Political Crossfire Forums

[Atlas Bergeron]

I would encourage you to click on the link and read the original
http://www.cato.org/pubs/tbb/tbb-0508-25.pdf wrote:
Tax and Budget Bullitin

No. 25 • September 2005
The Government and the Great Depression
by Chris Edwards, Director of Tax Policy, Cato Institute


The economic policies of the 1930s are a continuing source of myth and confusion. Many people believe that capitalism caused the Great Depression and that President Franklin Roosevelt helped to end it. A recent History Channel special on Roosevelt said that his New Deal
resulted in “recovery and reform” while creating “millions
of jobs.”1 Such often-stated claims are incorrect. Misguided federal policies caused the downturn that began in 1929, and they prevented the economy from fully recovering for a decade. Policy blunders by the Federal Reserve, Congress, and Presidents Herbert Hoover and Roosevelt
battered the economy on many fronts.
The events of the 1930s influence economic policymaking today. Many people think that we need a big government to prevent, or to reverse, recessions. But the 1930s illustrate that activist policies increase, not decrease, economic instability. Government interventions reduce the flexibility that markets need to adjust to shocks and return to growth. This bulletin looks at the 1930s economy and highlights the worst policy ailures.2

Policy Failures Lead to a Long and Deep Downturn
The Depression was a uniquely severe contraction. Real gross domestic product fell for four years before finally beginning to recover.3 Real output only regained its 1929 level in 1936, but then output plunged again in 1938. The unemployment rate stayed persistently high at more than 14 percent for 10 years (1931 to 1940).4 By contrast, the economy recovered rapidly after a sharp contraction in 1921. Real output fell 9 percent in 1921 and unemployment rose to 11.7 percent.5 But the economy bounced back with output recovering all its lost ground in 1922. Unemployment fell to 6.7 percent in 1922 and 2.4 percent in 1923. The secret to the quick recovery was that the government geneally stood aside and let the market recover by itself—wages and prices adjusted, resources shifted to new areas of growth, profits recovered, business optimism returned, and investment rose.
By contrast, government policies in the 1930s prevented the U.S. economy from recovering. The following are some of the key policy mistakes: 6
Monetary Contraction. The Depression was precipitated by a one-third drop in the money supply from 1929 to 1933, which was mainly the fault of the Federal Reserve. The Fed made further errors that helped put the
economy back into recession in 1938. Meanwhile, a flood of bank failures in the early 1930s compounded the money supply shrinkage and heightened economic fears. A key problem was that most states restricted bank branching, which prevented banks from diversifying their portfolios
across jurisdictions. By contrast, Canada allowed nationwide branching and did not suffer a single bank failure during the Depression.
Tax Hikes. In the early 1920s, Treasury Secretary Andrew Mellon ushered in an economic boom by championing income tax cuts that reduced the top individual rate from 73 to 25 percent. But the lessons of these successful tax cuts were forgotten as the economy headed downwards after 1929. President Hoover signed into law the Revenue Act of 1932, which was the largest peacetime tax increase in U.S. history. The act increased the top individual tax rate from 25 to 63 percent. After his election in 1932, Roosevelt imposed further individual and corporate tax increases. The highest individual rate was increased to 79 percent. State and local governments also increased taxes during the 1930s, with many imposing individual income taxes for the first time. All these tax increases killed incentives for work, investment, and entrepreneurship at a time when they were sorely needed.

International Trade Restrictions. In 1930, President Hoover signed into law the infamous Smoot-Hawley trade act, which raised import tariffs to an average of 59 percent on more than 25,000 products. More than 60 countries retaliated by slapping new restrictions on imports of U.S. products. As new trade restrictions were imposed around the world, trade plummeted. By 1933, world trade was down to just one-third of the 1929 level.

Keeping Prices High. The centerpiece of the New Deal was the National Industrial Recovery Act of 1933. It created “codes” or cartels in more than 500 industries in order to limit competition. Businesses were told to cut
output and maintain high prices and wages. Businessmen who cut prices were cajoled, fined, and sometimes arrested. Fortunately, NIRA was struck down by the Supreme Court in 1935.
The Agricultural Adjustment Act of 1933 similarly restricted production to keep prices high. “Excess” output was destroyed or dumped abroad. While millions of Americans were going hungry, the government plowed under 10 million acres of crops, slaughtered 6 million pigs, and left fruit to rot. Production of milk, fruits, and other products was cartelized to boost prices under “marketing orders” begun in 1937.
These policies reduced employment and burdened families with higher prices. At a May 1935 press conference, Roosevelt read letters from businessmen thanking him for keeping prices high.7 With millions out of work and short of money, Roosevelt thought that his job was to shield high-cost producers from entrepreneurs wanting to offer lower prices to hard-pressed families. Keeping Employment Costs High. Many New Deal
policies raised employer costs, contributing to the extraordinarily high unemployment of the 1930s. NIRA industry codes required high wages. The new Social Security tax increased compensation costs. New minimum
wage rules reduced demand for low-skilled workers. The Davis-Bacon Act required the payment of excessively high wages on federal contracts. Compulsory unionism and militant union tactics were encouraged under a series of laws. One result was that U.S. work stoppages soared from
an average 980 annually between 1922 and 1932 to a peak of 4,740 in 1937.8 While “millions of jobs” were created in the government during the 1930s, private-sector jobs were destroyed. Total U.S. private employment was lower in 1940 than it had been in 1929.9

Harassment of Businesses. Investment stagnated in the 1930s as a result of uncertainties in the economy and the new risks of adverse federal actions.10 Roosevelt and members of his administration demonized business leaders and investors in their speeches. FDR called them “economic royalists” and “privileged princes” seeking a “new despotism” and “industrial dictatorship.” Laws and regulations poured forth from Washington like never before. Roosevelt issued more executive orders
than all presidents from Harry Truman through Bill Clinton combined. Presidents typically issue just a few hundred executive orders, but Roosevelt issued 3,723.11 Roosevelt’s antitrust crusade was typical of his antimarket approach. The Justice Department hired hundreds of new attorneys and began a lawsuit blitzkrieg in 1938 against dozens of industries for conspiring to keep prices high. The irony was that Roosevelt had spent his first term encouraging cartels, monopoly unionism, and other policies designed to boost prices and production costs.

