Ivy League professor and a true believer in Keynesian economics David Epstein has been arrested for having sex with his daughter. Disgusting, gross, sick. Professor Epstein is probably best know for blogging on the Huffington Post and his Austrian verses Keynesian economics debate with economist Peter Schiff in November of 2009.
Peter Schiff debated David Epstein in November of 2009 at Columbia University.
The Allen Hunt show discusses the incestuous relationship.
The recent Supreme Court decision that forces California to release 33,000 prisoners inadvertently has brought to light a couple of issues. The first is the Hispanic crime rate. The second is the cost to California of illegal immigration.
While Hispanic only make up 13% of the population they contribute 40% to federal prison population according to the PEW research group. In contrast whites make up 64% of the population and contribute only 27% to the federal prison population.
The end of California sovereignty is near, will they become a part of Mexico or will United States taxpayers keep bailing them out?
And if that was not enough California is sitting on a demographic time bomb that will make todays incarceration cost look “cheap.” Today 51% of California’s under 18 years of age population is Hispanic. Combined with a out of wedlock birth ratefor hispanic women of 52.6% (28.7% for white and 72.3% for blacks) California in a short period of time will not be recognizable in most areas as a state that is part of the United States.
Why is the out of birth rate relevant to the future of California? To quote the Men’s Defense Association:
“Female-headed households are a minority of households, but they generate over seventy percent of the criminal class. A study made by the Bureau of Justice Statistics showed that 72 percent of incarcerated juvenile delinquents grew up in broken homes, mostly female headed; yet such single-parent homes are only 24 percent of all homes. The ratios of delinquency between father-headed homes and mother-headed homes show that it takes eight hundred and fifteen intact homes to generate as much delinquency as is generated by one hundred broken homes, mostly female headed.”
With a $26 billion dollar budget deficit California’s politicians have to get serious about illegal immigration, with or without federal approval, or decay into bankruptcy and third world status. California could be just another Mexico in a very short period of time.
The choice will be a clear one, get serious about enforcing the law, third world status, or US taxpayers bailing out California again and again.
Does Raising Personal Taxes Increase Federal Revenues?
One of the big arguments every election is should US tax policy raise taxes on the rich to pay for entitlement programs. Some argue that taxes need to be raised to close the deficit gap and pay for our debt. Others argue it is a question of social justice and the rich need to be punished. Leaving aside the political arguments does raising the personal income tax generate more revenue?
When the personal income tax rate was adopted by Woodrow Wilson in 1913 the top rate was 7%
The 16th amendment allowing a personal income tax was enacted into law in 1913 along with the 17th amendment ending state representation in the senate and well as the passage of the Federal Reserve act allowing a central monopoly bank. A very bad year for personal liberty and freedom comparable to 1862 when private currency was removed from circulation and the federal government printed greenbacks on a massive scale.
Prior to 1913 most federal revenues were collected from tariffs. The industrial class that used imports to produce products complained bitterly that tariffs unfairly hurt their business and there needed to be an alternative source of federal revenue.
Tariffs in the 19th century were typically as high as 60%+ in 1828 and as low as 14% in 1841. The average after the Civil War was typically 40% or more. Persuaded by the industrialist argument and the need to finance an expanded federal government role in the economy that would mimic the progressive models of the European powers of England, France, and most notably Germany the personal income tax was adopted.
It should be noted that just because the income tax has been abused by politicians is not necessarily a “bad” tax or tariffs a “good” tax. In fact tariffs are one of the worst ways a government can raise revenue. Tariffs cost consumers an unbelievable amount of revenue for each job saved. For example in 2002 it cost $1,376,435 to save one Benzenoid chemical job. With a total of just 216 jobs saved it cost American consumers a whopping $297,309,960 in additional cost. In the United States we protect the luggage industry, dairy, lumber, orange juice, ball bearings, machine tools, handbags, and even canned tuna. These tariffs cost consumers millions of dollars each year to essentially to protect special interest groups. Almost all economist on the right and left agree tariffs are very costly to consumers and should be avoided in almost all cases. Fortunately, our current tariff rates are low in a historic context averaging about 4%. Still most economists would like to see that number reduced even further.
