Why wasn't the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.
So what stopped a blockbuster recovery from ever starting? The New Deal.The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation's antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of "fair competition" which spelled out what producers could and could not do, and which were designed to eliminate "excessive competition" that FDR believed to be the source of the Depression.
These codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive capacity by placing quotas on industry investment in new plants and equipment.
By the late 1930s, New Deal policies did begin to reverse, which coincided with the beginning of the recovery.
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But one of the more striking things was the way in which the politicians and professional economists almost uniformly expected recovery to take place in 1931, and their panic when their expectations were dashed. Depression set in despite a resort to extreme measures that are all too familiar to the modern observer. Interest rates were cut to historic lows. Millions of dollars were loaned to the states to finance a vast series of public works and stave off unemployment. Taxes were increased at both the state and federal levels, and the Federal Reserve made use of every tool at its disposal to prop up failing banks.
....the expected recovery will not begin in 2009, it probably won't begin in 2010 either. If the historical parallel holds, and there are a vast array of reasons to believe that it generally will, the contraction will not reach its nadir until 2012 despite the best efforts of the financial authorities to defy economic gravity.
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The difference between America now and 1929 is epic.
1. Wasn't a "superpower" (read empire) then.
2. Had half as many people.
3. Was fairly homogeneous, being around 90% White.
4. Had national (read local) industries.
5. Relatively stable international neighbors with small populations.
6. Was not engaged in war.
7. Did not have 700 military bases around the world.
8. Was not interdependent economically on the rest of the world.
9. Did not import millions of ignorant refugees or tolerate a flood of illegal aliens.
10 Did not have the host of social programs in the form of handouts for "The Poor" to put a strain on the economy and resources.
11. Was more rural and thus more independent.
12. Had stable (multi-generational -read homogeneous-) communities.
13. Had no interstate system.
14. Was not so dependent upon international trade for common goods.
15. Had a smaller and less complex (and thus less prone to disturbance and deterioration) infrastructure.
16. Did not believe in "equality".
the list goes ever on.....
All of the things which allowed us to survive that decade are absent today.
One thing is for certain and that it that a return to the way things were is out of the question. Even before this current economic crisis the standard of living in America was deteriorating at a rate congruent with the shrinking middle-class.
There can be no "recovery" as demographics is destiny.
All that our glorious leaders can hope to do from here on is manage the speed at which the deterioration takes place.
"Upturns" and "Economic Recovery" will come to simply mean a temporary leveling of the inevitable slide towards economic and social thirdworldism. The Left loves to redefine the meanings of words....
Increasingly America will look like a cross between New York on 9/11 and New Orleans after Hurricane Katrina hit...
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