CDR: Re: A famine averted...

[Richard Fiero]

James A.. Donald wrote:

>At 12:04 PM 10/14/2000 -0700, Richard Fiero wrote:
> > With respect to equilibria, it's an unwarranted assumption that a
> > market has just one stable point.  Certainly the Great Depression
> > was a stable but undesirable situation.
>
>It was only stable thanks to massive government intervention.
> . . .

Jah jah, Herr Donald. Yes, the stupid and pampered working class caused
businessmen to not invest in production and wages sufficient to consume
the output. Haha! Perhaps at gunpoint the slackers will work a bit
harder. Or faced with starvation and no health care the louts will
return to their machines. Oops, sounds like today. A wooden shoe, a
sabot, in your machine, sir.

But this was a deflationary spiral where an investment today is worth
less tomorrow, or the same investment can be made cheaper tomorrow --
or next year.

Not being a theologian, I can only offer Friedrich Hayek's sadly wrong
observations:
"[U]p to 1927 I should have expected that the subsequent depression
would be  very mild. But in that year an entirely unprecedented action
was taken by the American monetary authorities [who] succeeded, by
means of an easy-money policy, inaugurated as soon as the symptoms of
an impending reaction were noticed, in prolonging the boom for two
years beyond what would otherwise have been its natural end. And when
the crisis finally occurred, deliberate attempts were made to prevent,
by all conceivable means, the normal process of liquidation."

This is contrary to events. Fearing a bubble, the Fed tightened not
loosened.

As Herbert Hoover later wrote:
"The 'leave-it-alone liquidationists' headed by Secretary of the
Treasury Mellon felt that government must keep its hands off and let
the slump liquidate itself. Mr. Mellon had only one formula: 'Liquidate
labor, liquidate stocks, liquidate the farmers, liquidate real estate'.
He held that even panic was not altogether a bad thing. He said: 'It
will purge the rottenness out of the system. High costs of living and
high living will come down. People will work harder, live a more moral
life. Values will be adjusted, and enterprising people will pick up the
wrecks from less competent people.'"

Friedrich Hayek again:
"...still more difficult to see what lasting good effects can come from
credit expansion. The thing which is most needed to secure healthy
conditions is the most speedy and complete adaptation possible of the
structure of production. If the proportion as determined by the
voluntary decisions of individuals is distorted by the creation of
artificial demand resources [are] again led into a wrong direction and
a definite and lasting adjustment is again postponed. The only way
permanently to 'mobilise' all available resources is, therefore to
leave it to time to effect a permanent cure by the slow process of
adapting the structure of production..."

And herein we wander off into fantasy land:
>You will notice that the recent Asian crisis started with a market crisis 
>of confidence in government financial instruments similar to that which 
>occurred just before the beginning of the great depression.
>
>The Asian governments responded to this crisis by looking at what 
>governments did back during the great depression, and proceeding to do the 
>opposite of whatever governments did back then.
>
>While the crisis of confidence caused some initial hardship, this would 
>have swiftly evaporated as it did in the Asian crisis.  What really caused 
>the great depression in the United states was Smoot Hawley and government 
>intervention to maintain artificially high wages for some groups, and 
>artificially high prices to pay those artificially high wages.
>
>Similar wage and price policies in France today are accompanied by 
>similarly high permanent unemployment, with totalitarian parties receiving 
>a larger vote in France than they ever received in America during the
great 
>depression.  If those wage and price policies were accompanied by Smoot 
>Hawley, we would probably soon enough get a totalitarian regime in France.
>
>In Spain during the great depression, they simultaneously employed 
>artificial wage policies, Smoot Hawley like tariff policies, and also 
>massive Keynsian stimulation.  This had the interesting result that they 
>suffered an inflationary depression, the first major occurrence of the 
>infamous stagflation, and did wind up with a totalitarian regime.
>
>     --digsig
>          James A. Donald
>      6YeGpsZR+nOTh/cGwvITnSR3TdzclVpR0+pr3YYQdkG
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>      4sWymZlb3VNvWA2v0KrisTwsq0/5Ts0zVfqLM8ICX
>