Note the name of the 1828 tariff, “Tariff of abominations” which could just as easily been applied to the 1931 Smoot-Hawley tariff that contributed to the United States plunge into the Great Depression
One of the most underrated presidents in American history Warren G. Harding (1921-23) cut the top rate from 73% to eventually 25% in 1926 posthumously and the “roaring 20’s” were born. Calvin Coolidge (1923-29) continued Harding’s economic policies of cutting taxes and spending resulting in GDP growth rate of 27% from 1921 to 1929.
In 1932 President Herbert Hoover (1929-33) raised the top rate to 63% and Roosevelt (1933-44) followed that in 1936 with an increase to 79%. It should be noted raising taxes was not Hoover’s only monumental economic blunder. He passed the infamous Smoot-Hawley tariff act that raised effective rates to over 60% as well as increased federal spending 57% in his four years.
Federal tax collections from 1947 to present
Eventually the income tax rate was increased to 94% during WWII and lowered to 91% in 1950 where it remained until 1964. President Kennedy (1961-63) gave his famous tax cut speech in 1962 and in 1964 the 77% rate cut was enacted posthumously by President Johnson (1963-69). Eventually the rate was reduced to 70% in 1971 where it stayed until probably the most famous tax cutter, Ronald Reagan (1981-89) cut the rate to 50% and eventually 28% in 1988.
George H. W. Bush (1989-93) reneged on his famous “read my lips, no new taxes” promise and raised the rate to 31% in 1990.
Ronald Reagan cut the top income tax rate from 70% to 28% from 1981 to 1988
Finally the second most famous tax cut by George W. Bush (2001-09), in historical terms seems minor from 39% to 35% in 2003. Capital gains taxes were also cut to 15%. The revenue increase from this tax cut seems astounding, 45.1% from 2003 to 2007, but there are some caveats involved here, to quote economist Dan Mitchell. Federal Reserve Chairman Alan Greenspan lowered the federal funds rate to 1%, the lowest it had been since 1961. Foreign investment was poring into the United States. Congress had passed laws and applied political pressure forcing banks to make risky subprime loans. Fannie Mae and Freddie Mac were buying every loan on the market with no regard to its credit worthiness, and the housing bubble was born. So although some would want to credit the Bush tax cut for the phenomenal increase in tax revenues there were certainly a horde of other factors at work to produce the astonishing number.
Looking back at history we can see the top tax rate has varied from a low of 7% to a high of 94% in 1945. What was the percentage of tax revenues collected during those years’ measures as a percent of the GDP?
Astonishingly there is very little variance once effective IRS tax collection monitoring systems were in place by WWII. From 1945 to present the percent of personal taxes collected measured as a percent of GDP has varied from a low of 5.7% in 1949, when the rate was 82.13%, to a high of 10.2% in 2000, when the rate was 39.60%.
George W. Bush cut taxes from 39.60% to 35%
This makes sense, who in their right mind would pay 91% of their income they worked for and earned to the tax man? Anyone who remembers the 70s knows of relatives, like my father, who went to extremes to avoid the tax man. People bought investments that also functioned as household items when possible. Old guns, paintings, ceramic porcelain art work, ivory carvings, gold coins, anything that would have the chance of appreciation in value and could be utilized as a store of value away from the tax mans greedy eyes. Economists call this economic distortions or misallocation of resources. Instead of putting money into the bank, stocks, bonds, and other financial instruments that would help the economy and increase the standard of living for all Americans resources were sidetracked to old guns and porcelain figurines of birds.
Ronald Reagan economic adviser Arthur Laffer looked at this phenomena and concluded that the maximum tax collection point is about 30%. This simply means that above 30% there is less revenue feedback from the higher tax rate.
In other words raising taxes from 28% in 1989, to 39% in 1994 can in fact reduce the taxes collected. Tax collections went from 8.3% of the GDP in 1989 to 7.8% in 1994. The tax revenue increased from $1028.4 (billions) to $1356.5, a 31.9% increase. Because of economic growth, inflation, and other variables we could assume with the old 28% tax rate the tax revenues would have been around $1,443.5 or a 40.3% increase. We will never know.
