The American Spectator : The Reality of the New Deal

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The Reality of the New Deal

By J.T. Young on 5.7.09 @ 6:07AM

Prolong the Depression it did -- but it never replaced the Federal Reserve and its monetary policy as the main culprit.

Seventy-six years ago in the depths of the Great Depression, FDR launched its intended solution, the New Deal. If, as it now seems, the current financial crisis's closest counterpart is the Great Depression, it is paramount we understand both it and its intended solution. In contrast to conventional wisdom, the Depression's cause -- not its cure -- came from the government and the New Deal did less than both its supporters and critics claim.

The stock market's crash on October 29, 1929, did not immediately trigger its larger economic effects. However, within a year they were well underway and produced huge Republican losses in Congress -- compounded again in 1932 with the loss of the presidency. Franklin Roosevelt's response to the Depression was the New Deal, an unprecedented peacetime governmental response to the spiraling economy.

Popularly remembered as massive government intervention, government spending did not surge as many believe. Certainly federal spending increased -- 40% from 1932 to 1934 -- but it had already surged 49% from 1929 to 1932, prior to FDR even taking office. From 1934 to 1940, it increased another 44%, hardly dramatic given previous increases. The larger and overlooked surge in government spending actually occurred around World War I: from 1916-1928, government spending increased four-fold; from 1929-1940, it tripled.

On the receipt side, revenues fell, as is standard during economic downturns. However, by 1933, revenues had begun to grow again. By 1936, federal revenues exceeded their 1929 level -- fully four years before the economy did likewise.

For these reasons, the federal deficit did not exhibit an inexorable growth. It was actually rather stable. The budget swung into deficit in 1931 by $462 million. By 1932, it was $2.7 billion in the red, but again this was before FDR even took office. By 1940, after eight years of Roosevelt, the deficit was $2.9 billion.

The New Deal's economic results are far more contrarian than its fiscal impact. America began 1929 with a GDP of $103.6 billion. Yet for all the New Deal hoopla, when 1940 began -- the final year of FDR's second term -- GDP stood at just $101.4 billion -- still below its level of eleven years earlier.

Why is the breakpoint of 1940 chosen for all these comparisons? Not because it was the year in which FDR would seek an unprecedented third term. It was the year prior to what really ended the Great Depression: WWII's massive military build-up.

Beginning with 1941's Lend-Lease program to arm the Allies, American military spending exploded. From 1940 to 1941, U.S. military spending grew from $2.2 billion to $6.4 billion. With America's direct involvement in 1942, it rose to $25.7 billion -- roughly double the previous year's entire federal budget ($13.7 billion). By 1945, federal spending was $92.7 billion -- higher than GDP ($92.2 billion) when 1939 began!

As the economy grew -- and even more importantly, enlistments -- unemployment fell dramatically. In 1940, America had 533,000 military personnel. That grew to an annual average of 1.6 million in 1941, 4 million in 1942, 8.9 million in 1943, 11.4 million in 1944, and 11.6 million in 1945 (11% of the US population). Unemployment fell apace: 4.7% in 1942, 1.9% in 1943, and 1.2% in 1944.

While it was war, not government, that solved the Depression, it was government -- in the form of the Federal Reserve and its mishandling of the money supply -- that caused it. We have known this, though many still refuse to accept it, since Nobel laureate economist Milton Friedman wrote A Monetary History of the United States, 1867-1960 in 1963. Friedman dispatched the prevailing Keynesian mindset and showed monetary policy, not fiscal policy, was the dominant economic determinant.

As biographer Lanny Ebenstein writes, Friedman showed the Federal Reserve decreased America's money supply during the post-Crash years. These "unprecedented annual consecutive declines…constituted the Great Contraction and were the primary source…" of the Great Depression.

What do the numbers add up to? First, they give us better perspective on the two financial crises. The current financial crisis is not the Great Depression. Even with unemployment now 8.5%, it is still just over half the lowest point attained for any year during FDR's pre-WWII administration. The current economy has experienced just three consecutive quarters of negative GDP growth; from January 1, 1929 to January 1, 1933, it shrunk for four consecutive years and did not regain its 1929 level for eleven years.

