it had reached above 20% and stayed above 20% for 23 consecutive months. Now, do I believe that all of this was caused by the Smoot-Hawley Tariff? No. It simply dug the hole. Then FDR came in and dug the hole deeper with his New Deal efforts. It was the New Deal that prolonged the depression and gave us 23 consecutive months of unemployment above 20%.



:rolleyes: You see what you want to see and ignore anything that challenges your firmly held dogma.



We have met the “editor” of wiki and we find him lacking. He may not have edited the wiki page on the Great Depression, but he admits he did for the Smoot-Hawley Tariff page.



False. The stock market crash happened in Oct. 1929, unemployment peaked at 9% two months later but then the unemployment rate had fallen to 6.3% by June 1930. It did not reach double digits until six months after the Smoot-Hawley Tariff was enacted, which was when the effects of the international response to the increased tariffs.



Oh, wonderful 13.2% unemployment. [sarcasm alert] “Three cheers for 13.2% unemployment! Hip! Hip Hooray!”



Please! I shall be posting my take of the Great Depression on a separate thread. Most of it will be stuff I have already posted along time ago, but its still relevant and while some of it agrees with the standard mythology, much of it, particularly when it comes to monetary policy (which is what caused the crash and stymied recovery) and Smoot-Hawley Tariff (which is what really began the depression) damns the efforts of Hoover AND FDR which deepened and prolong the depression and what made it Great.



Except: The 1929 market crash was not the first nor the last market meltdown. There was another later one which Thomas Sowell mentions in his column. It is all but forgotten, the crash of 1987. But unlike the crash of 1929 the government did not seek to fix the markets.
As Sowell says, The 1987 stock market crash was followed by two decades of economic growth with low unemployment. But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash-- despite many outcries in the media that the government should "do something."

In fact, each time that government has refrained from intervening in the markets, the markets have recovered much more quickly than when government does intervene. We saw this fact repeated with Obama’s efforts to “fix” the markets. The promise of the Obama Porkulous package was that the unemployment rate would not rise above 8%. We saw how that has gone. Obama Crap Care was supposed to lower the costs of medical insurance and help employers to hire new workers -- it failed on both.



:rolleyes: The unemployment rate never rose above double digits until after the Smoot-Hawley Tariff was enacted. To make matters worse, once FDR came into power he enacted sweeping reforms with his New Deal nonsense deepening the damage caused by Hoover and prolonging the depression



As I said, we have already met the “editor” of this wiki page, well he claimed to be the editor. There is nothing he has written that indicates that he is anything other than a Neo-Marxist who has bought into the usual anti-capitalist leftist diarrhea.

I shall be posting on the Great Depression in a day or so on a new thread.

tashi deleks,

M

FYI, Bush nomination acceptance Speach

SPEECHES FROM THE 2004 REPUBLICAN NATIONAL CONVENTION
GEORGE W. BUSH
NEW YORK • SEPTEMBER 2, 2004

Thanks to our policies, home ownership in America is at an all- time high.

Tonight we set a new goal: 7 million more affordable homes in the next 10 years, so more American families will be able to open the door and say, "Welcome to my home."



Intervention of the type used by FDR would result in -5% unemployment rate today, therefore some of those who quit looking can work also.

28.3% to 13.2% = 15% improvement hmmmmmmmmm,

FDR improved 15% in a devastated world economy ... and Thomas Sowell wrote a column about the crash of 1987... theorizing that he had a better idea. Um ... I'll take FDR ... he's got a track record.

Foreign Trade was 4% to 5% of GDP, and incurred a loss of around 65%. Do the math. It's not the devastation your looking for.
So we end up with less then 3% or 4% of GDP and that's the nail? You do understand why other options get singled out by economists. Those who love free trade don't support that debate ... because it's ridiculous.

Originally Posted by Mahasattva

Ah, no. Free market capitalism does work better than any other alternative -- history and empirical data has proven that fact over and over again. What happened to the Soviet Union? What happened to Mao’s China? How fast did England reject Atlee’s benign democratic socialism?