What we do know is people are more willing to report and pay their taxes at rates below 30%. This does not mean that 30% is the Austrian economist choice of optimal tax rate. There is still a lot of damage to the economy with a 30% tax rate and most Austrian economist agree that 25% or less is much preferable tax rate for economic growth.
Tax rates are not the only factor in economic growth. Property rights, rule of law, governments’ share of the GDP, yearly deficits over 3% of the GDP, monetary policy, currency instability, and other factors can affect the economy just as severely and sometimes much more than tax policy. Still the evidence is very clear that there is no evidence that socking it to the “evil” rich will magically pay for all the social programs politicians’ desire. It simply does not hold up to when compared to the historical evidence.
This appeared in the Florida Political Press on 5-23-2011.
With Obama officially exposing his hand and calling for Israel to return to the 1967 borders one has to wonder how 78% of the Jews who enthusiastically supported Obama feel today. Betrayed like the 1938 Jews who were loaded up in rail cars and shipped off to Hitler by their Marxist hero Joseph Stalin? I have no sympathy for the 78%. They are the same fools who supported Stalin and most likely Hitler. Jews just have a way of supporting tyrants throughout history and it never seems to turn out well. Add Barrack Hussein Obama to the list. You would think the name was a give away but apparently not for 78% of them. A lot of the idiots like Billy Crystal still fail to realize 43% of the worlds population of Jews is in danger of being wiped out.
Pamella Geller of Atlas Shrugs gave it 110% in 2008
In case people forgot here is a excerpt from Geller’s blog extorting Jews to reject Obama.
“BOCA RATON, FRIDAY, OCT. 31, NOON TO 1:30PM
· DO NOT MISS IT
· COME AND PARTICIPATE IN A MAJOR EVENT THAT COULD IMPACT THE ELECTION!
Sarah Silverman and The Great Schlep
ATLAS SHRUGS: THE GREAT REVERSE SCHLEP
Nisra Poller and I will be making appearancews presenting The Case against Obama: LETHAL FOR ISRAEL
The media is withholding the evidence of Obama’s past. They refuse to publish the truth about Obama. The LA Times is Hiding Incriminating Video of Obama with Radical Palestinian. Khalidi, Ayers and Dohrn
Obama has received millions of dollars of foreign money. Contributions from Gaza, a Hamas controlled camp … a million from Qaddafi and across the Muslim world. They are electioneering for him illegally in mosques across America. Unindicted co-conspirator and US front for the Muslim Brotherhood, CAIR
Pamela Geller predicted exactly what Obama would do and tried to warn her fellow Jews
His intimate, self-admittedly formative, and longstanding relationships and alliances with Marxist, Anti-Zionist, and Antisemitic ideologues, both religious, and lay, particularly Franklin Marshall Davis, Reverend Jeremiah Wright, William Ayers, and Rashid Khalidi
His endorsements by the most radical Jew-annihilationist elements of the Muslim world
Obama’s stated belief that Jew annihilationist terror organizations like Hamas and Hezbollah, “have legitimate grievances.”
The shared view of Obama and his running mate Biden that Iran—despite its repeated genocidal threats to Israel—be appeased, as represented by their joint opposition to a Congressional Resolution designating Iran’s murderous Revolutionary Guard as a terrorist organization, as well as Obama’s stated willingness to negotiate face to face with Iranian President Ahmadinejad, absent any pre-conditions. are on a reverse shlep to Florida to get the truth to the Jews before its too late.”
Now why could Geller and anyone with their eyes open see Obama for what he is and not 78% of the Jews? What will it take for the American Jews to wake up and understand 43% of the Jews could be eliminated from the planet in a very short period of time. A very short period of time.
Strategically after the Israeli military is overrun, the genocide could be over in a week not years as was the case with Hitler. When you are surrounded by millions wanting to kill you within a days car ride to your house you are in very grave peril. American Jews do not seem to grasp this fact.
I have never seen a group of people so bent on their own destruction as Jews. Pathetic.
The Consumer Price Index for April 2011 increased 0.4% from last month. For the year, not seasonally adjusted (NSA), the Consumer Price Index for all Urban Consumers (CPI-U) has risen 3.2%, the highest since October 2008. The March CPI monthly increase was 0.5%.