Conclusion
New Deal interventions were not only bad for the economy, but favored fat cats over average families. Most farm subsidies went to major land owners, not small-time farmers. Required reductions in farm acreage devastated poor sharecroppers. Efforts to keep farm prices high led to the destruction of food while millions of families went hungry. Compulsory unionism led to discrimination against blacks because it gave monopoly power to union bosses who often didn’t want them hired. NIRA cartels prevented entrepreneurs from cutting prices for consumers. Roosevelt’s strategies of handouts, federal jobs, projects in swing states worked well politically. But economically, Roosevelt and his “brains trust” had no idea what they were doing. They attempted one failed intervention after another. The Great Depression was adisaster, and sadly an avoidable one.


I have been getting sick and tired about hearing how capitalism caused the great depression. Well, here is the clear argument that capitalism is the cure to any depression--and was certainly not the cause.

[RueTheDay]

I wouldn't call anything from Cato "a professional analysis".

I also don't know what it means to say that "capitalism" was either the cause or the cure for the Great Depression. That's an analytically content-free statement.

[Revenant]

I think that people on some level have something to do with the Great Depression.

[chris_mthomas]

Yeah... the Cato institute, god bless them, but I wouldn't exactly call their interpretation "professional analysis". They're an extremist think tank known for their Austrian views - a school of economics that's more than a bit out of the mainstream.

Quote: I also don't know what it means to say that "capitalism" was either the cause or the cure for the Great Depression.
It's like blaming education on the fact that you did poorly on a test. Obviously, Capitalism is not to blame for the great depression - Capitalism caused prosperity before the depression and caused prosperity afterword, while Socialist societies were mired in poverty. There was a major breakdown of the market to be sure - but the severity of the depression was and will most likely be a one time occurrence. This is because the real cause of the depression was largely due to the world's underdeveloped financial institutions.

[Atlas Bergeron]

RueTheDay wrote: I wouldn't call anything from Cato "a professional analysis".
so papers from PhD professors is not professional?

hmm... then what is your criteria?

Quote: I also don't know what it means to say that "capitalism" was either the cause or the cure for the Great Depression. That's an analytically content-free statement.
its really quite simple, the question is "would things have been better had the country not existed in almost pure capitalism?" and also "would the country have been better had the government done nothing at all?"

[RueTheDay]

Atlas Bergeron wrote: RueTheDay wrote: I wouldn't call anything from Cato "a professional analysis".
so papers from PhD professors is not professional?

hmm... then what is your criteria?

The author of the article you posted does not have a PhD and he is not a professor.

Quote:
Quote: I also don't know what it means to say that "capitalism" was either the cause or the cure for the Great Depression. That's an analytically content-free statement.
its really quite simple, the question is "would things have been better had the country not existed in almost pure capitalism?"

It's impossible to say because "pure capitalism" has never existed. Anywhere. Ever.

Quote:
and also "would the country have been better had the government done nothing at all?"

What does it mean for a government to "do nothing at all"? If it is enforcing proprty rights and contracts, it is doing something. By simply existing, it is doing something.

[pyrophasma]

Jesus Christ people even the Fed admits that the government created the Big D. Let's move on.

[Iriemon]

From the Cato article:

"Monetary Contraction. The Depression was precipitated by a one-third drop in the money supply from 1929 to 1933, which was mainly the fault of the Federal Reserve."

How could the drop in money supply from 1929 to 1933 have “precipitated” the great depression which started in 1929? Maybe it exacerbated it.

"Tax Hikes. In the early 1920s, Treasury Secretary Andrew Mellon ushered in an economic boom by championing income tax cuts that reduced the top individual rate from 73 to 25 percent. But the lessons of these successful tax cuts were forgotten as the economy headed downwards after 1929. President Hoover signed into law the Revenue Act of 1932, which was the largest peacetime tax increase in U.S. history."

Cato is blaming tax hikes passed in 1932 for the great depression, which would have been in its 4th year when the tax hikes took effect?

Year – Real GDP in $2000 - % chng previous year
Source: BEA.gov

1930 790.7 -8.61%
1931 739.9 -6.42%
1932 643.7 -13.00%
1933 635.5 -1.27%
1934 704.2 10.81%
1935 766.9 8.90%
1936 866.6 13.00%
1937 911.1 5.14%
1938 879.7 -3.45%
1939 950.7 8.07%
1940 1,034.1 8.77%
1941 1,211.1 17.12%

Looks like, contrary to Cato’s assertions, the economy started growing after the tax increase was passed and took effect.

"New Deal interventions were not only bad for the economy..."

Roosevelt took office in ’33 and started the New Deal thereafter. I don’t defend all of Roosevelt’s programs, I don’t know about all of them in detail, but it looks to me like they helped the economy, not hurt it.

[Atlas Bergeron]

RueTheDay wrote: Atlas Bergeron wrote: RueTheDay wrote: I wouldn't call anything from Cato "a professional analysis".
so papers from PhD professors is not professional?

hmm... then what is your criteria?

The author of the article you posted does not have a PhD and he is not a professor.
i know, but you said "I wouldn't call anything from Cato "a professional analysis". (emphasis mine)

Quote: Quote:
Quote: I also don't know what it means to say that "capitalism" was either the cause or the cure for the Great Depression. That's an analytically content-free statement.
its really quite simple, the question is "would things have been better had the country not existed in almost pure capitalism?"

It's impossible to say because "pure capitalism" has never existed. Anywhere. Ever.
ok... and how does that invalidate the question of whether or not it is moral and/or beneficial for the government to intervene?

A perfect gas has never existed, and yet physisists use it every day to model reality. A perfect triangle, line, circle, square, optagon or any other mathematical identity has never existed--and yet they are extremly helpful in delving into the relations between existents

Quote: Quote:
and also "would the country have been better had the government done nothing at all?"