Wow, how did this pile of opinion go under my radar screen? Its 10:30 at night and have to hit the hay. This rant of opinion will need a history lesson. I'll start with this first quote and work my way down the list:

EARLY GOVERNMENT REGULATION

Trade practices, prices, and wages in English industry were subject to a high degree of government regulation from the eleventh to the nineteenth century, first by the medieval guilds and, after the fifteenth century, by an all-powerful national government in the hands of the Tudors. Much the same was true in France where, following regulation by the guilds, Colbert instituted, in the middle of the seventeenth century, a series of national acts regulating practically every detail of economic life.

GUILDS
The merchant and craft guilds in the Middle Ages made regulations to control all sales and production within the town or city. Markets from the eleventh to the sixteenth century in England were mostly local. These guild rules or fair trade practices forbade usury, speculation, cornering of the market, or profiting by resale at a higher price. The guild in each line of business established a fixed "just" price for the product, and journeymen workers had to be paid a set "just" wage. The quality of the product was maintained by regulations governing the materials to be used, the hours of work, and working conditions in the master's shop, together with the requirement that the worker serve a certain period of apprenticeship in order to qualify as a master or member of a particular guild. These municipal rules of the guilds - mostly the common law of that time - were enforced upon all business establishments by the guild wardens.
Under the guild system there was a fair degree of economic and political equality. Every master craftsman was a worker who possessed his own productive equipment; none was permitted to become merely a middleman or a capitalistic employer. Each master had to produce his own wares - from raw material to finished product - and the products were sold directly to the consumer from the master's own home, which served as a store, workshop, and dwelling. Under these circumstances, no one producer could obtain a major share of the local market. Each businessman had to make his product himself and to sell it at the established "just" price; he could not introduce a change in the technique of production without the permission of the guild. With such restriction on competition and avarice, each guildsman was practically assured of some work, and there was no unemployment problem.
Along with a large measure of economic security, the medieval craftsman had personal pride in his product - though it was a long time before cobblers discovered that there is a difference between the left foot and the right foot. The craftsman got personal satisfaction in creating and selling a praiseworthy product. The guilds also played an important part in the social life of the town, and guild funds were used to assist widows, orphans, and the poor.

Richard A. Lester, Duke University
Economics Of Labor, 1941
p. 51-52

Please note how long the guild system lasted, from the eleventh to the nineteenth century - 800 years. And the society that transformed with it was equally stable.

By comparison, how long did classical capitalism last until society got sick of it and decided to intervene?

That free markets alone will not bring about the economic millennium is evident from the experience of England and France during the first half of the nineteenth century, when the doctrine of laissez faire was tried and found wanting. The period from 1810 to 1840 stands out in European history as the epoch during which there was the least amount of government intervention in economic affairs. The leading men of the time argued that the market forces of demand and supply should have free reign to work their magic. They thoroughly believed that complete freedom for individual initiative and self-interest would result in the greatest social good, and they were convinced that any government interference or labor legislation would be both vicious and futile, because it would run counter to "natural law". So firmly were the people of England convinced of these economic superstitions that they repealed all laws safeguarding the workers, restricting the spread of factories, and limiting the rise of capitalism.
From bitter experience, however, the English soon learned the limitations of markets as final arbitrators of economic matters. Before long Parliament was forced to pass a new set of labor laws called Factory Acts in order eliminate the most glaring evils and abuses that developed under this "natural order" of laissez faire.
An understanding of this epoch in economic history is so important for a student of labor, as well as for advocates of the individualistic ideal who oppose labor organization and legislation, that this chapter is devoted to a discussion of labor in England during the early nineteenth century and the failure of laissez faire as an economic policy....

This theory of laissez faire – let the market, not the government, control – along with the doctrine of economic harmonies, was adopted by Adam Smith directly from the Physiocrats, some of whom he had known personally. Smith believed that when “all systems of preference or of restraint” are completely abolished, “the obvious and simple system of natural liberty establishes itself of its own accord,” and he thought that each man pursuing his own self-interest is “led by an invisible hand to promote an end which was no part of his intention” - the general welfare of the nation. It is easy to understand why parts of the Wealth of Nations soon became the businessman's bible, though not the part in which Smith pointed out that high wages increased the efficiency of labor so that “where wages are high, we shall always find the workmen more active, diligent, and expeditious than where they are low.”.....

