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The Recession Spectator
The Timeless Principles of American Prosperity
This should be the central argument and theme for this fall's elections.
We know, based on economic experience, theory, and logic, how to create another economic boom that will last 25 years, or a generation into the future. We achieved that in America from the end of 1982 to the end of 2007, with only two, short, shallow recessions that barely interrupted sustained, robust, economic growth. But that was not the only instance of success. Several times in the last 100 years, whenever the nation's economic policies adhered to the timeless principles of economic growth and prosperity, our economy has boomed. When it has departed from those policies, it has fallen into stagnation, or worse.
Moreover, as we will discuss next week, such booming economic growth is much more beneficial for working people and the poor than counterproductive, socialist redistribution to achieve equality of results. A booming market economy produces a much higher standard of living for working people and the poor. This is especially so when policies are structured to channel the flows of booming economic growth through working people and the poor, as we will explain. Economic experience, theory, and logic shows that outdated, throwback, socialist redistribution, by contrast, inevitably leads to lower standards of living, stagnation and decline.
America today once again desperately needs to return to the timeless principles of economic growth, to restore our traditional, world leading prosperity, and the American Dream. This should be the central argument and theme for this fall's elections.
A Hundred Years of Supply-Side Economics
Last year, the Intercollegiate Studies Institute produced a brilliant, overlooked book that recounted the history of supply-side economics -- Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity, by Brian Domitrovic. As explained in that book, the roots of supply-side economics go back to 1913, when the national income tax and the Fed were first adopted. "For restraining the institutions created that year -- the income tax and the Federal Reserve -- is the essence of supply-side thinking," Domitrovic writes.
It didn't take long for trouble to brew. The top tax rate of 7% soared to 77% by 1918. Moreover, the income tax, sold as a tax on the rich, began to apply at just $1,000 in income (equivalent to about $20,000 today). In addition, during World War I, the Fed essentially doubled the money supply relative to the economy. Inflation consequently soared by 84% over the 4 years from 1916 to 1919. The Fed then slammed on the brakes, draining 60% of the excess money, and throwing the economy into steep recession as a result. Unemployment soared to 12%, 50% higher than in any previous recession.
Warren Harding, newly elected President in 1920, appointed the enormously successful Pittsburgh banker Andrew Mellon Secretary of the Treasury, with the duty of fixing the economy. Mellon adopted what became the supply-side economic formula. He slashed the top income tax rate to 25%, and the bottom rate from 8% to 1%, increasing the income level to which it first applied by 50%. Moreover, Mellon led the Fed to stop the money supply drain, return interest rates to standard levels, and devote itself to stable prices. The Fed would look to market price levels, particularly commodities, including gold, for its guide.
The result was the Roaring '20s, the greatest boom in American history to that point, essentially beginning the modern American economy. Real output galloped, stock prices tripled, real wages advanced with productivity increases, and prices were stable. "It was in the twenties that Americans bought their first car, their first radio, made their first long distance telephone call, took their first vacation," as Domitrovic quotes Richard Vedder and Lowell Galloway.
Domitrovic explains, "The essence of supply-side economics lies in using the two levers of governmental economic leverage for the specific uses at which they are most adept. Monetary policy is capable of maintaining the price level. Tax policy is capable of spurring growth. The 'policy mix' of stable money plus tax cuts is the secret to escaping stagflation."
Tax policy spurs growth by reducing tax rates, as Mellon did. The lower rates spur incentives for productive activity, like savings, investment, work, business creation and expansion, and job creation, by allowing the productive to keep a higher proportion of what they produce. These incentives, moreover, apply to every economic decision with every dollar in the economy, at home and around the world in regard to the American economy, not just to the amount of any tax cut. Supposed tax cuts involving credits or rebates are just giveaways like welfare and other government spending, without the powerful incentive effects of rate cuts.
Monetary policy controls the price level because inflation is too many dollars chasing too few goods, everywhere and always caused by printing up too much money in relation to the demand for money. The one and only solution to inflation is to restrain money supply growth to equal money demand. Maintaining stable prices means also avoiding deflation by maintaining money growth to keep pace with money demand. The Fed should follow this policy by monitoring market prices, particularly the most sensitive prices such as commodities, including gold.
Monetary policy cannot be used to stimulate the economy because in the long run it just washes out in affecting only the overall price level, and not the level of real output. In the short run, trying to control the economy by monetary policy just adds to instability, sometimes grievously, causing booms and busts, bubbles and crashes. Keynesian economics is even more inept, because economic prosperity is not caused by increasing government spending and deficits, which are at best a wash, and more likely a drag, as the private sector would use the resources more productively and efficiently than central-planning government bureaucracies lacking market incentives for guidance.
These are the timeless principles of economic growth and prosperity.
Going Off the Rails: The Depression Keynesian Blunder
The Depression arose and worsened as America departed from these pro-growth policies. Instead of maintaining stable prices, the Fed allowed the money supply to decline precipitously, even while dollar demand was soaring as the world sought a stable store of value. This created ruinous deflation. Mellon's tax rate policies were also ruinously reversed, with the top income tax rate raised first to 63%, and then to 79%, with the lower tax rates raised even more in percentage terms. The Smoot-Hawley tariff added another tax burden that killed international trade. President Roosevelt tried to restore prosperity with soaring Keynesian government spending and deficits, which failed miserably as the Depression dragged on for over 10 years. By 1933, unemployment was at 25%, and GDP was down 57% nominally, 22% in real terms.
About the Author
Peter Ferrara is Senior Fellow at the Carleson Center for Public Policy, Director of Entitlement and Budget Policy for the Heartland Institute, and General Counsel of the American Civil Rights Union. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is the author of America’s Ticking Bankruptcy Bomb, now available from HarperCollins.
Letter to the Editor View all comments (117) | Leave a comment
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JamesJ| 7.28.10 @ 7:18AM
Silly Peter, Obama and the democrats have no intention of growing the economy and putting people back to work in the private sector. Their goal is to destroy capitalism.
Alan Brooks| 7.28.10 @ 1:07PM
Notice there's always a photo of Reagan, but not Bush-- either Bush.
Gee, wonder why that is?
rainmaker1145| 7.28.10 @ 2:18PM
Because they are progressives who believed in the failed policies of liberal economics that have always failed.
Read the article. Your question is answered.
Alan Brooks| 7.28.10 @ 3:43PM
Oh, so that is why the GOP continued to nominate failed candidates after Bush 41 left office in '93? they were testing your hypothesis over & over to make sure failed policies would always fail?
As for reading the article: I always skip boilerplate.
carnot| 7.28.10 @ 4:58PM
could be! but none of them failed on as massive a scale as the curernt occupant at 1600 PA Ave!
Alan Brooks| 7.28.10 @ 5:17PM
After 1989 the GOP squandered what Reagan had facilitated in his helping to end the Cold War.