Second, it shows that the New Deal of rhetoric was not the New Deal of reality. The New Deal's real contribution was as a precedent for government involvement in a peacetime economy. While it did not end the Depression it laid the foundation for the massive federal entitlement edifice now threatening the federal budget and, ironically, the economy the New Deal is popularly claimed to save.

topics:
The New Deal, The Great Depression, Monetary Policy

About the Author

J.T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000.

Letter to the Editor View all comments (33) | Leave a comment

macdaddy| 5.7.09 @ 9:14AM

A superb book on this is The Forgotten Man by Amity Shlaes. The depressing part is that Obama is making the same mistakes that Hoover and FDR made. Does nobody read anymore?

Hank Rearden| 5.7.09 @ 9:15AM

Right on the money. Unfortunately nobody wants to hear it. The left has been screaming from the hilltops since its inception that the New Deal brought us out of the depression. Look at a high school history book and you'll see how FDR saved the country. It will be a long time before a good analytical history of this era will be accepted by the masses. The Federal Reserve has been a problem since the beginning, support Ron Paul's bill to audit!!!

jerryofva| 5.7.09 @ 9:46AM

Hank:

Ron Paul is a supporter of a return to the Gold Standard. However, Friedman points out in his (and his wife Rose's) great historical study that the Great Contraction was caused by the Federal Reserve’s defense of the Gold Standard. The monetary contraction had more or less been halted by 1931 but when the Europeans left the Gold Standard the US experienced a loss of gold reserves and the Fed raised interest rates enforced by a reduction in reserves. This ended up collapsing the banking system. Friedman argued that the Fed should not have defended the gold-backed dollar. However, that was the law and they had no choice in the matter. Had we been on the gold standard last year we would have faced the same kind of financial collapse.

Robert Rosencrans| 5.7.09 @ 9:47AM

I hate to post long articles but this one is a beaut. It defines precisely the mistakes made by Hoover and other government officials. In some ways Hoover's government spending is eerily reminiscent George W. Bush's spending habits. The protectionism mentioned mimics Obama's new global tax grab, claiming he's closing loopholes. The American public has been educated by a public school system whose own best interests are placed above the interests of the country. This can be observed by the perpetuation of myths which this article covers.

http://online.wsj.com/article/SB122576077569495545.html

By ANDREW B. WILSON

The current financial crisis has revived powerful misconceptions about the Great Depression. Those who misinterpret the past are all too likely to repeat the exact same mistakes that made the Great Depression so deep and devastating.

Here are five interrelated and durable myths about the 1929-39 Depression:

- Herbert Hoover, elected president in 1928, was a doctrinaire, laissez-faire, look-the-other way Republican who clung to the idea that markets were basically self-correcting. The truth is more illuminating. Far from a free-market idealist, Hoover was an ardent believer in government intervention to support incomes and employment. This is critical to understanding the origins of the Great Depression. Franklin Roosevelt didn't reverse course upon moving into the White House in 1933; he went further down the path that Hoover had blazed over the previous four years. That was the path to disaster.

Hoover, a one-time business whiz and a would-be all-purpose social problem-solver in the Lee Iacocca mold, was a bowling ball looking for pins to scatter. He was a government activist fixated on the idea of running the country as an energetic CEO might run a giant corporation. It was Hoover, not Roosevelt, who initiated the practice of piling up big deficits to support huge public-works projects. After declining or holding steady through most of the 1920s, federal spending soared between 1929 and 1932 -- increasing by more than 50%, the biggest increase in federal spending ever recorded during peacetime.

Public projects undertaken by Hoover included the San Francisco Bay Bridge, the Los Angeles Aqueduct, and Hoover Dam. The Republican president won plaudits from the American Federation of Labor for his industrial policy, which included jawboning business leaders to refrain from cutting wages as the economy fell. Referring to counteracting the business cycle and propping up wages, Hoover said: "No president before has ever believed that there was a government responsibility in such cases . . . we had to pioneer a new field." Though he did not coin the phrase, Hoover championed many of the basic ideas -- such as central planning and control of the economy -- that came to be known as the New Deal.