Under the early factory system in England, the employment of women and children was the foundation of certain branches of industry. Three independent estimates for the years 1833, 1835, and 1839 indicate that almost half of the factory workers in England were children under the age of 18 years of age – one quarter of the workers in the cotton mills were under 14 years of age. About 55 percent of all factory employees in the 1830's were women, and nearly one half of the female employees were under 18 years of age. In woolen, silk, and flax mills, 70 percent of all “operatives” in 1839 were women. A census of 1841 showed that 27 percent of the workers in British mines (coal, iron, tin, etc.) were under 20 years of age, although only 3 or 4 percent were females......

The normal working day for women and children as well as men was from 12 to 14 hours for six days a week, and at rush seasons factories sometimes ran day and night on one shift. Children, who in rush seasons worked 18 hours a day with only four hours for sleeping, often fell asleep at meals “with the victuals in their mouths.”.....

Working weeks from 72 to 108 hours for children tended to deform their bodies and legs and made workers old at 40. To force child laborers to perform their stint, foremen sometimes strapped them. Children of six, seven, and eight years of age worked in coal mines where, for 12 or 14 hours a day, girls in their teens, crawling on all fours, would drag a car or tub of 300 or 400 pounds of coal by chain attached to a leather band around their waists.....

The well-known French economist, J. B. Say, from his travels in England in 1815, declared that a worker with a family, despite efforts often of a heroic character, could earn no more than three quarters, and sometimes only one half, the sum needed to support his family. According to a writer in 1820, real wages (wages reckoned in commodities) had fallen 33 percent from 1760 to 1820....

It was from 1795 to 1835 that the problem of pauperism reached its most extreme and acute form, and that the term “labouring poor” became such a common expression.”.....

England had become, to quote Disraeli,”Two nations: between whom there is no intercourse and no sympathy; who are as ignorant of each other's habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets;....THE RICH AND THE POOR.”.....

In 1814 a crises, accompanied by an avalanche of commercial failures, shook the English market. Thereafter there were depressions in 1819-1820, 1825-1826, 1836-1837, and the early 1840's, and in 1847-1848 there was a great crash. That period became known as the “hungry forties.”.....

Laissez faire proved to be no cure for business cycles and depressions.

Richard A. Lester, Duke University
Economics Of Labor, 1941
p. 50-66

And just in case Mahasattva thinks this is only Dr. Lester's view of this history:

"Upwards of a million of human beings are literally starving and the number is constantly on the increase.....It is a new era in the history of commerce that an active and increasing trade should be the index, not to the improvement of the condition of the working classes, but to their poverty and degradation."

P. Gaskel
Artisans And Machinery, 1836


“Of course, this pervasive social and political unrest reflected not merely material poverty but social pauperization: the destruction of old ways of life without the substitution of anything the labouring poor could regard as a satisfactory equivalent. But whatever the motives, waves of desperation broke time and again over the country: in 1811-13, in 1815-17, in 1819, in 1826, in 1829-35, in 1838-42, in 1843-4, in 1846-8. In the agricultural areas they were blind, spontaneous, and in so far as their objectives were at all defined, almost entirely economic.

As a rioter from the Fens put it in 1816; “Here I am between Earth and Sky, so help me God. I would sooner lose my life than go home as I am. Bread I want and bread I will have.”

In 1816, all over the eastern counties, in 1822 in East Anglia, in 1830 everywhere between Kent and Dorset, Somerset and Lincoln, in 1843-4 once again in the east Midlands and the eastern counties, the threshing machines were broken, the ricks burned at night, as men demanded a minimum of life. In the industrial and urban areas after 1815 economic and social unrest was generally combined with a specific political ideology and programme – radical-democratic, or even 'cooperative' (or as we would now say, socialist), though in the first great movement of unrest from 1811-13 the Luddites of the East Midlands and Yorkshire smashed their machines without any specific programme of political reform and revolution.....