How can you possibly deny it after 20 years of evidence to that effect? fact is, now that the Cold War is finished, the GOP has lost its bearings-- as it is only really good at fighting wars. You keep saying: trust us, we will redeem ourselves, you say so election after election, yet no redemption is in sight.
"trust us", you say. "Send checks to the RNC", to this politician, to that one; "trust us, we wouldn't lie to you, now would we? how could you even THINK such as thing?"
Alan Brooks| 7.28.10 @ 5:21PM
...yes, how dare we even think such a thing?
--it is thoroughly unimaginable.
Franklin| 7.28.10 @ 9:29PM
Exactly, we need to throw them all out .. and put in the Tea Party
Albert| 7.29.10 @ 7:02PM
I quit the Republican Party in 1998. I see no reason to go back. And I encourage others to do so still. Neither major Party is worth a damn.
Mightycline| 7.28.10 @ 9:37PM
Gee, maybe it is a picture of the brightest economics brain in history, Milton Friedman, who along with understudy Arthur Laffer set us free from Keynesian crap until Obama's henchmen and the Keynesian gang were revived. Reagan was a true believer, none better. Believe what you want, those three leaders in (Friedman, Laffer and Reagan) got it right.......
vtwin| 7.29.10 @ 3:44AM
“Between 1979 and 2007, average after-tax incomes for the top 1% rose by 281% after adjusting for inflation — an increase in income of $973,100 per household compared to increases of [only] 25% ($11,200 per household) for the middle fifth of households and 16% ($2,400 per household) for the bottom fifth.”
http://www.cbpp.org/cms/index......mp;id=3220
Supply-side economics (Reaganomics) has disproportionately benefited the wealthy at the expense of the rest of America.
Matt| 7.29.10 @ 9:06AM
So, let's just continue to implement more socialistic programs and have everyone's income go down. That makes sense.
Do you know why the "rich" make more money during good economic times? Because they continue to do those that make them rich and they position themselves to take advantage of improving markets. On the other hand, the lower rungs of the income spectrum continue to those things that keep them there. Some of that is their own fault, a lot of it is the liberal, government education system that keeps them there.
Oregonian| 7.29.10 @ 2:28PM
The Center on Budget and Policy Priorities is a liberal think tank founded in 1981 to oppose the Reagan administration policies based on Austrian school economic theories of Von Mises and Hayek, among others. Quoting them in an article about Reagan's policies is like quoting Huffington Post, or Wikipedia, or paul krugman and thomas friedman.
Skip your dose of Obama Kool Aid for a few days, and take a look at Arthur Laffer's new book: Return to Prosperity. Everything Honest Obe is doing is exactly 180 degrees out of phase with the actions needed to restore America's economy and generate private sector employment.
vtwin| 7.29.10 @ 7:58PM
Ok, here’s another sudy:
“The wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts for the wealthy…Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the '80s, '90s, and early 2000s.”
http://sociology.ucsc.edu/whor.....ealth.html
vtwin| 7.29.10 @ 7:59PM
Sorry, Here's another study.
jmulcahy1| 7.30.10 @ 5:27AM
"Newly released data from the IRS clearly debunks the conventional Beltway rhetoric that the "rich" are not paying their fair share of taxes.
Indeed, the IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.
Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.
To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.
Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation."
http://www.taxfoundation.org/blog/show/24944.html
JmsA| 7.31.10 @ 2:03PM
vitwin,
UC Santa Cruz?! Give me a break. The only thing worthwhile up there are the waves.
PS: Did you finally catch on that the Social Security and Medicare projections contained in the government "Actuarial Publications" you previously posted were arrived at through actuarial analysis; that is, statistics?
J| 7.29.10 @ 10:00PM
Out of hand dismissal without honest refutation - check.
Appeal to magic (Austrian religion) - check.
Ad hominem - check.
Ignorance of the decline in real wage - check.
"As long as someone is getting rich" - check
Yep, typical libertarian extremist.
As for Austrianism, show me the meta-analysis, empirical data and sociological efficacy. There is none; Austrianism is a set of a priori assumptions that you either ideologically accept, or don't. It doesn't provide a realistic approach to macro-econ despite getting a few things right re: the business cycle.
Oregonian| 7.30.10 @ 3:53AM
vtwin and J:
UC Santa Cruz is one of the most progressive/Marxist programs in California, a haven for left-wing academics. Sociology is the least scientific of the "social sciences", and a degree in sociology does not represent expertise in economic theory. Domhoff's reference list reads like a who's who of neo-Marxism. One of his references says it all: "The Transition from Capitalism to Socialism" by J. Stephens. Why not just quote Karl Marx - might as well go straight to the original source?
The application of Austrian supply-side principles worked three times in the 20th century to bring the American economy out of recession. The application of Keynesian demand-side principles failed in the 20th century, and again as recently as today! If you need meta-analysis and empirical data, the Heritage Foundation website will provide all the studies you need - although I suspect that you are not really interested in reading their side of the discussion. Peter Ferrerra's article is a well-written summary of the events of the Reagan years by a man with the academic credentials and government experience to back up his conclusions. I look forward to his follow-up article on what we can do to recover from Obamanomics.
J| 7.30.10 @ 1:52PM
You're right, I'm reticent to read your sources when you dismiss anything not aligning to your ideology as Marxist. That said, I've done extensive research on the Austrian school and peer-reviewed empirical studies simply do not exist. It's an axiomatic approach to econ, and nobody has ever bothered to substantiate those assumptions with empirical data.
Sociology is indeed a soft science, and yet far more empirically based than the Austrian school. Sociology shows us human trends based on empirical study. It's not uncommon for libertarians/other ideologues to attempt to dismiss this either, namely due to it poking massive holes in the narratives they accept on faith.
I believe you miss the point of Keynesian econ as well. The idea of monetary policy is to even out the ups and downs of the business cycle. So instead of massive economic booms followed by deep depressions (i.e. the 1920s and the 1930s), you get steady economic growth interrupted periodically by shallow recessions (i.e. post World War II US). Keynesian theory is not so much about creating wealth as it is about preventing the Great Depression from ever happening again.
I see you've also ignored the demonstrable drop in real wage, as well as the disproportinate increase of wealth in the top few percents. Supply side did work, but only for the richest of the rich;everyone else has seen their purchasing power dwindle. I'm sure you'll revert to type here and claim that I'm envious, but I'm actually an SMB.
Oregonian| 7.30.10 @ 4:17PM
It's interesting that someone who subscribes to the conclusions of William Dumhoff's document "Who Rules America" from the sociology department of UC Santa Cruz can call someone who disagrees a "libertarian extremist". In the interest of "peer review", I would invite other participants on this blog to follow vtwin's link to Dumhoff and form their own opinions about "extremism" and "Marxism". For my part, if it talks like a duck and walks like a duck and quacks like a duck - it's a duck!