- The stock market crash in October 1929 precipitated the Great Depression. What the crash mainly precipitated was a raft of wrongheaded policies that did major damage to the economy -- beginning with the disastrous retreat into protectionism marked by the passage of the Smoot-Hawley tariff, which passed the House in May 1929 and the Senate in March 1930, and was signed into law by Hoover in June 1930. As prices fell, Smoot-Hawley doubled the effective tariff duties on a wide range of manufactures and agricultural products. It triggered the beggar-thy-neighbor policies of countervailing tariffs that caused the international economy to collapse. Some have argued that the increasing likelihood that the Smoot-Hawley tariff would pass was a major contributing factor to the stock-market collapse in the fall of 1929.

- Where the market had failed, the government stepped in to protect ordinary people. Hoover's disastrous agricultural policies involved the know-it-all Hoover acting as his own agriculture secretary and in fact writing the original Agricultural Marketing Act that evolved into Smoot-Hawley. While exports accounted for 7% of U.S. GDP in 1929, trade accounted for about one-third of U.S. farm income. The loss of export markets caused by Smoot-Hawley devastated the agricultural sector. Following in Hoover's footsteps, FDR concentrated on trying to raise farm income by such tactics as setting quotas on production and paying farmers to remove acreage from production -- even though this meant higher prices for hard-pressed consumers and had the effect of both lowering productivity and driving farmers off their land.

- Greed caused the stock market to overshoot and then crash. The real culprit here -- as in the housing bubble in our own time -- is the one identified by the economic historian Charles Kindleberger in the classic book "Manias, Panics, and Crashes": a speculative fever induced by excessively easy credit and broken by the inevitable return to more realistic valuations.

In the late 1920s, cheap and easy money fueled a tremendous increase in margin trading and a proliferation of "investment trusts" that offered little in the way of dividends or demonstrable earnings per share, but still promised phenomenal capital gains. "Speculation," as Kindleberger neatly defined it, "involves buying for resale rather than use in the case of commodities, and for resale rather than income in the case of financial assets."

The last thing Hoover wanted to do upon coming to office was to rein in the stock market boom by allowing interest rates to rise to a more normal level. The key to prosperity, in his view, lay not in sound money and rising productivity, but in letting the good times roll -- through government action aimed at maintaining high wages and high stock market valuations.
In Opinion Journal today

REVIEW & OUTLOOK

* Legal Side Effects
* Hugo Chávez's Bag Man
* Guantanamo Revelation

TODAY'S COLUMNISTS

* Global View – From 9/11 to 11/4
* Main Street – A Social Democrat Confronts Globalization

COMMENTARY

* We Could Be in for a Lurch to the Left – Fred Barnes
* Five Myths About the Great Depression – Andrew B. Wilson
* Some Lessons of the Financial Crisis – Stephen Schwarzman
* Milwaukee Puts a Vote-Fraud Cop Out of Business – John Fund

- Enlightened government pulled the nation out of the worst downturn in its history and came to the rescue of capitalism through rigorous regulation and government oversight. To the contrary, the Hoover and Roosevelt administrations -- in disregarding market signals at every turn -- were jointly responsible for turning a panic into the worst depression of modern times. As late as 1938, after almost a decade of governmental "pump priming," almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation. But that was not an even trade-off. As the root cause of a great deal of mismanagement and inefficiency, government was responsible for a lost decade of economic growth.

Hoover was destined to fill the role of the left's designated scapegoat. Despite that, the one place where he and FDR truly "triumphed" was in enlisting the support of leading writers and intellectuals for government planning and intervention. This had a lasting effect on the way that generations of people think about the Great Depression. The antienterprise spirit among thought leaders of this time (and later) extended to top business publications. "Do you still believe in Lazy-Fairies?" Business Week asked derisively in 1931. "To plan or not to plan is no longer the question. The real question is who is to do it?"

In his economic policies and his incessant governmental activism, Hoover differed far more sharply with his Republican predecessor than he did with his Democratic successor. Calvin Coolidge, president from 1923 to 1929, made no secret of his disdain for Hoover, who served as his secretary of commerce and won praise from such highly regarded liberals as John Maynard Keynes and Jean Monnet. "That man has offered me unsolicited advice for six years, all of it bad," Coolidge said. He mockingly referred to Hoover as "Wonder Boy."

With the vitality of U.S. and world economies at stake, it is essential that the decisions of the coming months are shaped by the right lessons -- not the myths -- of the Great Depression.

Mr. Wilson, a former Business Week bureau chief, is a writer based in St. Louis.

