CDR: Re: A famine averted...

[James A.. Donald]

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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.

James A.. Donald wrote:
 > > 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!

You are presupposing the Marxist explanation of depressions, an explanation 
that Lenin abandoned in 1910.

 > 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'.


President Herbert Hoover, evidently, was not of the leave it alone philosophy.

During the Asian economic crisis, a crisis very similar to that which 
Hoover faced, Clinton WAS of the liqudidate and leave it alone philosophy, 
perhaps because the world has seen the consequences of Hoover's 
philosophy.  Everyone commended the Hong Kong approach, instant liquidation 
for any insolvent enterprise, with the bailiffs taking the pictures off the 
boardroom walls and cleaning out the liquor cabinent, while the Indonesian 
approach of resisting liquidation was met with hostility and eventually the 
foreign encouraged overthrow of the then Indonesian government.  The key 
reason the Indonesian government was overthrown was that it was stiffing 
Hong Kong creditors in the same way that President Hoover was stiffing 
American creditors.

Hoover's meddling had utterly disastrous and counterproductive 
results.  The result, as usual with government programs that fail 
catastrophically, was for the government to react to failure by escalating 
the program.

Stiffing creditors of course instantly dries up private credit.  Everyone 
stops lending, which produces a dramatic fall in privately issued 
liquidity, a catastrophic fall in the volume and velocity of money, which 
of course swiftly turns a modest recession into a major depression.  Of 
course that was only a minor catastrophe compared to wage and price control 
policy practiced first by Hoover and then far more forcefully by his successor.

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          James A. Donald
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