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January 13, 2009

Comments

randy

What is the "something that will make things better?"

John

Randy, you are asking the pivotal question. I don't think anyone can confidently declare what that "something" would be. It appears that we may soon be going down the same road that FDR chose. As Jim so clearly suggests, it was wartime production that began the turnaround, followed by consumption that was a product of pent-up demand for cars, refrigerators, and houses, etc.
Some would say, "we can't just do nothing!"
I would counter that "doing nothing" might in fact be the best route. People are presently beginning to live more prudently. In fact, some are even saving. Perhaps someday, when prices become so depressed that people can actually afford to buy, we'll see a resurgence.
But even more fundamentally, there is a limit to growth. Let me elaborate. I live in a small town with a pathetic little economy. Merchants cannot survive on sales to the local populace. So they market their goods to other regions.
Like my little town, the US, and other industrial nations, have sought ever-expanding markets to sustain their growth. Hence, we have a global economy. My little town has become my little world. And the world is running out of customers who actually have non-borrowed money.
James Kunstler, in his book The Long Emergency, talks about this whole subject in quite a compelling way. He sees a return to an agrarian society - world wide - wherein towns and cities, modest in size, are fed by nearby and surrounding agricultural regions.
Maybe that's where we're headed. I don't know. But in light of Biblical prophesy, particularly when the scriptures say that the mechants of the world will weep, our present economic mess may be irrepairable, and the beginning of the end of life as we know it.
But if anyone claims to have the answer, to know how to get us back to the good old days, I'd be skeptical. Doing nothing might be just as effective as doing something.

Randy

Thanks for responding John. The "do nothing" approach still makes me a little nervous though. Besides, my wife thinks I would be a bad farmer. I hope I don't have to prove her wrong!

cfb

Considering the options, I am glad that God is the "I Am," and that I am His. One note of information, my grandfather actually built bridges through the WPA (many of which are still standing and in very good shape following regular inspections). The WPA project in general may not have worked like FDR intended, but maybe it worked in other ways. People were able to feed, cloth and house their families by putting in a days work, either using their skills and/or learning new skills. I believe this was better than standing in line for extended unemployment handouts, and for my grandfather, it also lead to a good job in a factory where he worked for over 20+ years and then retired. At this time in our history, my grandfather was too old for military service, but still had a family to support. Our country has 100's of thousands of miles of infrastructure that needs upgrading and still more that needs to be built - water drainage, roads, bridges, sewer systems, clean water options (especially in small, rural areas) rail systems, etc. Is it possibly better to get something than nothing?? It is evident the government is going to print the money and use it in some form or fashion.

Alex Marshall

Jim, when I look at your chart, it seems like some pretty significant dents were put in unemployment prior to World War II, though certainly we did not get to a "normal rate" until after the war. I have heard a good many economists say that it was not that the New Deal couldn't work, it was that they didn't do enough. The economic expansion from World War II wasn't completely different from the WPA either- it was largely based on government directed manufacturing and military spending (and the draft- putting most of your men in the military takes out a lot of unemployment). Different kinds of work, perhaps, but a similar concept of the government paying for work. And I think I have to agree with cfb that many of the projects conducted by the WPA were useful (and are still useful) and that even if the long-term effects were not what FDR wanted, the WPA did provide families with the money they needed to survive without resorting to hand-outs.

I don't know if a WPA-like program is the answer for our current economic crisis- there seem to be significant differences in the causes and conditions. But perhaps it would provide some-sort of short term relief while a longer-term solution was being put in place.

randy

I think I have to weigh in with Alex and cfb strictly from an economic perspective.

Although economists have debated whether FDR’s New Deals actually hastened or prolonged the depression, no doubt, it helped many like cfb’s grandfather. Also, most economists today, especially Keynesians, hold the position that FDR did what was right for the country based on the circumstances at that time, thus setting the stage for a recovery.

It is my understanding that the U.S. economy entered into a similar economic predicament which reached a crisis point last September, perhaps even worse, which apparently has been the impetus for what we are now seeing as more “Deals” evolving. In September, a fragile, ailing economy came to a crossroad whereby a difficult choice had to be made - do something or do nothing - a bad choice or a worse one. Paulson and Bernanke chose to do something and push for the bad choice hoping that it would avert more catastrophic consequences. Doing nothing just didn’t seem reasonable. I realize, however, no one should forget the decades of lax regulations, greed, debt, and irresponsible spending that brought the economy to its’ knees to begin with, nor can we forget the socialistic bailouts that subsequently rescued Wall Street bankers, private enterprises, irresponsible consumers, and self-serving government bureaucrats. All bad, yes, but what if they had done nothing? I think one could legitimately ask, “what kind of sorry mess would we be in today had not these drastic actions been taken?” In my mind the dilemma can be compared to the out-of-shape, overweight, middle-aged man who has smoked all of his life, and has just had a heart attack and stopped breathing. Does the doctor apply the paddles or lecture him on better lifestyle choices? As far as economic lectures about better choices, many conservatives have voiced their alarm for many years, but unfortunately, with little success. So now the paddles are firing up, and if the patient survives, it looks like he will still be in for a slow painful recovery. If no paddles are used, however, is recovery even possible? Granted, a pretty gloomy outlook, but doesn’t seem to be a lot of options.