Going through the numbers the official not seasonally adjusted number is 3.2% but using the data from the St. Louis Federal Reserve the number is 7.7%. Breaking it down transportation was up 33.3% annually last month.
CPI officially up 4.8 annually for April
It should be noted that there is a temporary sell off of gold and investors getting back into the dollar. This does not mean that the investors are correct in placing their trust in the dollar. The sell off in commodities is a temporary trend.
The Federal Reserve cooled down on monetizing the debt due to some temporary roll over of debt. The monetary base was down from 4-20-2011 to 5-4-2011 1.3%. Another temporary relief from Bernanke. As we approach July all this will dissipate.
After a bizarre economic summit meeting at the Orange County Civic Center with Mayor Jacobs, the local University of Central Florida Keynesian professor gave a pep speech of how the economy is “recovering” and having no clue about the monetary bubble bursting before his clueless eyes.
Hey yo dude the PPI number for March to April is another staggering 20% plus increase.
There is no inflation to the Keynesian economist, its all good to them
Please watch Orange TV for the May 13, 2011 economic summit designed by our local leaders to glean information from business on how to better serve the public. Noble goals and useful at the local level. Useful except the Keynesian economist who is completely clueless.
Here is a link to Orange TV so when the May 13th event is aired you to can watch another “economist” disgrace the profession and miss the biggest bubble WHILE it is happening.
Former presidential candidate and financial magazine millionaire Steve Forbes predicted a return to the gold standard in five years. This would be precipitated by the collapse of the dollar and rampant inflation, as we are starting to see now.
Banking is very predicable if you understand how money works and ignore the main stream economist like Krugman, Geithner and Summers.
Steve Forbes Predicts a Return to the Gold Standard in Five Years
The secret to keeping the banks honest is that there has to be a exchange system in place that is convenient where merchants and the public can go to that will exchange various bank notes for gold or silver. These exchanges then go to the bank where the note originated and demand gold or silver for the note. It seems a little complex but it worked like clockwork from 1837 to 1862 in the northeastern United States.
The bank can make money two ways. First it can charge for its service a handling fee.
Second and more popular it will loan out some of the excess gold in its vaults. Generally anywhere from 85%,very risky, to a very conservative 50%.
Today the Federal Reserve requirement is 10%. That means banks today can loan out 90% of a deposit they receive. Much more aggressive and inflationary than traditional banking in the 19th century. In the past with the gold standard banks generally loaned out about 65% of their gold reserves in the form of loans. Any more than this would put the bank at risk of depositors losing confidence in the bank and a subsequent run on the banks gold reserves eventually destroying the bank.
A History of Money and Banking in the United States: The Colonial Era to World War II
Let the market decide but banks should report to customers what activities and loans they are engaged in. No matter which bank becomes dominate full disclosure is paramount to eliminating fraud and abuse.
The biggest positive of the gold and silver standard is that prices remain stable. If you own gold or silver the central bank cannot inflate the currency and kill your life savings. Our central bank has destroyed 98% of the value of the dollar since 1913. In 1913 a ounce of gold cost $18.92. In 1860 a ounce of gold cost $18.93. Today gold is $1,500 a ounce. Gold serves one propose very well. It exposes the reckless spending and increase in the money supply by our politicians and Federal Reserve.
What will soon be apparent to all but the dullest among us is that the politicians, Wall Street, Federal Reserve and the powerful elite have ripped us off of our savings and destroyed our economy and ability to make a living. Every politician in Washington is guilty. All should be ostracized, tarred and feathered. These bastards, the smart ones like Schumer and Frank, know exactly what they are doing.
The producer price index (PPI) increased a staggering 22.1% for all commodities from February of 2011 to March. This is the leading indicator of future inflation. The index is comprised of components that are used as inputs for production of goods that will later be consumed at the retail level.
PPI up 22.1% from February to March 2011
Monetary base up 26.8% in the last four months.
With all the hoopla from the White House about some job creation the one indicator that so far has escaped political correctness is the civilian participation rate. This indicator has flat lined at 64.2% rate pretty much mimicking our flat lined economy under Obama. The lowest rate since 1984.