But essentially, what held all of these movements together, or revived them after their periodic defeat and disintegration, was the universal discontent of men who felt themselves hungry in a society reeking with wealth, enslaved in a country which prided itself on its freedom, seeking bread and hope, and receiving in return stones and despair.....

“Wretched, defrauded, oppressed, crushed human nature lying in bleeding fragments all over the face of society”, wrote the American, Colman, of it in 1845. “Every day that I live I thank Heaven that I am not a poor man with a family in England.”

Can we be surprised that the first generation of the labouring poor in industrial Britain looked at the results of capitalism and found them wanting?”

Eric J. Hobsbawm
The Pelican Economic History of Britain
Volume 3, From 1750 to the Present Day
Industry and Empire, 1969
p. 94-95

This is all well known to anyone who has read basic introductory economic history 101. Which leaves 99% of conservatives out to lunch.

Please note the typical conservative myth that "government involvement always makes things worse".

Also note how even Say admitted that his supposed "Law" wasn't doing what it was supposed to - in contradiction to Mahasattva's claims.

As I have already noted, laissez faire non-intervention by the government in the Irish famine left over 1 million dead in a supreme monument to the free market.

I'll deal with the rest of his opinion tomorrow when I get off work.

And also note this wasn't written by John Kenneth Galbraith.

Sorry Mahasattva, this is why you are regulated to the "conservative irrelevancy" fringe where you belong. Main stream economics has recognized long ago what you refuse to learn.

Steve

Originally Posted by Mahasattva

Could you pick someone who has been more wrong more often? Sure he has skill as a writer, but good writing does not necessarily mean clear thinking. He plays verbal bait and switch and pushes his Progressive Keynesianism without regard to the facts that contradict or the arguments that challenges his dogma. And as an advisor to FDR he helped to prolong and make Great the depression that was caused by the government intervention of the Progressive Republican Hoover.

Your accusations about the cause of the Great Depression remind me of a conservative author.

A rewrite of the history of the Great Depression is that of a very conservative Ms. Amity Shlaes. Ms. Shlaes contends that New Deal policies of the 1930's that violated property rights prolonged the Great Depression compared to allowing the free market to self correct. Ms. Shlaes wrote a book to support this "new history of the Great Depression" entitled "The Forgotten Man". It would require another book to fully document what is missing from Ms. Shlaes 400 page book of ramblings which never even mentioned the gold exchange standard.

You do know what I'm talking about, don't you - gold exchange standard ? Probably not, since you have no clue as to Galbraith's interaction with FDR - or when.

According to Galbraith's autobiography (A Lfe In Our Times) GALBRAITH FIRST MET ROOSEVELT BRIEFLY IN 1939 - AND NO ADVICE AT ALL WAS SOUGHT NOR OFFERED.

I have to admit, you make shooting fish in a barrel pretty easy.

Galbraith's influence didn't begin until the spring of 1941.

First, a little background as to how this happened:

"On all matters having to do with the management of a war economy Bernard Baruch had been, ever since World War I, the accredited, more precisely the self-accredited, sage.....

During World War I, Baruch, under Woodrow Wilson, had been Chairman of the War Industries Board....

Bernard Baruch had a plan for war management that was far better known than ours and which had been presented "with the devotion and single-mindedness of a Cato. For twenty years, in lectures...in testimony before congressional committees, in magazine articles, and in books, he (had) expounded its merits...In 1941, he summarized it for a congressional committee: "I do not believe in piece-meal price fixing. I think you have first to put a ceiling over the whole price structure, including wages, rents and farm prices up to the parity level - and no higher - and then adjust separate price schedules upward or downward, if necessary, where justice or governmental policy so requires."...

We were horrified. All economists were horrified. An economist without a price system is a priest without a divine being. We had spent our lives learning about prices and teaching others how they rose to encourage needed production; how they fell to discourage unneeded production; how they rose to cut back on consumption in excess of supply; how they fell to encourage the use of abundant or surplus supplies....

We could not accept the Baruch system.