What does it mean for a government to "do nothing at all"? If it is enforcing proprty rights and contracts, it is doing something. By simply existing, it is doing something.
It means do not interfere in the market beyond protecting against the initiation of force. Property which is gained through the mixing of labor is protected, contracts are protected becuase if you violate a contract you are actually stealing (if I tell you I will give you a cheeseburger for three dollars, and you give me three dollars, and I don't give you the cheeseburger, then I have stolen your money.)
So by "doing something," I meant interfering (as opposed to simply protecting). My goodness Rue, I would have sworn that you of all people would know the basics of capitalism.

[Atlas Bergeron]

Iriemon wrote: From the Cato article:

"Monetary Contraction. The Depression was precipitated by a one-third drop in the money supply from 1929 to 1933, which was mainly the fault of the Federal Reserve."

How could the drop in money supply from 1929 to 1933 have “precipitated” the great depression which started in 1929? Maybe it exacerbated it.
American Heritage Dictionary wrote: pre·cip·i·tate (prĭ-sĭp'ĭ-tāt') pronunciation

v., -tat·ed, -tat·ing, -tates.

v.tr.

1. To throw from or as if from a great height; hurl downward: “The finest bridge in all Peru broke and precipitated five travelers into the gulf below” (Thornton Wilder).
2. To cause to happen, especially suddenly or prematurely. See synonyms at speed.
It droped the money supply in 1929, helping to cause the depression. Furthermore, it kept the rates down, so as to keep it going. Hence the relevance of mentioning "to 1933"

Quote: "Tax Hikes. In the early 1920s, Treasury Secretary Andrew Mellon ushered in an economic boom by championing income tax cuts that reduced the top individual rate from 73 to 25 percent. But the lessons of these successful tax cuts were forgotten as the economy headed downwards after 1929. President Hoover signed into law the Revenue Act of 1932, which was the largest peacetime tax increase in U.S. history."

Cato is blaming tax hikes passed in 1932 for the great depression, which would have been in its 4th year when the tax hikes took effect?
no, the article adresses the governments involvement both before and after the start of the depression and furthermore blames the government for the prolonged length of the depression. Buisness cycles are natural in a capitalist ecconomy as labor and capital is redistributed--this article even adressed this. The government should have stayed out when the ecconomy crashed.

Quote: Year – Real GDP in $2000 - % chng previous year
Source: BEA.gov

1930 790.7 -8.61%
1931 739.9 -6.42%
1932 643.7 -13.00%
1933 635.5 -1.27%
1934 704.2 10.81%
1935 766.9 8.90%
1936 866.6 13.00%
1937 911.1 5.14%
1938 879.7 -3.45%
1939 950.7 8.07%
1940 1,034.1 8.77%
1941 1,211.1 17.12%

Looks like, contrary to Cato’s assertions, the economy started growing after the tax increase was passed and took effect.
hardly. From 1930 to 1931 there was a rise, in 32 it went dramatically down (*cough* which is contrary to what you just said).
Besides that, you are assuming that the tax increases are the only variable involved, which is a falacy. For instance, in 1933 Roosevelt started the new deal, which would have artificially raised the GDP by pumping government funds into it and spiraling into debt. Not what I would call beneficial for the future of the country.

Quote: "New Deal interventions were not only bad for the economy..."

Roosevelt took office in ’33 and started the New Deal thereafter. I don’t defend all of Roosevelt’s programs, I don’t know about all of them in detail, but it looks to me like they helped the economy, not hurt it.

Cato does not deny that the ecconomy eventually managed to improve, the government was not yet completely socialist. Thier contention is that the depression would not have gone as deep, been less prolonged, and been wholley less memorable had the government not intervened. You have not really adressed this contention, just strawmans off it.

[Iriemon]

Atlas Bergeron wrote: Iriemon wrote: From the Cato article:

"Monetary Contraction. The Depression was precipitated by a one-third drop in the money supply from 1929 to 1933, which was mainly the fault of the Federal Reserve."

How could the drop in money supply from 1929 to 1933 have “precipitated” the great depression which started in 1929? Maybe it exacerbated it.
American Heritage Dictionary wrote: pre·cip·i·tate (prĭ-sĭp'ĭ-tāt') pronunciation

v., -tat·ed, -tat·ing, -tates.

v.tr.

1. To throw from or as if from a great height; hurl downward: “The finest bridge in all Peru broke and precipitated five travelers into the gulf below” (Thornton Wilder).
2. To cause to happen, especially suddenly or prematurely. See synonyms at speed.
It droped the money supply in 1929, helping to cause the depression. Furthermore, it kept the rates down, so as to keep it going. Hence the relevance of mentioning "to 1933"

The 2d definition is the relevant one. "To cause to happen". If the monetary policy from 1929-32 is what Cato is attacking, most of that time period is after the fact. But I don't have the monetary policy data from 1929 to assess it. Did the Fed suddenly change policy in 1929 and put the brakes on the monetary supply? The Cato article is not clear on this or as to how money policy caused the great depression, which was "precipitated" by the stock market crash in Oct that year. However, I agree that reducing the money supply during a rescession doesn't make sense. I'm not that familiar, however, with how much control the Fed had over the money supply in 1929-33. I think the nation was still on the gold standard at that time. I suppose the Fed could have devalued the dollar.

Quote: Quote: "Tax Hikes. In the early 1920s, Treasury Secretary Andrew Mellon ushered in an economic boom by championing income tax cuts that reduced the top individual rate from 73 to 25 percent. But the lessons of these successful tax cuts were forgotten as the economy headed downwards after 1929. President Hoover signed into law the Revenue Act of 1932, which was the largest peacetime tax increase in U.S. history."

Cato is blaming tax hikes passed in 1932 for the great depression, which would have been in its 4th year when the tax hikes took effect?
no, the article adresses the governments involvement both before and after the start of the depression and furthermore blames the government for the prolonged length of the depression. Buisness cycles are natural in a capitalist ecconomy as labor and capital is redistributed--this article even adressed this. The government should have stayed out when the ecconomy crashed.

That is what the Govt did from 1929 until 1933, as the economy went down the tubes. It stayed out of it.

