What really caused the depression

You probably saw it at Zero Hedge:

It’s 5 minutes 45 seconds worth spending and confirms that it is shaping up the same way again.  Key points:

1.  Not one recession but a number one after the other.

2.  Pre-depression, govt doubles money supply, loans easier to get, massive boom, prosperity and stock mart growth, all unsustainable, roaring 20s.

3.  Govt removes a third of the money, reducing loans, raising prices, increasing interest rates, wise investors get out, people follow, crashing the stock mart.   Still possible to recover, as before.

4.  Depression ensured by Hoover’s tariff act, ban on imports, foreigners then raise own barriers, export industry collapses, agriculture goes down, ruining world banks, unemployment soars, businesses close, deficit increases, Hoover doubles income tax.

5.  Other half of tag team wins election on promises to reverse Hoover’s damage, instead criminalizes ownership of gold, devalues dollar by almost half, closes banks as Milliband is talking of, destroying savings, creates social security to compensate, doubles debt to pay for all this, enacts minimum wage, unskilled workers now unemployed, brings in New Deal, depressing economy further.

6.  To kill competition, he brings in National Industrial Recovery Act, pro-union when businesses need the help, forcing industry into govt run monopolies, enacts thousands of regulatory codes to choke business further, increasing business costs 40%, tried to reduce supply and raise prices, Agricultural Adjustment Act, taxing farming, destroying livestock and crops, paying farmers to do nothing.

7.  It doesn’t work.  He raises taxes even higher, creates Civil Work Administration and Works Progress Administration, both expensive bureaucracies [half the budget allocation goes in bureaucratic costs], paying the unemployed to do faux jobs which create nothing, e.g. sending grads to shelf-stack today, this prevents capital and labour moving to productive sectors.

8.  Supreme Court eventually overturns Roosevelt’s worst laws, economy starts to recover, Roosevelt raises taxes again to stop it recovering, enacts Undistributed Profits Tax, amking business and investment virtually impossible, raises top rate to near 100%, enacts Wagner Act, labour disputes now settled by a Labour organization, the National Labour Relations Board, businesses are seized, unions go on strike, unemployment skyrockets again, WW2 comes, trade frees up, economy starts recovering.

The Myth

That capitalism caused the depression and that govt intervention ended it.   It was govt intervention which artificially kept it going for so long.   When things are bad, govt needs to butt out and let business find its own level.

We’re then faced with the old conundrum – was it incompetence or was it deliberate?   I believe it was cynically deliberate, knowing incompetence would win the day.

That’s where we are now.  All that’s missing is the end war.

5 comments for “What really caused the depression

  1. October 1, 2012 at 06:37

    “I’m from the Government and I’m here to help” LOL

    Good vid but only a passing aside to what created Americas revival, WW2.

  2. October 1, 2012 at 07:21

    I’m sure there’s plenty to debate and speculate about here. For example they managed to have a Depression when they had most of the world’s industrial capacity; now very different.

    And this often (as here) melds into party politics and what a pinko Roosevelt was, though it may be he saved America from full-blown socialism.

    If we want to get political let’s look at Nixon’s biggest “error” by far – his China visit. You could argue that it’s flag-waving senior Republicans and their wealthy sponsors who have betrayed their country for gain.

    I’m sure we can all agree on that.

  3. October 1, 2012 at 13:58

    Good vid but only a passing aside to what created Americas revival, WW2.

    Needs a post from you, Banned.

    Sackers – it’s not “I’ll name the leftist and you name the rightist”. This is all of them.

  4. Daniel
    October 1, 2012 at 17:54

    What is government representing? Mmm…look at the Feds (Private banks).

    Some quotes regarding the issue:
    What actually happened was that business became increasingly competitive during the late nineteenth century, and that various big-business interests, led by the powerful financial house of J.P. Morgan and Company, had tried desperately to establish successful cartels on the free market…. It became clear to [the] big-business interests that the only way to establish a cartelized economy, an economy that would ensure their continued economic dominance and high profits, would be to use the powers of government to establish and maintain cartels by coercion. In other words, to transform the economy from roughly laissez-faire to centralized and coordinated statism.
    …Herbert Hoover broke with the previous laissez-faire policy for dealing with recessions and depressions. Long before the 1929 crash, in the early 1920’s, he wrote that he believed that public works projects were a means for government to fight recessions and depressions. In the last week of October 1929, he urged the Fed to extend $300 million in quantitative easing.
    Economists could not at first explain the Depression because they were unaware of the dramatic shrinkage in the quantity of money. It was not until Friedman and Schwartz dug into the facts that the culpability of the Federal Reserve became known. Moreover, most economists found this culpability to be unwelcome information. In the 1960s economists were uniformly Keynesian in outlook. They were emotionally supportive of government intervention, and their human capital was invested in policies that rested on their belief in the effectiveness of government action. Although they could not refute the evidence, they did not warmly endorse the revelation that the Fed had caused the Great Depression.

  5. October 1, 2012 at 19:55

    Thanks for that, Daniel.

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