The next administration will continue to face many difficult choices, which have already been set in motion. Will more bailouts continue to ease the hemorrhaging? Will stimulus packages create enough jobs to offset plummeting consumer spending? Will the U.S. ever be able to manage its’ excessive debt and spending? No one knows the answers other than God, and I doubt that He is as concerned about these questions as most of us anyway.

Austin

"First, do no harm."

It would be a mistake to think that Bernanke and Paulson's "bad choices" are analogous to applying the paddles to a hyper-fibrillating patient--they will only either produce no result while costing lots of money, or make the economy worse. Here are two analogies that better characterize the current "stimulus" proposals. They are like 1) performing brain surgery on a 3 day old corpse or 2) they are like leeching a hemorrhaging patient. Either way then, whether to taxpayers or the economy, the stimulus plan will violate Hippocrates' first principle.

The current stimulus proposals do not rise even to the level of a lesser of evils. No, the least-evil option from among the current panoply of possible responses is in fact to do "nothing."

Besides, even if the President's plan weren't harmful, it is still misdirected. The root causes of America's economic downturn have NOTHING to do with un-filled potholes. They have everything to do with enabling a drunk-on-credit, gluttonous importer to grow ever more self-destructive; with shrinking productivity; with artificially suppressed interest rates; and with distortions in economic data and aggregate demand which the government has caused through...wait for it...wait for it...reckless spending measures! You tell me how duplicating that mistake can be both problem and solution.

Keynesians always sacrifice tomorrow for today. But you can only say "we'll worry about that tomorrow" a couple of times before tomorrow comes a' calling. Just ask the Maestro. And guess what, we've (he's) been invoking the magic of "tomorrow" since the 70's. The President's stimulus proposal is an attempt to yet again invoke that bankrupt mantra in the face of a 40-year-old-and-counting snowball.

Right now the snowball is heavy. But by "tomorrow" if we continue to endorse these "stimulus" measures, the snowball will have turned to lead. I don't support a move toward lead snowballs. Why trade pain today for agony tomorrow?

Alex Marshall

I definitely don't agree that the best option is to do nothing. We are dealing with two snowballs here- one is the cumulative effect of the past 40 years and the other is the potential effect of the last two. The collapse in the credit market, if allowed to continue, will snowball into a massive economic collapse that will have far-reaching consequences outside of those who caused the problem. We have an opportunity, though, to stop that snowball. Granted, it may make the other one worse for a while. But I think doing nothing makes things worse doubly!

Interestingly, the great depression got as bad as it did because of a "do nothing" policy. The initial response the depression was to follow the "classical" economic line that government intervention always hurts and to just let the economy run its course. Three years later, unemployment was above 35% (today its only at about 7) with no signs of getting better and something had to be done. At that point, it may have been too late for FDR's new deal to fix things, but it was an attempt to do something at least. Right now we are facing a potentially even greater economic crisis if we let it run its course, but we're only in the opening stages. We might still have time to do something that actually will "fix" things (at least as far as this snowball is concerned). Once that's accomplished, there are other more fundamental issues to be addressed.

Randy

To use another metaphor, if the bank bailouts continue, then it may become more like giving a feeding tube to a dying patient, but before that happens, they will probably become nationalized. They already seem to headed that direction anyway! However, I don't follow how the initial decision in Sept. was like "performing brain surgery on a 3 day old corpse"; although I do think most (as approved by congress) concluded doing "nothing" would have led to that condition. As repulsive as the $700 B appropriation was to almost everyone, the majority did not want to risk the death you feel had already occurred. Furthermore, based on where we are today, four months later, which is nothing even close to what it must have been like in the 1930’s, I’m still not ready to attend the funeral. In fact, as crazy as it may seem now, history may someday look back on Bernanke and Paulson as the real heroes!