Quote: Quote: Year – Real GDP in $2000 - % chng previous year
Source: BEA.gov

1930 790.7 -8.61%
1931 739.9 -6.42%
1932 643.7 -13.00%
1933 635.5 -1.27%
1934 704.2 10.81%
1935 766.9 8.90%
1936 866.6 13.00%
1937 911.1 5.14%
1938 879.7 -3.45%
1939 950.7 8.07%
1940 1,034.1 8.77%
1941 1,211.1 17.12%

Looks like, contrary to Cato’s assertions, the economy started growing after the tax increase was passed and took effect.
hardly. From 1930 to 1931 there was a rise, in 32 it went dramatically down (*cough* which is contrary to what you just said).

From '30 to '31 there was a rise in what? GDP fell over 6%. It fell in '32 also, the year the tax increase was passed, though normally a change in the tax laws wouldn't have an effect until the following year.

Quote: Besides that, you are assuming that the tax increases are the only variable involved, which is a falacy.

I agree with that. But it was Cato postulating that the change in tax rate affected the economy, not me. If that is the supposition, the conclusion from the data is that the economy did much better after the tax increase, contrary to Cato's implication.

Quote: For instance, in 1933 Roosevelt started the new deal, which would have artificially raised the GDP by pumping government funds into it and spiraling into debt. Not what I would call beneficial for the future of the country.

I generally agree. However, if there is a time when Govt borrowing is arguably justified, it is during a sever rescession or depression. I agree it is less justified when the economy is growing and not justified when the economy is strong.

Quote: Quote: "New Deal interventions were not only bad for the economy..."

Roosevelt took office in ’33 and started the New Deal thereafter. I don’t defend all of Roosevelt’s programs, I don’t know about all of them in detail, but it looks to me like they helped the economy, not hurt it.

Cato does not deny that the ecconomy eventually managed to improve, the government was not yet completely socialist. Thier contention is that the depression would not have gone as deep, been less prolonged, and been wholley less memorable had the government not intervened. You have not really adressed this contention, just strawmans off it.

LOL when did the Govt become completely socialist, and what great depression did it cause when it did?

I have not studied it in depth, but I agree with Cato that tightening the money supply during a recession is not a good idea. I question Cato's conclusion that money policy caused (or precipitated) the Great Depression, which can also be attributed to over speculation and lack of regulation in the stock markets. Give the depths of the rescession, I have no problem with the New Deal and Govt programs to get people working again. Such programs should be temporary in nature, IMO, and most were. Most of the new deal programs were disbanded over time.

[Atlas Bergeron]

Iriemon wrote: Atlas Bergeron wrote: Iriemon wrote: From the Cato article:

"Monetary Contraction. The Depression was precipitated by a one-third drop in the money supply from 1929 to 1933, which was mainly the fault of the Federal Reserve."

How could the drop in money supply from 1929 to 1933 have “precipitated” the great depression which started in 1929? Maybe it exacerbated it.
American Heritage Dictionary wrote: pre·cip·i·tate (prĭ-sĭp'ĭ-tāt') pronunciation

v., -tat·ed, -tat·ing, -tates.

v.tr.

1. To throw from or as if from a great height; hurl downward: “The finest bridge in all Peru broke and precipitated five travelers into the gulf below” (Thornton Wilder).
2. To cause to happen, especially suddenly or prematurely. See synonyms at speed.
It droped the money supply in 1929, helping to cause the depression. Furthermore, it kept the rates down, so as to keep it going. Hence the relevance of mentioning "to 1933"

The 2d definition is the relevant one. "To cause to happen". If the monetary policy from 1929-32 is what Cato is attacking, most of that time period is after the fact. But I don't have the monetary policy data from 1929 to assess it. Did the Fed suddenly change policy in 1929 and put the brakes on the monetary supply? The Cato article is not clear on this or as to how money policy caused the great depression, which was "precipitated" by the stock market crash in Oct that year. However, I agree that reducing the money supply during a rescession doesn't make sense. I'm not that familiar, however, with how much control the Fed had over the money supply in 1929-33. I think the nation was still on the gold standard at that time. I suppose the Fed could have devalued the dollar.
I believe the governmnet was still on the gold standard, but only too the extent that they were always willing to trade a dollar of money for a dollar of gold. I am too lazy to look this up now though.

Quote: Quote: Quote: "Tax Hikes. In the early 1920s, Treasury Secretary Andrew Mellon ushered in an economic boom by championing income tax cuts that reduced the top individual rate from 73 to 25 percent. But the lessons of these successful tax cuts were forgotten as the economy headed downwards after 1929. President Hoover signed into law the Revenue Act of 1932, which was the largest peacetime tax increase in U.S. history."

Cato is blaming tax hikes passed in 1932 for the great depression, which would have been in its 4th year when the tax hikes took effect?
no, the article adresses the governments involvement both before and after the start of the depression and furthermore blames the government for the prolonged length of the depression. Buisness cycles are natural in a capitalist ecconomy as labor and capital is redistributed--this article even adressed this. The government should have stayed out when the ecconomy crashed.

That is what the Govt did from 1929 until 1933, as the economy went down the tubes. It stayed out of it.

Quote: Quote: Year – Real GDP in $2000 - % chng previous year
Source: BEA.gov

1930 790.7 -8.61%
1931 739.9 -6.42%
1932 643.7 -13.00%
1933 635.5 -1.27%
1934 704.2 10.81%
1935 766.9 8.90%
1936 866.6 13.00%
1937 911.1 5.14%
1938 879.7 -3.45%
1939 950.7 8.07%
1940 1,034.1 8.77%
1941 1,211.1 17.12%

Looks like, contrary to Cato’s assertions, the economy started growing after the tax increase was passed and took effect.
hardly. From 1930 to 1931 there was a rise, in 32 it went dramatically down (*cough* which is contrary to what you just said).

From '30 to '31 there was a rise in what? GDP fell over 6%. It fell in '32 also, the year the tax increase was passed, though normally a change in the tax laws wouldn't have an effect until the following year.
I see what you're saying, I misread the chart.