Big Leo| 5.7.09 @ 1:31PM

Our family was hardcore Republican. When the first class postage stamp had FDR's picture on it in the 70's, we could never get it to stick on the envelope. We always spit on it on the wrong side.

JP| 5.7.09 @ 1:44PM

Jerryova,

You hit the nail on the head. What we generally saw between 1929-1940 was an era of deflationary recessions. FDR, concerning monetary and fiscal policy hadn't clue. The 1936-1937 recession was caused by a combination of interest rate hikes and tax increases, and his ideas on Gold confiscation (in order to shore up the currency, he attempted to confiscate as much as he could). All of this caused a delflationary policy, which starved the US of capital.

For all of those who wish to see a return to the Gold standard, remember there isn't enough Gold in the world to cove the amount of cash, credits, and bonds out there. We would literally be taking 9/10s of the world's cash supply out of the system.

Even during the so-called Lassiez Faire period of the 1920s, one couldn't demand a gold soverign from an equivilant poound note, or cash in silver dollar for gold. The banks never allowed it.

What is ironic is that Fed Chairman Bernecke is going to the opposite extreme of the chairmen from 1929-33. Instead of raising interest rates, he has slashed them to 0%. The Treasury is expanding the money supply by leaps and bounds through the printing of more notes and selling bonds. The President is borrowing huge sums of money.

All of this loose cash and credit now being injected into the world economy is a desperate effort to "keep the consumer economy going". However, like the 1927-29 Bubble, all of this activty will just create another wave of speculation. Yes, unemployment will go down, as more businesses borrow to meet growing consumption (itself subsidized by the current rash of govermental "stimulus" and credit creation (or as an old New York Banker calls it, a "coup de whiskey").

Unlike 1929, we have huge piles of public and private debt. We are still trying to write off trillions of dollars in bad mortgages, securities, and derivatives. The goverment will also be seeing large unfunded liabilities in social security and medicare within 5 years.

We are creating the seeds for the next major crash in order to save the Dems electoral chances for 2010 and 2012.

Hank Rearden| 5.7.09 @ 1:53PM

Jerry,

I was simply talking about the audit and not gold. However, had we never gotten off of gold, would the collapse have been possible?

Stan Redmond| 5.7.09 @ 2:17PM

macdaddy,

Apparently reading anti-American books is the in thing in the Obama administration. It is obvious Obama and his cabinet are not educated smart people. He is a ruthless politician but he is ignorant. He doesn't know how many states there are. he doesn't know that Iraqis and Afghanis speak different languages. He thinks zone one DVDs are a good gift for a half blind man in a different DVD zone. He thinks an IPOD with his speeches are a thoughtfull gift to the queen of England. He thinks bowing to a foreign king is no big deal. He thinks we believe he is cutting the budget after suggestion the largest budget in history. He thinks he can cut deficit spending with larger deficits.

It is scary such an ignorant (not stupid) and arrogant man is in charge and surrounding himself with equally ignorant people.

Bill Pearce| 5.7.09 @ 2:54PM

Depression Era policies produce Depression Era results, Oh what a big surprise this is.

jerryofva| 5.7.09 @ 3:55PM

Hank:

Think about it. We were on the Gold Standard in 1929. We had a collapse right? As pointed out by JP above there is not enough gold to finance the US economy let alone to underwrite the international trading system. We would have to have very low reserve requirements or let the price of gold rise. The later would result in deflation.

The business cycle with its speculative bubbles existed before we went off gold. The cause of inflationary bubbles and deflationary busts is human behavior and not the monetary system you choose to build.

Professor Friedman believed that the only sound monetary policy is one where the monetary authority expands the supply of money at a constant rate consistent with long term economic growth. Discretionary policy, no matter how well intended, cannot deal with lags that are long and timing that is variable or with transitory shocks to the system.

I highly recommend a book titled "The Panic of 1907, Lessons Learned from the Market's Perfect Storm" by Robert F. Bruner and Sean D. Carr both at the Dardin School of Business, the University of Virginia. It was written in 2007 long before the Panic of 2008. There are more similarities between our latest panic and 1907 then 1929.

aware| 5.7.09 @ 4:00PM

Jerryova and JP are wrong about the gold standard. I won't waste time with explanations, if you want to, read Thomas Woods Meltdown as he does a good job of showing the fallacies of these arguments against the gold standard. If gold won't work as money then why do people rush to get it when all else is failing?