As shown in a previous blog inflation is here and the dollar bubble is exploding. How fast? Well that depends on how fast Bernanke, Geithner and the Keynesian crowd want to burst it. Could be as little time as four months or as much as five years. I will say if we get QE III in June or July it is all over but the crying.
Slowly but surly the government and their Keynesian economic policies are shutting more and more people out of the pursuit of the American Dream. At least 3 million so far.
This is dedicated to my grandmother and all the grandmothers and fathers out there who were so profoundly affected by the Great Depression but to this day do not have a coherent factual understanding of what happened.
One of the biggest areas of rewriting history is the Great Depression. We all know the story. The greedy capitalist had a stock market crash in 1929 and the economy was destroyed. Republican President Hoover who was a laissez faire, hands off, president who sat in his office counting his money while the United States economy went into collapse. Democrat President Roosevelt came to the rescue on his white horse and gave America the New Deal and got the people back to work. The history books paint Hoover as the villain and Roosevelt as the hero. Even today some of the most astute political pundits believe this fairy tale like Dick Morris. In one of his blogs he classifies Hoover as a laissez-faire president “Americans have learned their lesson, just as they learned from Hoover the evils of Republican laissez-faire economics.” Dick Morris is reported to be a Republican these days and he should certainly know better. Even Glen Beck gets it wrong sometimes. On 10-5-2010 he said because of the uncertainty of Roosevelt economic policies in 1937 the economy that was previously recovering was sent back to the dog house because of Roosevelt. Partially true but not the main culprit as we shall see. So what is the truth?
93 year old Ruth Bechtel still idolized FDR and likes government control over the economy
Harding was very effective at cutting spending. He reduced the federal budget 50% in just two years. Taxes were cut from 77% to eventually 25% in 1925 posthumously under President Coolidge. He restricted immigration to protect American jobs from cheap foreign labor. The affect was dramatic and almost immediate reduction in unemployment to an astonishing 3.3% for the remainder of the decade.
Unfortunately Harding passed the Fordney–McCumber Tariff bill in 1922 that implemented tariffs on agricultural products at a 38.5% effective rate. As usual when one country passes increased tariffs other countries are sure to follow. France raised their tariffs on automobiles 45% to 100%. Spain raised tariffs on American goods 40% and Italy and Germany raised tariffs on American wheat. Henry Ford protested vigorously but to no avail. Unfortunately this series of tariffs would eventually end in disaster a decade latter with the passage of Smoot-Hawley.
And so Harding and Coolidge really did for the most part practice laissez-faire economic policies with the exception of trade. It should be noted that while 38.5% was extremely high in todays terms it was actually a improvement over the 50% tariffs that prevailed in much of the 19th century. So with the exception of trade the roaring 20’s was born.
During the 20’s a situation with the stock market developed very similar to our recent housing boom and bust. The Federal Reserve was inflating the currency, the money supply, to devalue the dollar in comparison to the British Pound for the benefit of the central Bank of England Governor Montagu Norman and the pro England bankers, notably J. P. Morgan.
Why? A gentleman’s agreement and the belief that England should be the premiere world superpower, even though WWI destroyed much of England’s financial empire with debt and gold payments to the United States for war materials and supplies.
Stock brokers were allowing small investors to borrow typically 67% and even up to 90% of the purchase price of a stock. It was a scam that worked very well as long as the market went up. Everyone made money in the up market very similar to the peak in housing values during the boom. Of course in the long run all speculative bubbles run out of steam and must bust sooner or later. And so did the stock market bubble on October 28 and 29th of 1929 with the DJIA losing 24.55% if it’s value.
Unemployment averaged 17.2% in the 1930’s under FDR’s (1933-1944) leadership but the old folks still love him
So what happened that made a stock market crash turn into a lost decade of economic contraction eventually sowing the seeds for WWII and 65 million dead?
As in 1987 by December of 1929 the stock market had stabilized. There were no major bank or business failures just like 1987. In fact the market was up 48% from its low of 198.69 in 1929 to 294.07 in 1930. Unemployment had increased from 3.2% to 8.7% but was nowhere near its eventual peak of 24.9% in 1933. It surly was a recession and not the best of times economically but it was not a depression.
So what happened to cause unemployment to increase so rapidly and the stock market to continue its plunge to 41.22 in 1932?
