With the recent market turmoil in mind (including another tumble today – someday this will end, I keep telling myself), you can rely on “The Old Gray Lady” to consult their resident financial gurus in search of an answer, or at the very least, a halfway intelligent diagnosis.
The problem, though, is that, although they have both the Nobel prize-winning Paul Krugman and David Leonhardt on their staff, they also have Greg Mankiw and Ben Stein to negate a lot of what I consider to be the former pair’s sound, reasoned analysis.
When we last heard from Mankiw, he was telling us here in early June that another round of tax cuts should be financed by an increase in the gasoline tax (for real). And yesterday, he decided to do a little “compare and contrast” between the Great Depression and what we currently face.
And he tells us this…
In 1928, the Fed maneuvered to drive up interest rates. So interest-sensitive sectors like construction slowed.
But things took a bad turn after the crash of October 1929. Lower stock prices made households poorer and discouraged consumer spending, which then made up three-quarters of the economy. (Today it’s about two-thirds.)
Uh…I suppose that’s true for many people, but for the vast majority of this country, here’s what happened (and I checked with the person who I consider to me the foremost expert on this topic, and that would be my mom, because she actually lived through it).
It’s hard to imagine this now, but there was no such thing as credit back then. Everything was “cash and carry” built on the gold standard, which FDR ended in this country in 1933 (some argue that that induced inflation that exacerbated the Depression). But after the stocks crashed, the banks closed, and that created a more devastating “credit crunch” than what we have seen so far.
And I’m sorry, but though I definitely am not an economist, I don’t see how “lower stock prices” mattered for the vast majority of the people of this country (directly I mean, again, unless you’re talking about the effect on the banks).
Continuing, Mankiw also tells us…
President Roosevelt made things worse when he encouraged the formation of cartels through the National Industrial Recovery Act of 1933. Similarly, they argue, the National Labor Relations Act of 1935 strengthened organized labor but weakened the recovery by impeding market forces.
You could argue that the National Industrial Recovery Act (which led to the formation of the National Recovery Administration) was a bit of socialist overreach on the part of FDR (the Act was declared unconstitutional in 1935), but we have the benefit of 20-20 hindsight here, and it was in part a psychological effort to show that government and business was trying to revive this country’s economy (the “market forces” Mankiw says were impeded here actually participated in the legislation, particularly Gerald Swope of General Electric and Harry Harriman of the U.S. Chamber of Commerce). The Act also “help(ed) workers by setting minimum wages and maximum weekly hours. It also allowed industry heads to collectively set minimum prices.”
Also, the following should be noted about the National Industrial Recovery Act…
Recovery was pursued through “pump-priming” (that is, federal spending). The NIRA included $3.3 billion of spending through the Public Works Administration to stimulate the economy, which was to be handled by Interior Secretary Harold Ickes. Roosevelt worked with Republican Senator George Norris to create the largest government-owned industrial enterprise in American history, the Tennessee Valley Authority (TVA), which built dams and power stations, controlled floods, and modernized agriculture and home conditions in the poverty-stricken Tennessee Valley.
So the NIRA sponsored public infrastructure projects to help spur economic growth. I don’t think that’s a bad thing. Do you?
And as far as Stein is concerned, his column yesterday featured a lot of pitiable whining about his money and scolding others on the virtues of thrift, as noted here…
The need for the government to take action seemed so clear — and still seems so clear that I cannot believe a day passes without its happening. But the days pass, nothing happens, and I am proved wrong again. And I lose some of my life savings and it hurts.
Take a number and sit down, Ben.
And Stein also echoed his infamous call to “give Exxon and Chevron a hug” by using the excuse of our current calamity to state as follows…
What do you say, folks? Let’s acknowledge that we were a bit hasty. The oil companies are just corks bobbing up and down on the ocean of worldwide demand and supply, exactly as the oil companies said they were. They are not going to be starving, but they are clearly not the invincible demons that their enemies said they were. Now that we see how vulnerable they are, is there any reason to hit them with a surtax?
As we know, Stein made a name for himself playing an economics professor in “Ferris Bueller’s Day Off.” What a shame he didn’t halt his career in “the dismal science,” as Krugman has called it, but decided to play an economics writer also.