The real reason for no gold standard is it precludes the use of funny money and accounting tricks by the State so they can spend in deficit. A commodity based currency forces fiscal discipline on the ruling class. They love debt and think the payback can be put off indefinitely. The ability to "create" money by fiat is critical to the growth of the State. And to the wine and circuses they use to placate the masses.

And it was the debt incurred by governments fighting WW1 that lead to the abandonment of gold as money. They spent more killing each other than was possible to repay with real wealth. War Socialism has been a way of life for statists ever since.

There aren't many problems with us today that can't be traced back to the cataclysm of WW1, the worst disaster of modern times. Without deficit spending wars of this length and intensity are impossible. So paper money comes in most handy when the death and destruction is unleashed.

So Hank, the answer to your question is no.

aware| 5.7.09 @ 4:24PM

"or let the price of gold rise. The later would result in deflation."....and deflation(lower prices) is bad for who exactly? I use a computer that costs less than half of the one I had 10 years ago and is 10 times better. Am I worse off because of the deflation in computer prices? Are the computer makers? They still seem to be very profitable.

On the other hand I paid 20 times more than my grandfather for the same mode of transportation, the car. Most of this inflation is the result of a currency that has lost 96% of its buying power since 1913. And I think he got more out of his Model T than I do out of all the cars I've bought.

Again the simple question... if paper is better than gold why do people rush away from paper and into gold when panic sets in?

JP| 5.7.09 @ 4:46PM

Aware,
I couldn't agree with you more about speculation, bubbles, forced fiscal responsibility because of a Gold Standard, etc...

You outlined one of the many benefits of pegging currencies to Gold. But there are also problems. Namely, who gets the Gold? Should it be held only by the Fed? Or should Gold be held by the IMF, or some new world bank? Wars in the past were started over this very question. The Bretton Woods Treaty used the dollar as the benchmark, but a certain percentage of the dollar's net value could be redeemed in Gold. Banks in other nations who held dollars or Treasury Notes, could demand the equivilant in gold if they thought the dollar was becoming too weak (This is what exactly happened in 1970).

Since 1970 there are many ways to look at wealth. One of the things that became more and more important was information. Information is litterally worth its wieght in gold to the smart businessman. Gold had more importance when agriculture and heavy industry were parmount, and knowledge based economies were unheard of. But not anymore. Gold does have a use, like all commodities, in being a hedge against currency inflation. But, it can also fuel panics and speculation in its own right. Think of the Hunt Brothers and silver (circa 1979-1981), or the most recent oil bubble in 2008. The Hunt brothers cornered the silver market and caused a temporary run on it.

Pegging the dollar to gold at this stage of the game would be disasterous. People and businesses that are financially sound could be ruined by nothing more than a bank's desire to increase its gold holdings. Since stocks and pensions are based on the dollar, a rapid fall in the dollar in relation to gold could destroy pensions and severely under capitalize healthy enterprises. If you think war or rumours of war causes too much volatility in oil prices , just think what this would do to gold. What if gold was discovered next week in Isreal and we were on the gold standard?

There are no easy answers.

2Anglico| 5.7.09 @ 4:53PM

The price of gold is rising now. Although it is only a little higher than early 1980. I do not buy the argument that being on a gold standard would constrict growth. It would mean the dollar had REAL value, not just percieved value. Arguably, the greatest growth spurt in western civilization came while on the gold standard, say 1850-1914.
The Federal debt is how many trillions of dollars? Does anyone think they will EVER pay it back? They can barely pay the interest on the debt, there is no way they could pay down principal.
And would ANYONE use their hard earned, gold backed dollars, to buy derivatives or "collateralized debt obligations"? Talk about good money after bad!

Epiminondas| 5.7.09 @ 5:34PM

Nice article, but Young fails to mention a very important component of the 1929 crash itself. Not only did the Federal Reserve fail to act properly AFTER the crash, it was responsible for that balloon Mr. Young describes as having occurred between 1916 and 1929. In other words, only a scant 13 years after its formation, the Fed managed to wreck the economy and then continue the damage afterwards. Does this not register? And do the current events not bear out the claim that the Fed is a dangerous thing for politicians to have at their disposal. It's time to begin the debate about whether the Fed is doing our nation any long term good.

aware| 5.7.09 @ 10:30PM

JP... thoughtful response and good questions.