I did not "miss the point" about Keynesian economics; the point is that it doesn't work. Keynesian policies did not pull the US out of the Great Depression; that was only accomplished by the ecomomic effect of wartime spending for America's entry in to World War II. In fact, the New Deal policies did not reduce unemployment; they delayed America's recovery from the economic crash of 1928 and turned a severe recession into a depression. And, by the way, the same Keynesian policies are threatening to do the same thing to our current recession!
I was not surprised to learn that you don't like to read articles that don't agree with your ideology - in fact, I suspect that you didn't read Peter Ferrara's piece before making comments that made no reference to his argument, but merely disparaged other bloggers.
With respect to your fixation on the "decline" in real wages as proof that supply side economics only benefit "the rich", I would refer you to The Chicago Fed Letter on trends in real wage growth in March 1997. In their analysis, they explain why claims that " real wage levels in the U.S. are stagnant or even falling" are misleading and have little to do with shifts in the distribution of income between labor and capital. Without spoiling the article for you, they make several points that affect the analysis. One is the difference between real hourly earnings and real hourly compensation (which includes fringe benefits and contributions
for social insurance programs, important parts of workers’ total compensation.) Another is the effect on the relationship between real wages and productivity of changes in the relative prices of consumer and nonconsumer
goods. Their conclusion: "once proper account
is taken of relative price change, there has been no major change in the relationship between real wages and productivity. Thus, the key to explaining the slowing real wage growth . . . really
is understanding the nation’s slowing productivity
growth."
Of course, those Chicago Fed directors are probably just libertarian extremists!
J| 7.30.10 @ 8:48PM
"
It's interesting that someone who subscribes to the conclusions of William Dumhoff's document "Who Rules America" from the sociology department of UC Santa Cruz can call someone who disagrees a "libertarian extremist".
Your first sentence is a strawman, and you expect me to take your discourse seriously? I spoke in favor of sociological reviews of ethics and you fabricate a narrative wherein I'm proven guilty by association.
I'm obviously wasting my time here. I might as well trying to explain epistemology to Objectivist.
J| 7.30.10 @ 8:49PM
Econ, not ethics.
siciliandragon| 7.29.10 @ 4:42PM
So even the incomes of the poorest 20% went up during the Reagan years (your own words). That doesn't sound like the wealthy benefited at the poor's expense. It sounds like wealth envy. Trickle down economics worked.
vtwin| 7.29.10 @ 8:08PM
Really? The poverty rate in America reached its low point of 11.1% in the late seventies and was at 13.2% by 2008.
http://www.npc.umich.edu/poverty/#2
J| 7.29.10 @ 10:18PM
The wealth never trickled down. Real wages have only declined since supply-side.
You guys are festering with confirmation bias on the level of religious zeal.
Russell Hartman| 7.30.10 @ 7:38AM
"The wealth never trickled down"
Really?
The 27 years of Reaganomics produced more domestic and global GDP than the previous 5000 of man kinds efforts COMBINED!
Oh, and trickle-down has served me quite well, but then again you have to some skin in the game to reap the rewards, seems from your comments that you missed the ride or were waiting for someone else to lead you to prosperity.
Sounds like you suffer from the tired old liberal disease of wealth-envy.
Maybe Odumma will send you a check.
J| 7.30.10 @ 1:56PM
"The 27 years of Reaganomics produced more domestic and global GDP than the previous 5000 of man kinds efforts COMBINED!"
Only for the top few percent. Everyone else has experience loss of real wage and less purchasing power.
Actually, I'm an SMB owner. Have any more demagogic platitudes for us today?
Russell Hartman| 7.30.10 @ 7:25AM
A rising tide lifts all boats.
Keynesian voo-doo crippled and nearly destroyed this nation as FDR tried to return the U.S. into the abyss of totalitarianism that our founding fathers defeated in 1776
Further, you fail basic economics, as you quote;"Reaganomics disproportionately benefited the wealthy at the expense of the rest of America"
This is pure lib-fodder as it assumes incorrectly that the economy is a zero-sum game.
Jake| 7.31.10 @ 12:25AM
Same reason you never see a picture of jimmy Carter as president....
Russell Hartman| 7.30.10 @ 7:45AM
Yes, James 100% correct
The Cloward-Piven strategy is in an all-out full court press by this regime filled with Marxists, Communists and anti-capitalist drones from the world of academia.
Odumma's crew of marxist-misfits have the lowest private sector experience rating (7%) of any admin. in history.
2 more years of this insanity will no doubt cause almost irrepairable damage to this Republic.
Bill Hussein O'Stalin| 7.28.10 @ 7:30AM
One issue your article does not address is risk, because the greatest rewards come with the greatest risk. Risk is a financial concept, not a gambling concept.
As the Obama administration has hatched their series of idiotic plans their greatest strategy has been to eliminate risk. From health care to financial regulations, all risk is being milked out of the financial systems.
There are two types of risk. Calculated risk as in an investment and risk associated with gambling which is what happened with mortgage derivatives.
Since Goldman Sachs and other major players could play both sides of the risk without letting the suckers know, Goldman Sachs and investors like baby killer Warren Buffet made billions while the suckers and the public lost.
The final result of the Obama administration and their attack on risk will be further economic damage and that is already happening.
While the public clamors for credit, large financial institutions sit on trillions in cash, afraid to take the risk.
Very soon, perhaps as early as next February the effects of all this central economic planning will begin to take on a life of it's own.
I don't think even the extension of the Bush tax cuts will slow it down at that point. It will lead to some frightening times in the U.S.A.
R Martin| 7.28.10 @ 9:14AM
This poster does not explain how legitimate hedging of mortgage securities somehow becomes gambling. Is a company who hedges its foreign exchange exposure gambling? Is a farmer hedging his future harvest gambling? What about an airline hedging its fuel costs? Financial instruments did not cause the economic disaster we are in; leftist government policy mandating mortgage credit to unqualified borrowers did that.
There's a lot of nonsense here. If the poster believes "Goldman Sachs and other major players" were gambling with mortgage derivatives, why does he think they should show their hands to the "suckers"? Would Mr. Hussein O'Stalin do that in a poker game?
However, I must give Mr. Bill full marks for using the words "Obama" and "idiotic plans" the same sentence.
R Martin| 7.28.10 @ 9:23AM
Forgot to mention that I bought Mr. Domitrovic's book after hearing him speak on C-SPAN. The book is highly recommended as is its publisher, the Intercollegiate Studies Institute, here in Wilmington.
Bill Hussein O'Stalin| 7.28.10 @ 9:53AM
It's really quite simple. There are two types of gambling wagers. There is an outright wager based on chance. Then there are those wagers where the game is fixed, so risk is is eliminated for the game controllers, and that risk is loaded onto the sucker class which is precisely what happened in the mortgage derivatives handled by financial firms like Goldman Sachs.
In the meantime, players like Goldman Sachs were purchasing low income housing credits which allowed them to write off profits from the sucker game going on in derivatives.
Google it. It's all over the internet.
The most galling part of this entire incident is that fraudelent firms like AIG received billions in payouts, some of which were passed through to Goldman Sachs. This was criminal conduct which is still being investigated.