John Kenneth Galbraith
A Life In Our Times, 1981
pp. 130-134

This set the stage for a new approach to war time economy management:

“I had been riding to work with David Ginsburg, Leon Henderson's counsel, and John Hamm, Leon's cousin-in-law and general assistant. They spoke much of their plans for managing the economy and of eliciting from the White House the requisite executive order according them the authority to do so. I outlined a design for such management that had consequences beyond even my most optimistic thoughts...

My manuscript, “The Selection and Timing of Inflation Controls,” was widely circulated in Washington. I have written far longer, far more formidable treatises, but none had such an effect on either national policy or on my own life. The official history of the wartime stabilization effort calls it “almost a prospectus” for “selective and rationally timed controls.” However this may be, it was this paper that led to my being put in charge of price control....

When I took over in those spring days of 1941, the first need was to get legislation authorizing our activities and imposing penalties for noncompliance, and the second was to keep prices as stable as possible under the authority of our executive order until the legislation was passed. It was to the legislation that Baruch posed the greatest threat, but it was to holding down prices that I turned my immediate attention.

What does one do when one is put in charge of all prices in the United States?...

They (members of the Office of Price Administration and Civillian Supply – OPACS) numbered fewer than twenty. Later the Office of Price Administration would employ 64,000 across the country, along with numerous volunteer workers. However, most of those would administer rationing and rent control. The prices staff nationwide was much smaller – about 4,300.”

John Kenneth Galbraith
A Life In Our Times, 1981
pp. 130-134

“A generation that has become accustomed to steadily rising prices, though it may not like them, will have difficulty appreciating the grave, almost paranoiac concern in 1940 and 1941 over inflation.This was the legacy of World War I, when between 1915 and 1920 in the United States wholesale prices more than doubled, and there followed a ghastly and, most supposed, counterpart slump. Fear of repetition and attendant deprivation lasted through the depression years. It was intensified by knowledge of the total collapse of currency values in Germany, Australia, and elsewhere in Central Europe following the war, a collapse that traumatically affected the thinking of German, Austrian and Hungarian economists, some of the most distinguished of whom later found positions and influence in the United States. So it was axiomatic that, in the coming conflict, inflation must, above all, be prevented. It was also axiomatic that to prevent much inflation one must prevent little. It was probably Henderson who first voiced the thought that having a little inflation was like being a little pregnant....

The work in establishing ceilings, understanding issues in dispute, according hearing and appeal to interested and aggrieved parties, staffing and otherwise managing the enterprise and answering to the Congress, press, and public was to be the most intense effort of my life. Conceivably I crammed more into those two years than into the following forty as I write. In 1961, when I went to India as ambassador, I was thought to be taking on a large and heavy task. I did nothing to dispel the illusion, and such was my reputation for diligence that President Kennedy singled it out for agreeable mention. By comparison with the regimen of a price-fixer, it was a life of appalling idleness.”

John Kenneth Galbraith
A Life In Our Times, 1981
pp. 128, 136

American industry was struggling from a decade of the worst economic depression in U.S. history and now saw the chance to finally get back on its feet, only to be met with government price controls and forced cancellation of profitable civilian orders to switch to unknown, never before attempted war production. These industries had influence over Senators, Congressmen and media and vented at any attempt by Galbraith and his office to stop their recovery. Criticism came from everywhere. Industry lashed out about government interference; the media attacked about the slow progress of transforming the economy over to war production and accusations of incompetence sprinkled upon the growing death toll overseas, added to the incredible pressure dumped on the highly visible public figures.

And the result of said Galbraith policy?

"There is difficulty in praising convincingly an achievement with which one has been associated. Architects are not thought best for reviewing their own buildings, poets their own verse. However, the figures on the wartime accomplishment are objective.

From 1941 to 1944, Gross National Product increased (in constant 1958 prices) from $264 billion to $360 billion and was only slightly lower in 1945.

By 1944, industrial production was two and a half times the prewar level. The output of durable manufactures was three and a half times.

Of the $360 billion of production in 1944, the federal government took $160 billion for the war or not much less than half. And about half was used the following year.