First, "Namely, who gets the Gold?"... we do, everyone who has paper dollars, the opposite of the '33 "confiscation", you turn increasingly worthless paper for gold. This is after the destruction of the Welfare State of course, by ending Federal involvement and leaving it to the individual states as to whether they want such a system and funding it. Like the LAW clearly states, but I digress.
By having it in the hands of everyone I don't see how "the banks" (really the Central Bank[i.e. The stinking Federal Reserve]) could have the ability to cause a run or a shortage except by inducing you to give it to them. Some may do that but far from all would.

"The Hunt brothers cornered the silver market and caused a temporary run on it."... and gold too. They were able to do that precisely because these commodities were "investments" and not money. It makes them be in the hands of the government and the investors almost exclusively, never a good combination in any circumstances, on any commodity. Dirty rats.

"more than a bank's desire to increase its gold holdings."... like how they just increased their dollar holdings by loaning on houses that couldn't be repaid, then getting recapitalized by taxpayers AND getting to foreclose on the house? Couldn't be much worse, if it is even possible. I'll break even with you on this cause we should never underestimate the devious mind of man when he smells easy profits.

"What if gold was discovered next week in Isreal and we were on the gold standard?"...I'm not sure if you mean that makes them a more attractive target, in which case wars are always about taking anything of value from the losers.
If you mean it would increase the gold supply, which is the only thing that is possible with gold, good. That would cause mild deflation across the board, with prices and wages. This amounts to a recalibration that would occur naturally. Unless somebody got the bright idea we should have State oversight to make sure it was "fair", in which case we would have the same corruption (legal) as we have now.

Deficit spending is critical to the growth of the modern State. The modern State is a soul-destroying, wealth stealing, war mongering, freedom killing, power mad entity caused by the centralizing of authority. Paper money that they can arbitrarily manipulate at will for their own purposes is a critical instrument in achieving control. And the Federal Reserve with its fractional banking system is a vast shell game with a bunch of shells on the table. But there is only one pea, and as long as they keep the shells moving you'll never know where the pea is. The most insidious wealth transferring device in operation today.

Gold standard wouldn't solve all our problems but it is one of the 4 or 5 things that must happen before we ever can hope to regain any semblance of lawful, and therefor honest, government. As opposed to Statism. There is a difference.

Sam Spade| 5.7.09 @ 11:23PM

Unfortunately, Mr. Young repeats the same wrong-headed assumption that is so common these days, namely that is was the massive increase in WW II spending that ended the Great Depression. In fact, the cause of the depression was the increasingly left-wing character of the country, everybody wanting a handout or an easy fortune. This is what led to the stock market bubble and crash as well as the New Deal. When we went to war, people stopped demanding a handout and started working harder and harder. The work ethic returned, and with it a much more sensible about money and the world. When the war was over, those newly-minted workers kept working and produced the miraculous economy that not only paid off all of our war-time debt but made the modern world possible. Here's hoping that the current hard times convince a few people to get off their duffs and become productive citizens again instead of collecting unemployment and disability and welfare.

pete the mediocre| 5.8.09 @ 2:14AM

Aware wrote:
"On the other hand I paid 20 times more than my grandfather for the same mode of transportation, the car. Most of this inflation is the result of a currency that has lost 96% of its buying power since 1913. And I think he got more out of his Model T than I do out of all the cars I've bought. "

Comparing a model T to current automobiles is not much of a comparison. Cars through the 60s were pretty much shot after 50,000 miles. Now cars generally last 250,000 miles or more. The Model T would more closely compare to today's lawnmower or a multi seat ATV.
Cars and trucks are expensive now, but I don't have much desire to give up my air conditioning and automatic transmission and drive 30 miles an hour exposed to the weather.