I would like to see how much of this increase was government funded though (again, too lazy now to look it up)

Quote: Quote: Besides that, you are assuming that the tax increases are the only variable involved, which is a falacy.

I agree with that. But it was Cato postulating that the change in tax rate affected the economy, not me.
you don't think a change in tax rate affects the ecconomy? You don't think it will lower the reasons to invest in new buisness and new capital? hmm...

Quote: If that is the supposition, the conclusion from the data is that the economy did much better after the tax increase, contrary to Cato's implication.

Quote: For instance, in 1933 Roosevelt started the new deal, which would have artificially raised the GDP by pumping government funds into it and spiraling into debt. Not what I would call beneficial for the future of the country.

I generally agree. However, if there is a time when Govt borrowing is arguably justified, it is during a sever rescession or depression. I agree it is less justified when the economy is growing and not justified when the economy is strong.

Quote: Quote: "New Deal interventions were not only bad for the economy..."

Roosevelt took office in ’33 and started the New Deal thereafter. I don’t defend all of Roosevelt’s programs, I don’t know about all of them in detail, but it looks to me like they helped the economy, not hurt it.

Cato does not deny that the ecconomy eventually managed to improve, the government was not yet completely socialist. Thier contention is that the depression would not have gone as deep, been less prolonged, and been wholley less memorable had the government not intervened. You have not really adressed this contention, just strawmans off it.

LOL when did the Govt become completely socialist, and what great depression did it cause when it did?
oppologies, my use of the word "yet" was abbiguous. I did not mean that we have become socialist in our history, I was simply alludeing to my belief that we are on that path. But I should not have used the word.

Quote: I have not studied it in depth, but I agree with Cato that tightening the money supply during a recession is not a good idea. I question Cato's conclusion that money policy caused (or precipitated) the Great Depression, which can also be attributed to over speculation and lack of regulation in the stock markets. Give the depths of the rescession, I have no problem with the New Deal and Govt programs to get people working again. Such programs should be temporary in nature, IMO, and most were. Most of the new deal programs were disbanded over time.
The problem with such programs is mentioned in the article.
Quote: Many New Deal
policies raised employer costs, contributing to the
extraordinarily high unemployment of the 1930s. NIRA
industry codes required high wages. The new Social
Security tax increased compensation costs. New minimum
wage rules reduced demand for low-skilled workers. The
Davis-Bacon Act required the payment of excessively high
wages on federal contracts. Compulsory unionism and
militant union tactics were encouraged under a series of
laws. One result was that U.S. work stoppages soared from
an average 980 annually between 1922 and 1932 to a peak
of 4,740 in 1937.8 While “millions of jobs” were created in
the government during the 1930s, private-sector jobs were
destroyed. Total U.S. private employment was lower in
1940 than it had been in 1929.
Basically, these policies did two things
a. They made it more difficult for new buisnesses to enter the field. By forcing wage rates up through laws, and with the demand for labor at a low, nobody had any reason to hire. Although the government provided jobs to many, these were rather worthless to the ecconomy since they involved almost no capital investment and thus had almost no long term benefit. They were not driving down prices (since they wern't really making any new product or inventing any new processes) so they were just giving the ecconomy more reason to stagnate.
b. They increased the GDP artificially, even though the ecconomy was actually worse off (in terms of private jobs) than it had been in 1929--which is good for politics but bad for reality.

[Iriemon]

Atlas Bergeron wrote:
you don't think a change in tax rate affects the ecconomy? You don't think it will lower the reasons to invest in new buisness and new capital? hmm....

I think a change in the tax rate can have an effect on the economy, depending upon how severe it is. However, despite major changes in tax policy over the past 60 years, there is no measurable correlation between tax rates that have been employed and GDP.

This data is derived from real GDP figures published by the BEA. I'll post the back up annual figures if you want to see them.

Average annual real growth in the 50s = 4.15%.
Average annual real growth in the 60s = 4.44%.
Average annual real growth in the 70s = 3.26%.
Average annual real growth in the 80s = 3.07%
Average annual real growth in the 90s = 3.11%
Average annual real growth in the 00s = 2.49%
Average annual real growth during Reagan: 3.42%
Average annual real growth during Reagan & Bush1: 3.0%
Average annual real growth during Clinton: 3.71%
Average annual real growth during Bush2 (thru 2005): 2.49%

The 60s and 70s were a period of high taxes; the top marginal tax rate was 90% in the 50s and 70% in most of the 60s and 70s. The 80s had the Reagan tax cuts, in which the top rate was eventually cut to 28%, raised to 31% by Bush1. In '93 the top rate was raised to 39%. Taxes were slashed again in the 00s. Yet there is no correlation between these different tax rates and average real economic growth.

A tax is a transfer of wealth from an individual to the Govt. However, the money doesn't just disappear; the Govt spends it or transfers it to someone else who spends it, and the net effect may be mostly a wash.

Where the tax cuts are funded by deficit spending (borrowing) as was the case in the 80s and currently, one might expect a stimulus effect. But even there, the effect has not been significant. A major $300 billion tax cut, even if it were all translated into new spending or investment, is only a couple percentage points relative to a $13+ trillion economy.

[Iriemon]

Atlas Bergeron wrote: Iriemon wrote:

I have not studied it in depth, but I agree with Cato that tightening the money supply during a recession is not a good idea. I question Cato's conclusion that money policy caused (or precipitated) the Great Depression, which can also be attributed to over speculation and lack of regulation in the stock markets. Give the depths of the rescession, I have no problem with the New Deal and Govt programs to get people working again. Such programs should be temporary in nature, IMO, and most were. Most of the new deal programs were disbanded over time.
The problem with such programs is mentioned in the article.
Quote: Many New Deal
policies raised employer costs, contributing to the
extraordinarily high unemployment of the 1930s. NIRA
industry codes required high wages. The new Social
Security tax increased compensation costs. New minimum
wage rules reduced demand for low-skilled workers. The
Davis-Bacon Act required the payment of excessively high
wages on federal contracts. Compulsory unionism and
militant union tactics were encouraged under a series of
laws. One result was that U.S. work stoppages soared from
an average 980 annually between 1922 and 1932 to a peak
of 4,740 in 1937.8 While “millions of jobs” were created in
the government during the 1930s, private-sector jobs were
destroyed. Total U.S. private employment was lower in
1940 than it had been in 1929.
Basically, these policies did two things
a. They made it more difficult for new buisnesses to enter the field. By forcing wage rates up through laws, and with the demand for labor at a low, nobody had any reason to hire. Although the government provided jobs to many, these were rather worthless to the ecconomy since they involved almost no capital investment and thus had almost no long term benefit. They were not driving down prices (since they wern't really making any new product or inventing any new processes) so they were just giving the ecconomy more reason to stagnate.