As far as a future stimulus package, I'm trying to get beyond my own political persuasion and disgust with the socialistic policies that have evolved over the past decades and come to gripes with the economic reckoning that is taking place now. I’m not asking myself whether doing “nothing” can reverse the damage from the past. I don't think it can, but I am asking whether it can mitigate more damages in the future?

cfb

My response was based on past experience versus what appears to be occurring with the powers that be in government. It seems they are going to do something - so get something in return. I do believe exactly what you are saying about why we are where we are. The credit industry pushes in all directions the concept "get it right now and pay for it later!" Credit providers are reaching down to our children with games designed to understand the "credit process," and offering credit to young people who don't even have a job! Greed and instant gratification are the source of our situation and we are getting exactly what we paid for!

Austin

Paulson and Bernanke are not heroes--they're liars, thieves, or fools maybe, but not heroes. Like all good Keynesians they will take a chance at a minor reprieve now even when that means we will assuredly get our throats slit tomorrow.

My corpse analogy doesn't refer to the U.S. economy; it refers to Paulson and Bernanke's "treatment" regime. Maybe the U.S. economy isn't a corpse yet, but the methods those two have used have been exactly as well-tailored as inoculating a dead man.

Where is all that credit their TARP was supposed to un-thaw? Their solution isn't a solution. That's my point.

A part of what the "real" solution would include raising interest rates. That, obviously, would be a treatment that the patient would probably not survive. It is what the patient requires. Therefore, since the patient cannot survive real treatment, and the solutions being enacted now have all the salubrious power of a well-administered, albeit expensive, placebo, the best course is to forestall USELESS gestures and wait until ACTUAL remedies may be administered.

Either way, whether waiting for the patient to recover enough on his own to undergo the rigors of a true treatment plan, or cramming useless medication down the patient's throat while you wait, the patient will either die or not. Neither course changes the outcome; one just costs a lot more.

Randy

Since we have such a long thread going, here's something to string it along.

Austin, I share your frustration with the economic predicament the world is facing currently, but there's no way to go back forty years, or even two, and start over. Thus the timing of doing "nothing" in September was not only risky but probably too late. Furthermore, even today, most economists still view acquiescing to the "nothing" approach is comparable to economic malpractice, which would only hasten the inevitable "throat slitting" to which your refer. They would much rather attempt to avoid "tomorrow's" slashing, if possible, by doing "something." However, thus far, no one has presented a better "something."

Okay, that's got to be about as much gloom as any LW reader can handle. On a brighter note, perhaps the silly "Hope" and "Change" mantra we've heard for months should be changed to "Hope" and "Prayer." Then add to that, "With God all things are possible."

Austin

http://online.wsj.com/article/SB123371119661046143.html

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/05/AR2009020502766_pf.html

Every time I read an article that outlines how stupid the "stimulus" measures are, they will wind up here, too.

Randy

yeah, starting to feel more like the U.S.S.A.

Austin

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_mccaughey&sid=aLzfDxfbwhzs

Austin

http://www.ft.com/cms/s/0/f80a1926-f6d8-11dd-8a1f-0000779fd2ac.html

Austin

Peter Schiff perfectly describes how we got here, AND he articulates perfectly why my original thesis is correct: do nothing=good. Porkulus=bad.

http://www.youtube.com/watch?v=Aq1N70vym1g

randy

Yes Austin, Peter Schiff and Ron Paul have been two of the more credible forecasters I've ever seen, and they have been warning us for years. Additionally, their fundemental message is based on simple common sense - You can't continue to spend more than you earn and call that prosperity! That's true for individuals, businesses, and especially the government. In fact, unlike what many of the self-serving, idiot politicians have been telling us for years, the U.S. government is getting dangerously close to bankrupcy. That became clearer in Sept.

Austin

Hmm....this guy sure makes a lot of sense. But his words seem so familiar--where have I heard this before? Oh! that's right--in my post two weeks ago.

http://popecenter.org/commentaries/article.html?id=2129

Austin

http://www.examiner.com/x-2304-DC-Republican-Examiner~y2009m2d9-Harvard-Economist-Stimulus-is-probably-the-worst-bill-that-has-been-put-forward-since-the-1930s

Austin

Another really pressing need answered in Congress' porkulus bill.

http://www.nypost.com/seven/02112009/news/politics/congress_hopping_carts_154496.htm

Austin

Ah....my personal favorite

http://www.breitbart.com/article.php?id=D960U4HG0&show_article=1

Austin

http://news.cnet.com/8301-13578_3-10161233-38.html?part=rss

Austin

Here's another article explaining why both Alex and Randy were/are fundamentally and irreconcilably wrong about the salubrious effects of "stimulus."

http://www.campaignforliberty.com/article.php?view=10

randy

Austin, you have become so focused on making your point that you have failed to read my comments carefully, and thus made assumptions regarding my thoughts on a "stimulus" that I never made.

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