President Hoover the “laissez-faire” guy raised taxes from 25% to 63%. He raised the corporate tax rate from 11% to 15%. Hoover increased federal spending from $2.9 billion in 1928 to $4.6 billion in 1932. A huge 63% increase in four years. By 1932 the federal budget deficit was $2.7 billion. The budget deficit was 6.8% of the GDP. Not as high as today’s 10.5%, which should scare the hell out of anyone with any economic sense.
Last but certainly not least Hoover’s crowning achievement for economic incompetence was the protectionist Smoot-Hawley tariff act of 1930. Tariffs were raised on various products from the Fordney-McCumber rate of 38.5% to 41.14%. Some products saw rates climb as high as 77.21%. The movement of the tariff schedule from 38.5% to 41.14% may not seem significant but it could not have come at a worse time. The global economy was in a downturn and the pressure on foreign leaders to retaliate was enormous. And retaliate they did.
Canada our largest trading partner accounting for 18% of our exports raised tariffs on 16 products making up 30% of US exports to Canada. The decline in exports contributed 21% to the US decline in GDP. 23 trading partners protested. France and Britain developed new trading partners. Germany cut off trade and concentrated on becoming self sufficient to the point of not trading with any nation in Marks. Germany switched to a successful barter system that avoided complying with the Versailles Treaty. Germany also repudiated reparations payments required by the treaty. A precursor to a war economy?
US imports decreased 66% and exports decreased 61%. Overall world trade decreased by 66% from 1929 to 1934.
Herbert Hoover (1929-1933) was not laissez faire as depicted by the progressives who have rewritten history. He destroyed the economy by making all the wrong moves.
Now before we go on from here lets not forget the Federal Reserves contribution to this mess. There are several things the Federal Reserve did to contribute. The first being to raise the Federal Funds rate consistently from 1928 into 1929 well after the recession had started. Typical Federal Reserve policy today would be to lower interest rates when economic activity declines. In addition the Federal Reserve tried to inflate the currency, or putting more paper dollars in circulation, instead of gold that was used as the reserve at that time. The decision to put more paper dollars in circulation to inflate stock market prices was disastrous. People afraid that there were too many paper dollars and not enough gold to back it up flooded their local bank trying to redeem their worthless dollars for gold, creating the famous bank panics from 1930 to 1933.
The surplus of dollars and the scarcity of gold reserves caused the Federal Reserve to raise interest rates in 1931 to attract more reserves essentially making money more expensive during a recession. This runs opposite of what the Federal Reserve would do today. As the recession wore on, price deflation was apparent, the Federal Reserve did not increase the gold stock available to banks to use to redeem for excess paper money in circulation thereby keeping the bank doors open and confidence in the monetary system. Instead the Federal Reserve increased the paper money supply creating more anxiety among the public and more demand for the redemption of their paper money in gold.
Investors continued to withdraw funds from banks and failure rates skyrocketed with no appropriateintervention from the Federal Reserve to halt the panic. The Federal Reserves only response was more paper dollar inflation. With no assurance from the Federal Reserve that gold reserve would be used to back paper dollars consumer confidence in banks plummeted resulting in more bank runs and liquidations. Consumers with cash seeing the rapid deflation did the prudent thing and held on to their cash “under the mattress” or better yet gold. In the end the comedy of errors reduced the money supply a staggering 27%.
It is important to note that the Federal Reserve had 75% of the worlds gold reserves after WWI. If the Federal Reserve would have backed banks up with gold instead of paper dollars the mission of stabilization of the banking system may very well have been achieved. Because this was not in the financial interest of the privately funded Federal Reserve or its owners the policy of inflating the currency with paper before and after 1929 was disastrous. Much like todays policies of inflating the monetary base 198% in three years will soon haunt all of us.
Some Monetarist and maybe Austrian economist today would argue the Federal Reserve should have taken a more active role in backing up banks and trying to quell the fears of the nation. At that time the Federal Reserve had huge quantities of gold from WWI. During the war Europe sent gold over to the United States to pay for war supplies. By the end of the war the United States had 75% of the worlds $6 billion gold supply. Forget all the other interventionist policies proscribed above by Ben Bernanke and the Keynesians. If the Federal Reserve had shown up like the cavalry with some of that $4.5 billion gold supply to back up the banks under duress at the very minimum the people would have had real money in their hands for latter use. In the end no matter how you look at it the Federal Reserve compounded Hoover’s mistakes and made the economy much worse for their efforts.