aware| 5.8.09 @ 6:27AM

pete the mediocre... you're missing the point of the example. It is about devaluation of the currency and the attendant inflation it causes. You could use home prices, especially a comparison of the costs of the mansions of the "Robber Barons" to say the McMansions of the last 10 years.
The Fed believes that an inflation rate of 2 to 3% annually is a good thing when in fact it is good only for the investor class and the State but not for the consumer. This is a sophisticated way of claiming high prices equals good and lower prices equals bad. High prices do not necessarily mean higher profits.
A close look shows that the "low" wages of our grandfathers really bought more goods than the "higher" wages of ours. The contrast is stark in the areas of food, clothing, and shelter. We have a lot more stuff to spend on now, like air conditioning, but that does not change the fact that even though wages have risen, prices have risen faster as a result of the depreciation of of the dollar. This is willful and deliberate on the part of the State and slowly squeezes wealth from the powerless consumer.
It is only one example of simple theft overlayed with layers of look over here while they do something over there on the part of the State. It is dishonesty that when discovered claims to be an unintended consequence. Like the use of "crisis" it is standard MO on the part of the State in its march to totalitarianism.

pete the mediocre| 5.8.09 @ 10:05AM

Aware:
I am well aware of the affects of inflation. My point is that if you are going to discuss inflation you must use apples to apples comparisons. Even in your housing example there are vast differences between the homes of today and those of a century ago.

An inflation rate of 2-3% isn't good for anyone, including the investor class because it lowers the buying power of their money. Essentially the gains look nice, but they aren't real.

aware| 5.8.09 @ 1:50PM

pete..."An inflation rate of 2-3% isn't good for anyone, including the investor class because it lowers the buying power of their money. Essentially the gains look nice, but they aren't real. "... very well said and we are in complete agreement, but that is the policy of the Federal government and its henchmen at the central bank.

As to the comparison, having A/C, and other modern accessories as well as more speed and efficiency do not account for the price difference. The natural production process is to make things cheaper as you refine that process, as with my computer example. At first this was true with the automobile but over longer periods of time the effect of inflation draws even and then passes this tendency toward lower prices. This will happen with computers too after enough time. It happens cause somebody is fiddling with the medium of exchange not because of improvements in the thing you buy.

As far as mileage and reliability go I have pictures of my hometown from the early 1960s and there are a few model T's parked on the court square that were still in use 40 years later! We also had a tractor that was built in the 1930s that was used into the 1980s and then sold, and as far as I know is still working somewhere. Grandfather paid $300 for it,the last one we bought in the mid '90s cost $21,000. It had a better seat and power steering along with more horsepower, but did exactly the same work. The improvements surely are not worth the $20,700 difference and it remains to be seen if it goes for 50 plus years.

You could make the same price observation with beans or candy bars, which have not changed at all since grandpa's day. Except the candy is made and the beans are harvested more efficiently which should mean they would be cheaper but they are not.

You obviously completely understand this so I say all this in the hope of helping others who might read this. Just to show that the State is not our friend.

Paul Crowley| 5.9.09 @ 3:59PM

=>“if you are going to discuss inflation you must use apples to apples comparisons.” [pete the mediocre| 5.8.09 @ 10:05AM]

I fully agree with pete the mediocre’s statement.

If one is “going to discuss inflation” using examples of automobiles and computers (as in this discussion between pete the mediocre and aware) then he should "use apples to apples comparisons” and not “apples to oranges” comparisons (such as aware is making).

In the matter of scientific research and technological research and development, and the applications derived from these:

1. Both are dependent upon, and their course determined by, allocation of resources.

2. In a market system, then Finance is critical (which brings another aspect of the role of inflation).

3. STANDARDIZATION of technologies must also be considered (but is completely ignored in this exchange; especially where personal computers are concerned).

4. The physical world must be considered: Actual physical resources, their use, and the actual physical developments and applications (this is lacking, almost completely, in all of these comments).

Aware’s response and examples of automobiles and tractors is quite poor and his assertion of “but did exactly the same work” [aware| 5.8.09 @ 1:50PM] is not a general truth where tractors are concerned. It is certainly not a truth at all where use of tractor technology and uses developed from it, 1916-present, is concerned.

Even pete the mediocre’s considerations on automobiles are quite shallow and barely begin to scratch the surface of the differences where automobiles are concerned (the operator's perspective only: Knowing how to drive a car, on a modern road, versus knowing how one works, or the numerous technological differences in key components, the materials they are constructed from, the techniques and technologies required to produce them, these being consequences due to other technologies, and industries, and having consequences upon other industries and technologies).