Here's just one synopsis:
The SEC suit showed that Goldman had defrauded investors in its CDO
called ABACUS 2007-AC1 by about a billion dollars, by falsely telling
them that the mortgage collateral in that fund had been selected by an
"independent, objective third party," when in fact, it had been
selected by Goldman's client John Paulson as most likely to collapse
immediately, because Paulson bought credit default swaps from Goldman
which paid him when the fund collapsed. In the event, the investors
lost $1 billion, which Goldman then passed through to Paulson after
taking its cut.
http://groups.google.mw/group/.....2ad34060e0
Another source:
Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among 10 banks Massachusetts is targeting in a probe of trading of municipal credit default swaps, according to the office of Secretary of State William Galvin.
The state’s securities division sent letters today to 10 underwriters of municipal bonds, asking them to detail their trading of credit-default swaps linked to state and local government bonds they’ve underwritten in Massachusetts since 2003. Recipients have until May 28 to respond. The letter asked each bank to “identify the entity that purchased CDS from your firm for each Massachusetts state or municipal bond offering.”
The other banks are: Morgan Stanley, Citigroup Inc., Deutsche Bank AG, Wells Fargo & Co., Barclays Plc, UBS AG, and both Merrill Lynch and its parent, Bank of America Corp., according to Michael Maresco, assistant secretary of state.
http://www.businessweek.com/ne.....ate2-.html
Bill Hussein O'Stalin| 7.28.10 @ 9:59AM
By the way, you really can't be that silly. You ask why would they show their hands to the suckers? Are you kidding? You sound like a sucker with a question like that. The investors were suckers precisely because Goldman Sachs knew the investments were shaky and the public, who knew none of this, was left holding the bag. Seriously, you're really not that stupid, are you?
R Martin| 7.28.10 @ 10:33AM
I may be too stupid to know the bounds of my stupidity, but I'm smart enough to know you are pumping bilgewater and are dead wrong in your allegations of fraud. To suggest that the multi trillion dollar derivatives market was rigged by a handful of firms, and everyone else who participated was a clueless "sucker" is itself fraudulent...and a rather tired cliche.
Ryan| 7.28.10 @ 11:51AM
I get your point here. If Goldman was holding information from its investors that the derivatives were going to fail, then, yes, it was fraud. That disclosure needed to be made.
I'm not so sure they cared much. The mantra "Privatize the profits, socialize the risk" fits here. Goldman was simply leaving the American people holding the bag with these things.
Bill Hussein O'Stalin| 7.28.10 @ 12:21PM
By the way, if anyone thinks the game isn't rigged look at the new financial regulations just signed into law by Obama. A provision in the bill allows the SEC to avoid releasing information under the FOIA. The SEC no longer has to release that information and that information prior to the new law was an important avenue for business reporters to get information about fraud. Now the public will be kept in the dark.
Personally, I wouldn't invest in any stocks right now.
Margie| 7.28.10 @ 6:38PM
And this from the most transparent administration in history!
Purpleguy| 7.28.10 @ 9:32PM
That was a Republican Amendment ...
Streetfighter| 7.29.10 @ 10:47PM
Where do you get this information? Who put what in the bill.
Bill Hussein O'Stalin| 7.28.10 @ 11:58AM
I guess all those state AG's filing suit are idiots and somehow you are smarter then all of them. Sheeesh!
DatsunMark| 7.28.10 @ 11:59AM
Regarding the posts above by O'Stalin and R. Martin...Mr R Martin, do you think the market was well served by Moodys and other credit rating services that gave AAA ratings to the Credit Default Swaps and other mortgage securities? If these securities (which were traded and used as collateral for bank loans) were honestly rated at their true risk do you think much of the disaster would have been mitigated? This is where the conspiracy starts if anyone is interested.
Rick R| 7.28.10 @ 3:25PM
It becomes gambling when the derivative "securities" are not constrained by the value of the underlying assets. When you gamble on the roll of a die the amount wagered bears no relationship to the value of the die.
carnot| 7.28.10 @ 5:00PM
I'm with you for the most part. that said...we know much of the derivative wrapping was entirely speculative and had nothing to do with hedging/insurance. the key thought is that political machinations at the root enabled the crooks further upstream....
Deborah D| 7.28.10 @ 7:50AM
For the life of me, I cannot understand why Bush abandoned Reagan policies. I truly do not understand why politicians cavalierly mess with economics when they don't have a clue what monster they are creating for their children and their children's children. Oh, I forgot, they think they know everything and that we're the idiots.
Wake up, Republicans, the future is ominous -- this isn't a game. This is the country we're trying to save from those who would destroy it.
Dan Hirsch| 7.28.10 @ 9:00AM
Deborah;
Remember Bush's "Compassionate Conservatism?" That was GW's effort to win favor with the liberal media. He like most Republicans thought (thinks still?) that Democrats and liberals want the best for the country. Obama's complete disregard of the the lessons outlined by Mr. Ferrara above show that they know better and that this is what they want.
Question is is this what America wants? We'd better show them our answer in November.
Nolite me conculcare!
Deborah D| 7.28.10 @ 9:28AM
Yeah, Dan, you're correct. As soon as I hit the "submit" key the words "compassionate conservative" appeared in my brain. Bush was/is a good man, but he believed the liberal hype as you said. Can Republicans finally tell themselves the truth? Liberals = liars, and they'll never stop. You give them an inch and they take the country. It's never enough for these people.
Alan Brooks| 7.28.10 @ 7:09PM
"Remember Bush's 'Compassionate Conservatism'? "?
Compassion is not conservative, it is religious. But Bush couldn't promote Compassionate Religiosity in public, it would have looked bad in the newspapers.
I don't 'believe' in social progress anymore, but how informative it would be to read that which is not boilerplate.
Dan Hirsch| 7.28.10 @ 10:54PM
Alan;
You are so lost. Compassion is a simple human emotion. He was trying to disarm the argument that making people perform to other's expectations was mean and nasty. Your contention that compassion is a religious value is both erroneous and misleading. Are you suggesting that you really don't believe in "social progress" anymore? That would be a good thing, because a conservative knows that people don't get better, they just try harder to be better....
Ryan| 7.28.10 @ 9:08AM
We know that George HW Bush - who was an establishment pick - never held much for supply-side economics. A large portion of the 1986 tax cuts (AND restructuring/simplification, don't forget - a ton of tax loopholes were kicked out) was begun around that time as well.
Indiana Alex| 7.28.10 @ 9:28AM
"Trickle Down" economics got a miserable wrap because of HW. He completely reversed supply side, not only with the Budget Reconciliation Act, which increased taxes to reduce the budget deficit (oops, didn't work), but also the Americans with Disabilites Act, and some other regulation that slips my mind where government's good graces are brought upon the American people through madates on businesses.
The results were disasterous, and Clinton was able to suggest this was all because of 12 years of "trickle down" economics. Since people really don't pay attention to these things, it stuck.