Bank of England Governor Montagu Norman urges Federal Reserve Chairman Benjamin Strong to inflate the United States currency from 1925 to Strong’s death in 1928 to help increase the value of the overvalued British Pound. The British Pound was valued at $4.80 but should have been devalued to $3.50 to reflect massive WWI losses in gold reserves and debt. Strong and Norman thought they could correct the situation by devaluing the dollar. The cheap money policy backfired in 1929 with the stock market crash.
Between 1934 and 1936 Roosevelt would institute the Federal Communications Commission, the National Mediation Board, the Securities and Exchange Commission, the Works Progress Administration, the National Labor Relations Board and the Rural Electrification Administration. Congress passes the Banking Act of 1935, the Emergency Relief Appropriation Act, the National Labor Relations Act, and the Social Security Act.
Tax rates went up from 63% to 79% in 1936. The federal debt increased 75% and the federal budget increased 61% from 1933 to 1940.
Despite FDR’s massive intrusion into the economy the unemployment rate averages a staggering 17.2% for the decade. The lowest peace time unemployment rate for FDR was 14.3% in 1937 which brings up the last blow to the economy of the 1930’s by the Federal Reserve.
Reserve requirements for banks were increased from 7% to 10.5% for county banks in 1936 and eventually to 14% in 1937. This was done to “soak up” excess reserves in the banking system and quell fears of inflation due to a increased monetary base. Federal spending was reduced from $8.2 billion to $7.6 billion. Combined with increased Social Security taxes the GDP plunges a staggering 18% and unemployment increased to 19.0% in 1938.
Austrian economist argue the tightening of credit was caused by economic uncertainty due to the drop in the stock market and the growing differential between real wages and productivity. They argue that a increased gold influx from Europe caused inflation, union wages combined with stagnant productivity and heavy stock market regulation caused the economic downturn and a collapse of banking reserves.
Either way you want to look at it the easy money policies of the Federal Reserve from 1933 to 1936, increasing the money stock 46% with inflation rate of 31% as well as increasing the monetary base by raising the price of a ounce of gold from $20.67 to $35 caught up with the rest of the economy in 1937 and 38. The Federal Reserve had screwed up again. FDR actually did something right in reducing federal spending.
Federal Reserve Chairman Benjamin Strong (1914-1928) was influenced by Montagu Norman to inflate the US money supply from 1925 to 1928 that created the stock market and real estate bubble that ended in disaster with the 1929 stock market crash.
The Great Depression was the result of large centralized banking and the federal government interfering in the economy without a clue as to what would help and what would hurt. We know now most of what was done was negative. I would argue 90% or more of the federal government and banking actions had a negative and profoundly devastating effect on the economy.
Today we have a battle between the discredited Keynesians who support many of the policies used by the federal government and the Federal Reserve during the Great Depression. The same policies we see today. Artificially low interest rates. Deficit spending. Huge federal budgets. Massive increases in the money supply. The same policies used during the Great Depression.
The Austrians and Monetarist economist who argue for little or no interference into the economy. Stable money supply in the form of gold or a stable dollar and a stable monetary base. The key point to grasp is that private markets are much better equipped to recover from a economic downturn than the federal government or the Federal Reserve interventionist policies. When resources are misallocated during a boom like the 1920’s stock market it is best to let the economy suffer the recession and in time without intervention private markets will reallocate resources back into productive sectors of the economy. The stock market data shows that the recovery was already under way in 1930 before disaster struck.
All those FDR work projects were nothing more than a misallocation of resources prolonging the depression. All the at first contraction (1928-29) and then expansionist policies of the Federal Reserve simply made for more mis-allocation of resources. All that federal regulation from 1933 to 1935 didn’t do anything positive. By 1938 unemployment was back to 19.0%.
The lesson we should all take from this is that Harding and Coolidge were the economic heroes of that time and Hoover, FDR and the Federal Reserve were the villains.
Posts
All Comments
Posts
All Comments
