From Carpe Diem, Wed. Oct 15, 2008:
Biggest Economic Nonsense Since Great Depression
Graph update (in reponse to a comment):
An otherwise interesting Washington Post front-pager on “What Went Wrong” claims the current situation “has erupted into the biggest economic crisis since the Great Depression.” On the contrary, that honor surely goes to 1980-82, with 1973-75 as a close runner-up.This may indeed be the biggest postwar financial crisis, but that is a very different thing.The biggest postwar financial crisis so far was the S&L collapse of the late 1980s, when nearly 3000 financial institutions were closed (see chart above). But the impact of the S&L debacle on the real economy was minor at best (the economy grew by 2.9% a year during that “crisis”). The stock market crash of 1987 inspired many hysterical predictions but no recession at all.An economic crisis implies a deep and prolonged drop in real output and employment, not just another routine recession. To describe current conditions as a worse economic crisis than 1980-82 is fanciful nonsense.Cato Institute's Alan Reynolds
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4 comments:
Well, I think I need to respectfully disagree with Mr. Reynolds. While it's true that the Post article may be overstating the case, it's also true that Mr. Reynolds is doing so as well.
While it is indeed true that the economy is not officially in a recession yet (typically defined as two quarters in a row where GDP has fallen), much less a depression (a prolonged recession lasting years). Only time will reveal whether or not the extreme disruptions in our economic system lead us into recession or depression. In that sense, it is too soon to make pronouncements - for the Post or for Mr. Reynolds.
But on another score, the claim made by the Post article certainly has some justification on its side. Compare the government intervention in the current crisis to the three situations cited by Mr. Reynolds: the recessions of 73-75 and 80-82 and the S&L debacle. The government intervened directly only in the S&L debacle and not nearly to the extent we see today with the government loans and guarantees to banks, car manufacturers, insurance companies, and more.
And what made the Great Depression so "great (that is, what prolonged a normal recession into an economic depression unparalleled in our history"? It was the government interventions. I don't think the Post article is so far off - and it's certainly not "fanciful nonsense".
cfc
Hey, Chris,
I would agree it is too soon to say what is going to be the fallout from current economic and political events. I also agree that what made the Great Depression so deep and so long was government intervention...which is why I think it important to keep the current circumstances in proper perspective.
The Post article is a long argument in favor of government regulation...Government should have done more sooner (regulation, control, oversight.) The clear implication from the article is that government needs to step in now, both to fix the current mess and to prevent problems from recurring in the future. By repeatedly stating today's situation is as bad as the 1930's, the obvious connection for people to make is that we need a set of massive government interventions similar to the New Deal in order to properly address our problems today.
Looking at the graphs supplied by Carpe Diem along with the graphs from the St. Louis Fed (see my post Economic Crisis?) it doesn't seem that the facts support the alarmist comparison to the Great Depression. But the panic which has ensued, and fear of the Great Depression, is being used to vilify the free market and justify immediate massive government intervention. Today is NOT like the Great Depression, and we do NOT need more government distortion of the market.
If your last point is that since the government is intervening in a rather large way, we may be headed for an extended period of unnecessary economic slow down, I won't argue with that. But some how people need to slow down and learn the real lessons of the Great Depression. Otherwise, we will continue further away from a free market and the prosperity it allows, and closer to the central planning of socialism and the stagnation and decline it causes.
Thanks for the comment!!
Beth
I agree that government intervention is the problem - never a solution. In fact, the very idea that deregulation has ever existed in our economy and financial markets within the past 70 to 90 years is a complete misunderstanding for what regulation is. For example, as stated by others, the entire idea for the creation of Fannie Mae was to intervene in the housing and financial markets. While we are not experiencing a prolonged recesion at this point is merely because of continued intervention (Mises stated that government interventionism only feeds the need for further interventionism) and the Fed's inflationary policies. If we were to rid these two practices immediately, I think we would see a a period of recessionary corrections (which is quite possibly needed)... the longer we wait the worse it will be.
Side note, as a response to your reply to one of my blogs (what to choose), I have to agree that writing these economic post is a way to help gain a better understanding for what you have read. In fact, this is why I make the same attempt. Additionally, however, without attempting to make a vast generalization, I think that too many people today feel that economic freedom has zero relevance. And, quite the contrary, economic freedom and individual liberty are a direct correlation (as you agree, I'm sure). These truths need to be stated again and again in the face of the so many blatent lies in the media and by pressure groups.
May I ask what you have been reading for your research? I think that Rothbard's theory on business cycles is good, plus the following book I found today (Hamilton's Curse http://mises.org/story/3164)
Darin,
re: May I ask what you have been reading for your research? I think that Rothbard's theory on business cycles is good, plus the following book I found today (Hamilton's Curse
I am not ignoring you. Thanks for the comment and the referral. The book on Hamilton looks interesting. I will get back to you on what I am reading....give me a few more days.
Beth
beth
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