But I fully agree with pete the mediocre’s statement that if one is “going to discuss inflation,” in the context of examples of automobiles and computers, then he should “use apples to apples comparisons”

Paul Crowley| 5.9.09 @ 4:04PM

=>“Depression Era policies produce Depression Era results, Oh what a big surprise this is.” [Bill Pearce| 5.7.09 @ 2:54PM]

Hi Bill:

Your comment is probably the most profound comment that was made in this section from the time that the first was posted on 5.7.09 @ 9:14AM to the last posted, to date, on 5.8.09 @ 1:50PM.

[I reference the comments spanning the first made by macdaddy| 5.7.09 @ 9:14AM through to the comment made by aware| 5.8.09 @ 1:50PM]

The results of the “Depression Era policies,” of both the Hoover and Roosevelt administrations, built futher upon the the foundations that were the results of the post-W.W.I/pre-Depression area policies of the Harding and Coolidge administrations.

“Depression Era results,” and those of 1922-29, resulted in the United States of America (U.S.A.) being able to:

1. Be the “Arsenal of Democracy” (i.e. the principle logistical supplier and support of the Anglo-Soviet-American alliance of World War II).

2. Be able to enter World War II directly.

3. Be the principle reason for bringing the war to its conclusion, with the results of the surrender of the Kingdom of Italy, and unconditional surrender of Germany and Imperial Japan.

Paul Crowley| 5.9.09 @ 7:24PM

->“it was war, not government, that solved the Depression. . . ” [“The Reality of the New Deal By J.T. Young on 5.7.09 @ 6:07AM]

This is a quite FOOLISH statement (pushing into the realm of STUPID).

It was government policy and spending that drove the EXPANSION of war production, 1939-41, and then the HUGE expansioin, from December 1941-1944.

It was government policies, 1922-40, that made it all possible, at all.

Paul Crowley| 5.9.09 @ 10:38PM

=>“J.T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000.”

I didn’t look at this originally. I read the comments first, then the essay, but missed this at first. A mistake on my part.

A man with this background, then a statement like “it was war, not government, that solved the Depression” is not merely FOOLISH to the point of STUPID.

Young has to know better than this.

J.T. Young is obviously another man who is an amoral opportunist who has formed himself as Walking Human Excrement.

This idiotically phrased statement is highly insulting.

No man who knows where J.T. Young, lives could be blamed for punching him in the mouth; done out of simple self-respect, for himself, his country, and his neighbors.

A liar of such magnitude as J.T. Young, with such an utterly low opinion of his fellow American citizens, more than deserves a split lip as a consequence of his action of writing this statement in this political essay.

This applies to J.T. Young’s master in the instance also: R. Emmett (“Bob”) Tyrrell, Jr., “founder and editor in chief of The American Spectator.”

--->My message to J.T. Young:

There are still some men alive and living in this country.

I may not be the only one to be rightly insulted by a cheap, sleazy, lies-like-a-rug, Political Hack like you, boy.

If you don’t already have one, then you should get a bodyguard.

---->My message to other readers, and especially comment posters:

You should pay closer attention to what’s said in these political essays and to who is writing them.

Paul Crowley| 5.9.09 @ 11:09PM

=>No man who knows where J.T. Young, lives could be blamed for punching him in the mouth; done out of simple self-respect, for himself, his country, and his neighbors.

To be perfectly clear:

J.T. Young’s fellow American citizens and neighbors PAID his salary, 1987-2004, while he was employed with the FEDERAL GOVERNMENT.

There’s nothing wrong with someone working in the service of the federal government. Whether or not Young served the United States of America, and her citizens, or only himself, and some select masters, then one can only wonder?

These two four-year periods of employment by the FEDERAL GOVERNMENT are the only credentials, as a political essayist, that “The American Spectator” chooses to advertise.

By God, that’s why I say:

“A liar of such magnitude as J.T. Young, with such an utterly low opinion of his fellow American citizens, more than deserves a split lip as a consequence of his action of writing this statement in this political essay.

For God’s sake. This man shows contempt for American citizens who paid his salary, and, his employment by the federal government is still effectively responsible for at least some of his income now! J.T. Young is a thief.

I say this perfectly calm and composed:

Damn the filth, liars, thieves, and parasites, like J.T. Young, that form themselves as Walking Human Excrement.

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