Price increases were not a problem during the Great Depression, rather the opposite, there was significant deflation. What made it more difficult for businesses to expand was not the New Deal programs but the lack of money from the declining money supply, as the article pointed out. I agree that Govt programs are not a long term panacea, but in a situation like the Great Depression where businesses were not investing and growing on there own, Govt programs put people to work and created incomes, which was a prudent measure, IMO.

Quote: b. They increased the GDP artificially, even though the ecconomy was actually worse off (in terms of private jobs) than it had been in 1929--which is good for politics but bad for reality.

I'm not sure that increasing the GDP, even if artificially, was a bad thing in 1934. The presumption is that without these programs, private enterprise would have done the same thing and more. That wasn't happening in 1934.

[Atlas Bergeron]

I understand the basics of ecconomics, I took a course in it. The GDP is measured by numerous variables, one of the biggest is G, or government funding. Another one is new capital investment in buisness.

When the government taxes it is almost guaranteed to spend all of what it has taxed (and then some more)--thereby increasing the GDP! This makes the ecconomy look healthy by such a standard.

It looks as if the anual growth during the times of high taxes is high, and this makes sense. The government is spending 90% of the money which the high income workers earn, where as one of those workers might have saved it to invest at a latter time, or have invested it immediately. But he doesn't always invest immediately, thus his income contribution is at best normally lagged from when he earns it and sometimes, he doesn't ever spend it at all.

But if he does spend it, he spends it on earning more money, on increasing efficieincy, on research and development. When the government "spends" it they spend it on giving it to the poor--some (I would say most) of whom do not deserve the handouts that the government gives them, the government spends it on medicare--which ends up increasing the prices of medical care, they spend it on regulateing trade--which further halts buisness investments, they spend it on bridges which go to nowhere and pork barrel legislation so that each fat congressman can feel at home.

Of course, they also spend it on valid things, such as the court system and police force, but this is beside the point. They should not be allowed to redistribute wealth as they do, and the only justification they and you are using is that it is for "the public good". Why is it for the public, or the common, good? One of thier ways of showing this is through the GDP charts, as you are doing. But I do not trust it, simply becuase it puts so much pressure on immediately spending funds and does not seem to take into account that restraint is also important--that investment into capital will bring the country alot further than the hotheaded handouts of the liberals. We should live in a capitalist society, where government does not have such powers. And that is what this thread is all about.

[Iriemon]

Atlas Bergeron wrote: I understand the basics of ecconomics, I took a course in it. The GDP is measured by numerous variables, one of the biggest is G, or government funding. Another one is new capital investment in buisness.

When the government taxes it is almost guaranteed to spend all of what it has taxed (and then some more)--thereby increasing the GDP! This makes the ecconomy look healthy by such a standard.

It looks as if the anual growth during the times of high taxes is high, and this makes sense. The government is spending 90% of the money which the high income workers earn, where as one of those workers might have saved it to invest at a latter time, or have invested it immediately. But he doesn't always invest immediately, thus his income contribution is at best normally lagged from when he earns it and sometimes, he doesn't ever spend it at all.

But if he does spend it, he spends it on earning more money, on increasing efficieincy, on research and development. When the government "spends" it they spend it on giving it to the poor--some (I would say most) of whom do not deserve the handouts that the government gives them, the government spends it on medicare--which ends up increasing the prices of medical care, they spend it on regulateing trade--which further halts buisness investments, they spend it on bridges which go to nowhere and pork barrel legislation so that each fat congressman can feel at home.

Of course, they also spend it on valid things, such as the court system and police force, but this is beside the point. They should not be allowed to redistribute wealth as they do, and the only justification they and you are using is that it is for "the public good". Why is it for the public, or the common, good? One of thier ways of showing this is through the GDP charts, as you are doing. But I do not trust it, simply becuase it puts so much pressure on immediately spending funds and does not seem to take into account that restraint is also important--that investment into capital will bring the country alot further than the hotheaded handouts of the liberals. We should live in a capitalist society, where government does not have such powers. And that is what this thread is all about.

Your comments about the appropriateness of redistribution of wealth raises a different subject which is outside the scope of the effect of tax rates on GDP we have been discussing here.

I'm not sure your point about taxes and the economy. At first you seemed to be suggesting that lower taxes boost the ecomony. Now you are suggesting that higher taxes boost the economy.

The economy is driven by demand for goods (ie spending). Savings and investment is important for long term productivity, but does not provide the same direct stimulus as spending. Over the past couple decades, capital has gone international and there is a glut of invesment capital, as is evidenced by lower real interest rates. That capital availalability is ultimately threatened when the Govt is a massive borrower of funds, as it has been since the current administration took power.

Aside from debates over theory, the empircal historical evidence does not indicate any correlation between taxes and GDP growth. If lower taxes had a significant effect on the economy, the country would have seen significantly greater growth in the 80s and today. Yet average GDP growth was higher in the 50s and 60s, when top tax rates were 90% or 70%.

[Atlas Bergeron]

Iriemon wrote:
Your comments about the appropriateness of redistribution of wealth raises a different subject which is outside the scope of the effect of tax rates on GDP we have been discussing here.
don't be silly. We are discussing the GDP, when the government taxes more, they can spend more. When they spend more, that boosts the GDP. My contention is that this is not necessarily good for the country in the long term. It is extraordinarily relevant to look at the reasons why the trend that the GDP increases during a tax hike occurs. The main reason is not becuase of private investement, but becuase the government is simply pumping stolen funds into the ecconomy.