Clinton then continued on the policies of HW, lost congress in 1994, and pivoted to the right to save his political skin.
I'm not sure whether we are fortunate or not, but there's no way this moron will pivot at all. He's not a true politition, rather a true believer in the benvolence of government.
Alan Brooks| 7.28.10 @ 7:12PM
"but also the Americans with Disabilites Act"
The 'Make It Hard For Bus Drivers' Act.
Dan Hirsch| 7.28.10 @ 10:59PM
Alan: Why do you write the obtuse, confusing, counterproductive things you do?
Is it that you are an unrepentant communist or useful idiot?
Sometimes I think I see a glimmer of understanding in your writings, then, sadly you dash my hopes with hopeless, meaningless inanities.
Take a moment, think about things, strive to find some meaning that isn't template driven. You are clearly intelligent - maybe you can find somethings that will illuminate the world for us all.
Alan Brooks| 7.28.10 @ 7:14PM
"Bush was/is a good man"
So was Jimmuh.
Deborah D| 7.29.10 @ 6:59AM
"So was Jimmuh" -- that is highly debatable. If Jimmuh would have stuck with Habitat for Humanity, I might have agreed with you. But, his "poll watching" in Venezuela produced a victory for Chavez where there was none, and the people of that country have suffered ever since. Carter is just as big a leftist as Obama. He just has a southern accent.
Eric Cartman| 7.28.10 @ 9:26AM
Mornin' Deborah. This is why we should NEVER vote for another Bush family member again - not even the dog! No "Best in Show" for Barney. The mutt would probably flood the U.S. with Chihuahuas! "Oh, they're just pooping where Americans dogs won't poop" or some such nonsense.
Remember, George the First threw Reaganomics under the bus faster than you can say Voodoo Economics. Then his son - after telling us how conservative he was - hung around Teddy "Gin Nose" Kennedy and said "Hey, Teddy! Wanna design education? And why don't you write immigration law while you're at it! Hell, I'll just sit by and let you guys run me and conservatism into the ground! Me and Rove will say nothin'. Have another scotch?" Never again with the Bush Family. They are incompetent Liberals calling themselves Compassionate Conservatives - what ever the hell that is - inferring that the rest of conservatism isn't compassionate because we view wasteful programs and open borders as the death of this great country. Screw 'em! Never again.
PJ| 7.28.10 @ 9:48AM
I'm glad you mentioned George I & how he screwed this country! ----"Read my lips, no new taxes!" It's a shame #43 couldn't be Jeb; I think he's the closest person to conservatism in that family. But we'll never know whether he will make a good president. I, you, & hopefully the rest of this country is Bush-tired, Bush-bored, & Bush-weary. No more Bushes!
RJ| 7.31.10 @ 2:40PM
Conservatives aren't compassionate because your brains don't work that way. You value authority for the sake of authority, personal fact over objective reality, fear even objectively good change, and value in-group affirmation over helping others. This has been proven by neuroscience, which I'm sure you're about to dismiss, further proving the point.
Note that I'm not picking on conservatives here (although many of you sounds closer to Republicans). This simply highlights why we need both type of thinkers in govt.
Nunya| 7.28.10 @ 11:58AM
Deborah,
The Bush family are all progressives, believing in big government and the "New World Order"--one world government. Why do you think that the Bush's and Clintons are so close? Their politics are the same, regardless of the party they supposedly represent. Obeyme is just the next step to collapsing the US economy. This is not by accident, it's by design.
Alan Brooks| 7.28.10 @ 3:47PM
Going by the past, the GOP will run another Bush-type in '12.
Deborah D| 7.28.10 @ 4:06PM
I hope you're wrong, Alan. If they aren't awake by 2012, our country is in for a world of hurt.
siciliandragon| 7.29.10 @ 5:19PM
Unfortunately, you are probably right on this one. McCain getting the nod last time made no sense to me. I attended the local Republican Caucus in Kansas and there was very little support for McCain. I do not know a single person that supported him in the primaries, yet, somhow, he won. There is something fishy with the national party and their leadership.
Jim O'Brien| 7.28.10 @ 8:49AM
Obama and other socialists and collectivists are attempting to defy gravity. They have learned absolutely nothing from the collapse of the USSR. In fact, Obama is working toward imitating the USSR. He and his fellow travelers cannot accept the fact that the United States is a great, exceptional nation due to free enterprise. They cannot accept the fact that capitalism and freedom go together: that there can be no freedom without private property rights, and the Bill of Rights in general. Milton Friedman's book, Capitalism & Freedom, is still highly relevant. Which reminds me: one day Friedman appeared as the "substitute teacher" in my economics class. We were thrilled, but today's students probably don't even know who he is or what he taught. We need to dismantle the public school system, and make it all private.
Anthony| 7.28.10 @ 9:28AM
Peter, Thanks for the refresher course, it's good to have these facts at our disposal. That said, your exercise in factual discourse will fall on deaf ears with the Left because they don't believe in prosperity earned from the hands of ordinary citizens, free of government involvment.
The Left has sunk America to new lows, in which only government has solutions. The private sector is an anathema to Leftists who see "social justice" flowing down from an all powerful federal bureaucracy.
Redistribution does not flow from free market principles, hence, the Left could care less about the lessons of the free market. This is all about American Socialism brought to you by Obama and the Democrat Leftists in Congress.
I can see November from my house!!!! It's November or Bust, folks!!!!!
JayDick| 7.28.10 @ 9:42AM
There's very little discussion here of the role of government spending, beyond the idea that Keynesian spending doesn't work. It also seems to me that restraint/reduction in government spending has positive effects on economic growth. The 90s boom was caused, in part, by the Republican congress restraining government spending. And, wasn't spending also restrained in the 20s?
Indiana Alex| 7.28.10 @ 11:39AM
You are absolutely correct about the role of government spending. This can be tracked from the roaring 20's, where gov't spending was slashed big time (always as a share of GDP people) to the Depression where it rose big time.
It should not cause wonder that the Obama Administration has to make up its own statistics in order to show any success at all.
LC| 7.28.10 @ 3:46PM
Please note that the majority of FEDERAL SPENDING (caps intentional) is on SS/Medicare/Medicaid, with built-in COLAs. Until we reform or dissolve these programs, we'll have dollars chasing dimes.
JP| 7.28.10 @ 9:48AM
The party is over folks. Even if there was some kind of reset button we could hit, the "good times" are over. President Obama justs exasperates matters. His efforts to complete the Progressive Dream will make things much difficult to fix. And he and his latter day fascists will find out how difficult it is to control the masses when the government is flat broke.