Unemployment, for all practical purposes, was at zero.

This vast expansion, transfer, even convulsion, was accomplished without inflation.

Inflation is part of the memory of World War I; also of the Ford and Nixon years; also, alas, of the Carter years. Inflation is not part of the memory of World War II. This stabilization of prices was not at cost to output of efficiency. The expansion in output itself belies that.

The theologically committed have sought, not without success, to minimize the role of this effort. That so much could be accomplished with the market, totem of totems, in partial suspense was deeply damaging to the established faith."

John Kenneth Galbraith
A lIfe In Our Times, 1981
pp. 170-171

By the way, the unemployment rate in 1944 - 1.2% - is the lowest ever recorded since the government began keeping records.

The most government control of the economy in U.S. history and the lowest unemployment rate ever. And less than 5 years from the worst depression in U.S. history.

And the rich hated every minute of it and fought Galbraith tooth and nail throughout his term as price czar. WW I saw fantastic war profiteering and a historic increase in millionaires (I have the actual numbers - not in memory right now). And the taxation policy on the rich increased after the war. Economists and business were terrified of a depression returning after WW II - but it never happened.

There is a lesson to be learned here.

Steve

It never ceases to amaze me the lengths that Keynesians will go in their attempt to convince another that economics is more science than art.

The study of economics is a science. The function of economics is art. For purposes of the former the human element can easily be dismissed and one can happily immerse themselves in a sea of equations and ledgers. The latter is much less defined as it MUST include the human element along with all the quirks and foibles that are indicative of humanity.

People, on a grand scale, cannot be controlled for very long even by force and, as they are part and parcel of an economy, no economy can be controlled for very long either. It is here that collectivists such as Marx and Galbraith suffer their greatest failings. It is this lack of understanding the difference between influence and control that has lead men such as FDR, Keynes, Galbraith, Johnson and Obama to pave the way for structural corruption in our economy. They keep on trying to strike down that devilish imp of human ingenuity that does nothing else but seek constantly to escape the shackles of order.

Originally Posted by lutherf

It never ceases to amaze me the lengths that Keynesians will go in their attempt to convince another that economics is more science than art.

The study of economics is a science. The function of economics is art.

No, my friend, it's worse than that.

Economists come up with MODELS of how things SHOULD work.

Financiers and Business people make people believe that they are ADHERING to the model when they're just coming up with one con game and ponzi scheme after another.

Originally Posted by USCitizen

No, my friend, it's worse than that.

Economists come up with MODELS of how things SHOULD work.

Financiers and Business people make people believe that they are ADHERING to the model when they're just coming up with one con game and ponzi scheme after another.

The word "should" is the whole problem with the economics of Socialism. Who gets to determine what "should" or "should not" be appropriate? That's the difference between control and influence.

Originally Posted by lutherf

The word "should" is the whole problem with the economics of Socialism. Who gets to determine what "should" or "should not" be appropriate? That's the difference between control and influence.

Austrian skips a lot of the formulas and relies on observation. I prefer the formulas in combination with observation. The function of what should or should not be appropriate is not a function of ethics ... but of power.

Originally Posted by michael h

Austrian skips a lot of the formulas and relies on observation. I prefer the formulas in combination with observation. The function of what should or should not be appropriate is not a function of ethics ... but of power.

The formulas can give you probabilities but rarely will they give you absolutes.

Originally Posted by lutherf

The word "should" is the whole problem with the economics of .

Capitalism

Originally Posted by lutherf

The formulas can give you probabilities but rarely will they give you absolutes.

Very much agreed, and I find the best economists get it wrong as much as they get it right. Which is disappointing, when someone says after or during a recession ... hey I missed it ... the money supply was to tight. lol

Originally Posted by michael h

hey I missed it ... the money supply was to tight. lol

Recessions always occur after the economists lie about the path to prosperity and Wall Street follows them to the trough.

Originally Posted by USCitizen

Recessions always occur after the economists lie about the path to prosperity and Wall Street follows them to the trough.

Greenspan had one of those late realization moments ... somebody wins and somebody will lose.