Quote: I'm not sure your point about taxes and the economy. At first you seemed to be suggesting that lower taxes boost the ecomony. Now you are suggesting that higher taxes boost the economy.
I am saying that higher taxes boost the GDP but hurt the ecconomy (i.e. the amount of capital and innovation invested). Lower taxes cause an imediate fall in the GDP but tend to increase the amount of investement in new capital (although this investment does not immediately pay off that year). Thus, if you want to get ellected and say the ecconomy is good, you steal from the producers and spend thier money, thus inflating the ecconomy. If you want what is good for the american ecconomy and what is in the public good, you (the congressman) will stay the f**k out of the ecconomy.

Quote: The economy is driven by demand for goods (ie spending).
spending... on what? spending... by whom?

spending on produced goods, which are bought by other producers in a trade based ecconomy. The economy is not driven by consumption, as is so commonly thought, but by production. Without production, you cannot have consumption. People would have nothing with which to buy the goods with if they did not produce (or steal) the funds first (but stolen funds must first be produced).

Quote: Savings and investment is important for long term productivity, but does not provide the same direct stimulus as spending.
now your getting it

Quote: Over the past couple decades, capital has gone international and there is a glut of invesment capital, as is evidenced by lower real interest rates. That capital availalability is ultimately threatened when the Govt is a massive borrower of funds, as it has been since the current administration took power.
I am not quite clear as to your meaning here. Are you saying that because of investment overseas, buisnesses are hurting the ecconomy? Are you trying to switch the debate to outsourcing?

or are you talking about the huge debt the federal gov is building up? or is it something else?

Quote: Aside from debates over theory, the empircal historical evidence does not indicate any correlation between taxes and GDP growth.
in your empiricle study you are assuming that GDP is a good indicator of ecconomic well being(both future and present)

Quote: If lower taxes had a significant effect on the economy, the country would have seen significantly greater growth in the 80s and today. Yet average GDP growth was higher in the 50s and 60s, when top tax rates were 90% or 70%.
yes, and I have described why this is.

[Iriemon]

Atlas Bergeron wrote: Iriemon wrote:
Your comments about the appropriateness of redistribution of wealth raises a different subject which is outside the scope of the effect of tax rates on GDP we have been discussing here.
don't be silly. We are discussing the GDP, when the government taxes more, they can spend more. When they spend more, that boosts the GDP. My contention is that this is not necessarily good for the country in the long term. It is extraordinarily relevant to look at the reasons why the trend that the GDP increases during a tax hike occurs. The main reason is not becuase of private investement, but becuase the government is simply pumping stolen funds into the ecconomy.

The Govt can spend more without taxing more. That is what has happened the last 5 years.

Taxing and spending does not necessarily lead to GDP stimulus thru spending. And ironically, most conservatives say the opposite is true, that is the theory behind supply side economics, that tax cuts makes the economy grow marginally faster.

If the taxes takes money from one person who would have spent it and the Govt or another person spends it, there is a wash. If the person taxed would have saved the money and it is spend instead, then I'd agree there is an net increase in spending.

Quote: I'm not sure your point about taxes and the economy. At first you seemed to be suggesting that lower taxes boost the ecomony. Now you are suggesting that higher taxes boost the economy.
I am saying that higher taxes boost the GDP but hurt the ecconomy (i.e. the amount of capital and innovation invested). Lower taxes cause an imediate fall in the GDP but tend to increase the amount of investement in new capital (although this investment does not immediately pay off that year). Thus, if you want to get ellected and say the ecconomy is good, you steal from the producers and spend thier money, thus inflating the ecconomy. If you want what is good for the american ecconomy and what is in the public good, you (the congressman) will stay the f**k out of the ecconomy. [/quote]

A political platform of raising taxes has not been particularly effective in recent elections, IMO.

Quote: Quote: The economy is driven by demand for goods (ie spending).
spending... on what? spending... by whom?

Spending on products and services produced by American companies.

Quote: spending on produced goods, which are bought by other producers in a trade based ecconomy. The economy is not driven by consumption, as is so commonly thought, but by production. Without production, you cannot have consumption. People would have nothing with which to buy the goods with if they did not produce (or steal) the funds first (but stolen funds must first be produced).

Production doesn't create demand. If there is no demand, there will be no production. It there is demand, the product or service will be produced.

Quote: Quote: Savings and investment is important for long term productivity, but does not provide the same direct stimulus as spending.
now your getting it

Quote: Over the past couple decades, capital has gone international and there is a glut of invesment capital, as is evidenced by lower real interest rates. That capital availalability is ultimately threatened when the Govt is a massive borrower of funds, as it has been since the current administration took power.
I am not quite clear as to your meaning here. Are you saying that because of investment overseas, buisnesses are hurting the ecconomy? Are you trying to switch the debate to outsourcing?

or are you talking about the huge debt the federal gov is building up? or is it something else?


My point is that the relative importance of savings and investment in this country has not been sharp because of the availability of capital from foreign investors. The availability of capital ultimately affects the cost of capital, which is a key to long term investment and growth. The cost of capital has been relatively low in recent years. Inavailability of capital has generally not been a problem.


Quote: Quote: Aside from debates over theory, the empircal historical evidence does not indicate any correlation between taxes and GDP growth.
in your empiricle study you are assuming that GDP is a good indicator of ecconomic well being(both future and present)

I used GDP as an indicator of ecoomic performance.

[Atlas Bergeron]

Iriemon wrote:
The Govt can spend more without taxing more. That is what has happened the last 5 years. If you have 300,000 dollars, you will probably spend less than someone with 1,000,000 dollars. The principal is quite simple.


Quote: Taxing and spending does not necessarily lead to GDP stimulus thru spending.
spending sure as hell does. Taxing leads to a (comparitavily small) decrease.

Quote: And ironically, most conservatives say the opposite is true, that is the theory behind supply side economics, that tax cuts makes the economy grow marginally faster. over the long run they are right, over the short run they are wrong.