Our problem and the problem of almost all other G20 nations is demographics. About 85% of the world's wealth is tied up in nation's with rapidly aging populations. In the US alone, federal obligations to Medicare and Medicaid will exceed $2 trillion per year by 2015. And all of those retirement accounts, IRAs, pensions, and deferred annuities (which represent over $15 trillion in assets) will be exhausted as BabyBoomers retire to thier gated communities in droves these next 10 years. And don't think these pampered Boomers will do like thier own grand parents and retire to their rockers and play checkers. As PJ O'Rourke recently quipped, Baby Boomers will spend thier retirement bunging jumping off cliffs, scaling up the world's tallest peaks, going on eco-safaris and a host of other entertainments. And hip replacements are costly. The Boomers will consume thier assets and let their last check bounce.
To afford the kind of entitlements our nation is accustomed to we need a constant source of young, skilled, motivated, and well educated workers. In 1879, the year Bismarck mandated the first Social Security program, German fertility rates were almost 6 children/female. When FDR insituted Social Security in 1937, US fertility rates were around 3 /female. But, there was a glut of younger workers paying in compared to retirees drawing out (about a 40-1 ratio). Today, that ratio is barely 2-1, and is plunging lower. Essientially, it one worker will be paying for one retiree. That is unsustainable.
So many skilled blue collar and white collar jobs have disappeared (the Labor Dept says over half the jobs lost since 2008 are not coming back), that unemployment will remain fixed between 8 and 12% for the forseeable future.
A conservative Congress can fix some of these problems (such as massive entitlement reform. Easy to say, difficult to do). But there is no way we can avoid suffering a drop in our over-all standard of living - not in the short term. The amount of income redistrubtion is just too great (about 25% for Medicare and SS alone -even before ObamaCare is factored in).
This means Americans will have to make difficult choices. No longer will we be able to just send our parents to retirement centers. Couples will have to bear more children and defer gratification. Divorce and single parenthood will have to end (in the near future there will not be the generous hand-outs and subsidized housing for single mothers and thier brood). This will certainly put the damper on teenage fornication. If Jimmy gets Susie pregneant, Jimmy will have to put off his dreams of college and his evenings witht his Xbox and get a job (that is, if he can find one).
The West has had a great ride (1983-2007). But we also have lived in a dream world. Reality is finally setting in. President Obama and his party have not yet realized this. They will continue to play thier games to the bitter end. Once they're gone we can finally begin to rebuild our society -both financially and morally.
Tim| 7.28.10 @ 12:21PM
JP, I think you are a bit too pessimistic. We indeed struggle with demographics, and our inability to forecast them over the long run is the exact reason why the pay-as-you-go funding of Social Security and Medicare is a societal evil that must be reformed. With a current $100 trillion+ unfunded liability for these programs, we must find a way to stabilize their funding mechanisms. However, in an economy that produces over $14 trillion of GDP annually, I am confident we can find an answer to this issue if we address it properly. Perhaps that is politically difficult, but there should be a way for the wonks to design a plan that shifts the funding from PAYG to forward funding without killing either earned benefits or economic growth.
One excellent point you implicitly make is something the Left never recognizes: not all cultures are created equal. Culture is not an arbitrary decision made by a civilization. It naturally flows from a number of factors, one of the most important being economics. American culture is unique in that it has been shaped by only two primary values: Christianity and economics. I believe that as Christianity continues to lose its impact on American culture, we will see a commensurate decrease in our economic strength. The reason why is that a capitalist society requires a moral people. When people relativize morality, the goodwill that lubricates free markets will dry up. The result is a view of current quarter profitability as more important than the long-term benefits of fair play and planning. This leads to the idea that it is OK to consume today and to let our children and grandchildren (and theirs) pay for our gluttony. In the end, however, culture can't fool economics. Nonetheless, there is still time to right these wrongs in large part if we reclaim the time-tested principles that made the US the most powerful nation on earth and use them to govern our nation consistently into the future. That may perhaps be wishful thinking, but I believe this is the desire of the vast majority of Americans, many of who simply fail to understand the danger of the belief that prosperity comes from government rather the efforts of ordinary citizens.
Nunya| 7.28.10 @ 12:39PM
Tim,
While JP's analysis of the situation is indeed dire, I do think that you are engaged in "wishful thinking" as you stated. We are in a situation where the vast majority of the citizens have no clue as to what is happening in Washington, much less a fundamental understanding of simple economics. With the idiots in power and the befuddled masses voting them in, we are destined for a very bleak future. It's not that "the vast majority of Americans....fail to understand the danger of the believ that prosperity comes from government..." as you state, it's that they are completely oblivious to what creates prosperity. The vast majority of Americans can tell you who won the latest American Idol, but couldn't begin to tell you what's guaranteed in the Bill of Rights , or who the Secretary of State is. Our children are not taught how to think critically, how our country was founded, what makes us great, basic economics, etc. I don't believe that is an accident, I believe it's done on purpose.
While there may be hope for the future, I believe that we as a country are going to go through an extremely difficult time before it gets better. I only hope that we can get through it without the shedding of blood.
Siegfried X| 7.28.10 @ 9:49AM
Yes, supply-side is a proven winner. As was the entire Reagan administration. Yet, establishment Republicans have totally rejected it. They won't even call themselves "Reagan Republicans" any more.
Whenever someone brings up Reagan, the RINO establishment says "Demographics have changed". Which doesn't make much sense considering that President Reagan won among most segments of the American population.
The reality is that the Republican establishment doesn't want Reaganism. So they carry on without any principles and positive approach at all, a party without a platform, and one which is vulnerable to attacks of being the "Party of No".
JP| 7.28.10 @ 9:53AM
The RINOs are in fact Democrats. Most RINOS have very little problem with progressive politics and programs. And I would go as far as to say most Republicans have little problem with ObamaCare. Just wait and see how many of them will vote to keep ObamaCare in some way shape or form. I would say there are less than a dozen senators, and perhaps just 50 or so House Republicans who will attempt to repeal ObamaCare if the GOP does take back Congress.
Petronius| 7.28.10 @ 10:00AM
Reviewing government screw-ups is pointless. The people who live in this country are ECONOMICALLY ILLITERATE. So long as their beliefs on this subject consist of 3 words, have, get, and benefit, we will never gain any ground on them. To them, capitalism is a free for all where they lose because their betters "Take" more than "Their share". They only understand the sandbox they have never outgrown and never will. And it's senseless to argue with them. The appeal of socialism is it's grounding in childish sentiments of "Fairness" and "the Common Good".
Anybody who thinks for one minute that proving the detrimental effects of over taxation on their lives will score points against raw emotion might as well try herding cats.
Bill Hussein O'Stalin| 7.28.10 @ 12:30PM
Yes, that is the problem. Too many looters and not enough creators.
LC| 7.28.10 @ 3:52PM
In Atlas Shrugged, Rand defines the classes as: Looters (politicians), Moochers (tax drains), and Producers (tax payers). Neil Boortz currently uses the same terms. They are both absolutely correct.
RJ| 7.31.10 @ 5:26PM
The only absolute here is that epistemic a priorism is absolutely inadequate means of deriving sound knowledge. Probably why Randians hold to their selfish worldview with such religious fervor.
DonDuke| 7.28.10 @ 10:05AM
Thank you Mr. Ferrara for this excellent primer on supply-side econ. I think the last official in our federal government that subscribed to this was Reagan. It seems everyday there is a new issue that causes me to regret that Ron Reagan is no longer with us.
Siegfried X| 7.28.10 @ 10:26AM
There is also proof that the prosperity theme works in the 21st Century: the "Prosperity Gospel".
This is the hottest thing in worldwide Christianity. It is immensely popular in the "Global South" = Latin America, Asia, and Africa. (Immigrants from some of these areas were exactly who John McCain was targeting with his foolish "amnesty" idea.)
These are areas of the world which Christianity doesn't control, but are hotly contested with Islam and native religions. And the Prosperity Gospel (PG) is helping Christianity win.
The simplest and best form of the PG is that God can help people clean up their lives, eliminating addictions to alcohol, drugs, and criminal gangs, so that they can get a decent job and make money. And they can do this on their own, without depending on handouts from a government.
The point for politics is that supply-side would work with the same group. Supply-side is not a rich man's approach. Everyone liked it with President Reagan, and they would now, if the Republican Party gave it a chance.
Ryan| 7.28.10 @ 11:55AM
Ugh, that's not a good description of the Prosperity Gospel.
It promises wealth and happiness for simply being a Christian, without the work and effort.
I would daresay it's the worst thing for those areas, as its failure would lead to massive dissillusionment with such a false Gospel.
Were the true one preached, it would allow people to persist despite their circumstances.
Siegfried X| 7.28.10 @ 12:16PM
The Christian "work ethic" was a big part in making the Western World what it is today. It's what the American Dream is based on.
We are merely sharing the same Christian principles which made us rich nations.
Siegfried X| 7.28.10 @ 12:18PM
God helps those who help themselves
-- Benjamin Franklin
Ryan| 7.28.10 @ 1:00PM
Notice the lack of scripture reference.
I'm not completely in disagreement here, but there are plenty of times in scripture that contradict the statement. It's not necessarily true.
In fact, the Gospel is God helping us when we COULDN'T help ourselves.
Siegfried X| 7.28.10 @ 1:12PM
Where does the Bible say to give up? With God all things are possible.
It would be sinful for a Christian to pray and ask for something without doing everything in his power to make that happen. It would be treating God like a genie.
The Bible is loaded with stories of people doing things, after receiving God's power and blessing: Samson, the 12 Disciples, Paul, Stephen the Martyr... Paul spoke several times about how he suffered and struggled, yet kept going and accomplished things. He had to struggle with every ounce of his strength.
Ryan| 7.28.10 @ 2:24PM
I'm not disagreeing with you, and I never said "give up"; what I am saying is that we are utterly incapable of saving ourselves - that was the point of the Cross (aka total depravity).
When it comes to salvation, I guess saying we have to "give up" is spot on - any good we do cannot cover our sin.
Paul is pretty explicit in the need for Christian activity; however, you made the point that it occurs AFTER we receive Christ, not before. He is the one that makes us capable to do good. Otherwise, we are incapable and/or it's all for naught.
J| 7.31.10 @ 2:58PM
Enlightenment philosophy had a lot more to do with it.
Ryan| 7.28.10 @ 1:01PM
That work ethic was based around the matter that it was considered a Christian duty to do the work that God had given us. It's not about a Prosperity Gospel, word-faith proclamations or anything of that sort.
Adam himself had a job as a gardener.
JimH| 7.28.10 @ 1:13PM
One notable thing about the Judeo-Christian outlook is the lack of fatalism that exists in Islam and other Eastern faiths. At least for those that do not believe in pre-destination.
Ryan| 7.28.10 @ 2:20PM
Even predestination beliefs - such as mine and many Christians, to some point - aren't necessarily fatalistic - a common misconception by non-Calvinists. I don't know that I've ever run into a Calvinist who simply believes they can do whatever they want and it won't matter; nor have I met anyone who is a Calvinist and believes they're condemned.
Steve from Arizona| 7.28.10 @ 11:45AM
I would like to mention that, in my humble view, our government (the US) has significantly damaged the American economy because of poor management of global trade. They have not stood behind the American manufacturer. Here are my thoughts... First, our government (under Bush and Obama) has been too timid with the Chinese regarding the true value of the Renminbi on the global market. Chinese has kept the Renminbi artificially low in value. This causes American produced goods to be too expensive and Chinese goods to be too cheap wiping out American manufacturers over time. Second, our government has allowed cheap Chinese goods to flood the market even though the Chinese offers little comparable worker safety, product liability to consumers, or environmental protection that our manufacturers are subject to. This also does not promote American competitiveness and destroys American manufacturing jobs due to unfair cost in the manufacture of goods. Third, countries like China and India subsidize their home grown businesses both in infrastructure and taxes. Our approach to American business is actually the opposite. We have a high tax rate and offer little subsidies to home-grown business to make them globally competitive. Lastly, our government's "consumerism" policies does not promote the incentive to save but instead provides the incentive to spend - especially on consumer goods (cars, TV's, etc.). This does not create home-grown capital to be spread around for business growth. Instead capital is being imported. Much of this imported capital is actually the recycled profits from purchases of Chinese goods made by US consumers. This in effect also keeps the value of the Renminbi low. Our government (politicians) allows this because it keeps the cost of goods artificially cheap (keeping inflation low) AND creates an illusion of wealth and prosperity. In my humble view, we are now witnessing the piper being paid. Thank you.
Ryan| 7.28.10 @ 11:56AM
I'm not so sure any sort of currency valuation would conquer the inability for us to match the labor and manufacturing costs of the third world.
Steve from Arizona| 7.28.10 @ 12:16PM
Mostly, I agree, however... in my humble view, there is a "value add" price most consumers will pay for perceived quality or perceived value of non-commodity goods. Purchases of commodity goods will continue to be driven by price but cars, motorcycles, computers, high end consumer electronics (HDTV, 3D TV, etc.), robots, software, ships, boats, etc. can sustain a 15% to 20% or so increase in cost if the consumer perceives they are getting something in return (green products, product protection, peace of mind, etc.). Government policies can help level the playing field so that American manufactures sell most products that fall within that "value add" margin. Thank you for your comment.
Ryan| 7.28.10 @ 1:06PM
It's not universal to all products, however. I don't know that we can pretend to make much in the way of disposable mass-market goods here anymore. If it wasn't the Chinese, it would be someone else. Poorer people, or guys like me simply trying to pinch a penny here and there can take that sacrifice in quality and need the goods cheaply made.
It's actually a boon to the middle-class consumer for such goods. Limited trade also hurts the third world extensively - if they cannot compete because of protectionism by other countries, then they starve more easily, and remain more easily dysfunctional.
First-world nations need to concentrate what they're good at - innovation, high-market goods, that sort of thing. We don't need to waste resources and manpower and government protection and regulation on creating false markets.