Quote: If the taxes takes money from one person who would have spent it and the Govt or another person spends it, there is a wash. If the person taxed would have saved the money and it is spend instead, then I'd agree there is an net increase in spending.
the government spends nearly all its money. People sometimes save money. Therefore if the government takes the money they would have saved, it will lead to an increase in spending. I am glad you agree.

Quote: Quote: Quote: I'm not sure your point about taxes and the economy. At first you seemed to be suggesting that lower taxes boost the ecomony. Now you are suggesting that higher taxes boost the economy.
I am saying that higher taxes boost the GDP but hurt the ecconomy (i.e. the amount of capital and innovation invested). Lower taxes cause an imediate fall in the GDP but tend to increase the amount of investement in new capital (although this investment does not immediately pay off that year). Thus, if you want to get ellected and say the ecconomy is good, you steal from the producers and spend thier money, thus inflating the ecconomy. If you want what is good for the american ecconomy and what is in the public good, you (the congressman) will stay the f**k out of the ecconomy.

A political platform of raising taxes has not been particularly effective in recent elections, IMO.

Yes, now we have shifted down the even more destructive path of increased deficits.

Quote: Quote: Quote: The economy is driven by demand for goods (ie spending).
spending... on what? spending... by whom?

Spending on products and services produced by American companies.

Quote: spending on produced goods, which are bought by other producers in a trade based ecconomy. The economy is not driven by consumption, as is so commonly thought, but by production. Without production, you cannot have consumption. People would have nothing with which to buy the goods with if they did not produce (or steal) the funds first (but stolen funds must first be produced).

Production doesn't create demand.
nope, and the wealth to buy what is produced doesn't condense out of magical fairy lands either. If nobody but the "big compaines" produce, then there will be no one to trade with. All trade must start with production. It only ends with consumption.


Quote: If there is no demand, there will be no production. It there is demand, the product or service will be produced.
before demand there must be wealth to service that demand. This is a fundemental principal that you must come to understand before we can even go further to discuss this.

Quote: Quote: Quote: Savings and investment is important for long term productivity, but does not provide the same direct stimulus as spending.
now your getting it

Quote: Over the past couple decades, capital has gone international and there is a glut of invesment capital, as is evidenced by lower real interest rates. That capital availalability is ultimately threatened when the Govt is a massive borrower of funds, as it has been since the current administration took power.
I am not quite clear as to your meaning here. Are you saying that because of investment overseas, buisnesses are hurting the ecconomy? Are you trying to switch the debate to outsourcing?

or are you talking about the huge debt the federal gov is building up? or is it something else?


My point is that the relative importance of savings and investment in this country has not been sharp because of the availability of capital from foreign investors. The availability of capital ultimately affects the cost of capital, which is a key to long term investment and growth. The cost of capital has been relatively low in recent years. Inavailability of capital has generally not been a problem.
ok... and what is your point?

Quote: Quote: Quote: Aside from debates over theory, the empircal historical evidence does not indicate any correlation between taxes and GDP growth.
in your empiricle study you are assuming that GDP is a good indicator of ecconomic well being(both future and present)

I used GDP as an indicator of ecoomic performance.

exactly

[Iriemon]

Atlas Bergeron wrote: Iriemon wrote:
The Govt can spend more without taxing more. That is what has happened the last 5 years. If you have 300,000 dollars, you will probably spend less than someone with 1,000,000 dollars. The principal is quite simple.

Unless you are the Republican party. ;)


Quote: Quote: Taxing and spending does not necessarily lead to GDP stimulus thru spending.
spending sure as hell does. Taxing leads to a (comparitavily small) decrease.

If the savings rate is around -0-, what is the basis for asserting that taxes leads to a comparatively small decrease in spending?

Quote: Quote: And ironically, most conservatives say the opposite is true, that is the theory behind supply side economics, that tax cuts makes the economy grow marginally faster. over the long run they are right, over the short run they are wrong.

Apparently they are not right, over the long term GDP growth has been no better with lower taxes.

Quote: Quote: If the taxes takes money from one person who would have spent it and the Govt or another person spends it, there is a wash. If the person taxed would have saved the money and it is spend instead, then I'd agree there is an net increase in spending.
the government spends nearly all its money. People sometimes save money. Therefore if the government takes the money they would have saved, it will lead to an increase in spending. I am glad you agree.

How much is the decrease in spending given a savings rate of 0-5%.


Quote: Quote: A political platform of raising taxes has not been particularly effective in recent elections, IMO.

Yes, now we have shifted down the even more destructive path of increased deficits.

On that we both agree.

Quote: Quote: Quote: Quote: The economy is driven by demand for goods (ie spending).
spending... on what? spending... by whom?

Spending on products and services produced by American companies.

Quote: spending on produced goods, which are bought by other producers in a trade based ecconomy. The economy is not driven by consumption, as is so commonly thought, but by production. Without production, you cannot have consumption. People would have nothing with which to buy the goods with if they did not produce (or steal) the funds first (but stolen funds must first be produced).

Production doesn't create demand.
nope, and the wealth to buy what is produced doesn't condense out of magical fairy lands either. If nobody but the "big compaines" produce, then there will be no one to trade with. All trade must start with production. It only ends with consumption.

What happens to production when inventories build because there is insufficient demand? What happens if the wealth doesn't exist to buy what is produced?

Quote: Quote: If there is no demand, there will be no production. It there is demand, the product or service will be produced.
before demand there must be wealth to service that demand. This is a fundemental principal that you must come to understand before we can even go further to discuss this.

What is the point of arguing chicken or egg? You need both production and demand. I think you agreed that spending increases GDP. Why? Because when people buy stuff, that creates demand for more production.

Quote: Quote:
My point is that the relative importance of savings and investment in this country has not been sharp because of the availability of capital from foreign investors. The availability of capital ultimately affects the cost of capital, which is a key to long term investment and growth. The cost of capital has been relatively low in recent years. Inavailability of capital has generally not been a problem.
ok... and what is your point?

Because the cost of capital was already low and there has been sufficient capital for investment, there is nor reason to expect the recent tax cuts to provide marginally greater long term growth.