Siegfried X| 7.28.10 @ 12:03PM
Absolutely true, and some libertarians were a big part of the problem! It is those who incorrectly assume that no governmental action always leads to a free market. That is not the case when other countries like China are cheating. A rigged market is not a free market.
This is one reason why I am a conservative and not a libertarian. There are times when governments can help create free markets. Referees and rules make sporting events more open and free contests, giving accurate results, and the government as a referee can often do the same thing in business markets.
JimH| 7.28.10 @ 2:11PM
Libertarian and Anarchist are not necessarily synonymous. A Libertarian looks to have non-state non-compulsive solutions wherever possible. But will admit to an irreducible minimum that must be done by the government. The point of contention is where the line is drawn.
Siegfried X| 7.28.10 @ 2:49PM
Yes, I didn't mean to smear all libertarians.
RCV| 7.28.10 @ 12:19PM
Please, Mr. Ferrara, don't be so transparently deceptive: "President Roosevelt tried to restore prosperity with soaring Keynesian government spending and deficits, which failed miserably as the Depression dragged on for over 10 years. By 1933, unemployment was at 25%, and GDP was down 57% nominally, 22% in real terms."
President Roosevelt didn't take office until 1933, so it's kind of hard to blame the '33 unemployment numbers and GDP on his "Keynesian economic policies". In fact, Roosevelt's stimulation of the economy by infusion of money into a capital-starved nation began to show real immediate benefits, until concern over deficits took priority over economic stimulation, and cut short the recovery.
Tim| 7.28.10 @ 12:57PM
You're right - Ferrara was off target to blame the 1933 results on FDR. Nevertheless, his point was on target. During the 1930s, unemployment never dropped below the 14.3% in 1937, and it bounced back up to 19.0% in 1938. This hardly makes a strong case for the Keynesian approach. GDP did improve substantially between 1933 and 1940, but at the cost of the national debt nearly doubling from $23 billion to $43 billion. This stands in stark contrast to the recovery from the 1919-1921 recession in which real GDP dropped 3% over a two-year period and then the roaring 20s ensued. What was the GOP prescription that led to this amazing recovery? Tax cuts and massive reductions in government spending!
hank rearden| 7.28.10 @ 12:27PM
The national debt went from under $ 1 trillon in 1980 to $ 3 trillon in 1990 to $ 5.5 trillon in 2000 to around $ 12 trillon when George W. Bush left office. Isn't an alternative rationale simply that we primed the pump with debt for a quarter century?
JP| 7.28.10 @ 1:52PM
The defecit in Jan 2009 was $10 trillion. You've mistakenly or otherwise given $2 trillion of Obama's debt to Bush. As a matter of fact, Obama's defecits during his first 18 months equals Bush's over 8 years. And I might further add, The Dems controlled the purse strings from 2007 onward, and the Dems ran the Senate from 2001-2003.
hank rearden| 7.28.10 @ 2:09PM
I wasn't making a partisan comment but hoping for an answer to my question. FYI, the budget year ends in September, not January, so any deficits between these months could be attributed to Bush. I also don't believe that Bush submitted a balanced budget during the years in question.
Come on, can't we at least agree there is blame on both sides of the aisle.
Louis Jenkins| 7.28.10 @ 1:20PM
News:
It was just reported that the Arizona Judge has issued an injuction withholding the Arizona Law Enforcement personnel from checking into the imigration status of people they have detained. The Arizona law maybe kaput.
RCV| 7.28.10 @ 4:26PM
No surprise. The law was patently unconstitutional.
Albert| 7.29.10 @ 7:15PM
Absurd. State law that buttresses Federal law is not "unconstitutional," patently or otherwise. It is a violation of federal law for foreign nationals to be in the USA unless they enter through federally prescribed procedures. It is FEDERAL law that mandates law enforcement checks for immigration status and mandates that legal foreign nationals carry proper documentation at all times. Why should illegals be exempted from compliance with federal law? Because the result will be their deportation? This is results oriented legal interpretation and is illegitimate, as is Susan Bolton, who should be impeached and removed from office for blatently politicizing her court.
RCV| 7.29.10 @ 9:12PM
Bolton is no liberal nor Democrat. She was sponsored for her seat by Arizona's conservative Republican Senator, Jon Kyl.
Clinton nee Publius| 7.28.10 @ 2:25PM
This article points to a larger truth - taxation has no power for good, only the potential for varying degrees of mischief. One of the constants of supply-side economics is the rising deficits that contribute to the national debt and for which supply-side economics has no solution.
The reason there is no solution is demonstrated in the history of democracies: they all fail because liberal-progressives are always willing to vote themselves ever greater gifts from the treasury until the country is bankrupted. These people don't "contribute" to our economic societies, these people are part of the parasites that cause the death of all economic societies.
The issue is the way we structure our economy and pay for government. THE GREATEST CHALLENGE WE FACE IS THE FACT THAT OUR GOVERNMENT WILL ALWAYS SPEND MORE MONEY THAN IT RECEIVES UNTIL WE ARE BANKRUPTED BY THE GOVERNMENT. Taxation can't change this because taxation is stealing and that means it is a limited activity.
I guess I am saying that it doesn't matter if you are a supporter of Keynes, the supply-siders or monetarists - all of them are varying degrees of the same outcome; we go bankrupt. Lovellian Economics offers the only alternative where the outcome is the exact opposite - we are forced to grow and our debt is automatically paid off a it is due and without us suffering to make this happen. I think that is the issue and the author (who I respect greatly) is advocating solace and not a solution. Maybe I am splitting hairs, but who cares whether you smoke a filtered cigarette or an unfiltered one? Both are going to kill you.
Ken (Old Texican)| 7.28.10 @ 3:02PM
Clinton pubichair,
I smoke a pipe. Life itself is going to kill us all. capice?
I have finally accepted that I will probably die of "lead poisoning" or disappear into a gulag somewhere.
If and when I do go silent here.....go pro-active and shoot a few communist bosses before they get you and yours.
God bless
David T.| 7.28.10 @ 4:00PM
I would have thought Mr. Ferrara at least would have mentioned Bush's tax cuts in 2001 and 2003. The economy was in fairly good shape, despite high government spending, for about the first 5-6 years of Bush's presidency.
DKO| 7.28.10 @ 9:55PM
I plan to read this book ASAP. But does it address something not mentioned in the article or the comments: The fact that roughly the last half of the 1982-2007 boom (the Clinton-Bush half) was built in part on two unsustainable bubbles, in tech and in housing? The size of this boom is grossly overstated if these two bubbles are left out of the accounting. I don't think this undermines the supply-side arguments, but it does make the "1982-2007 boom" talk sound a bit like cheerleading rather than analysis. To this extent, I agree with Hank Rearden's earlier post asking whether part of this long "boom" was simply an artifact of loose credit.
Marc Jeric| 7.29.10 @ 2:03AM
I laugh when hearing our socialist and communists demeaning the trickle-down economics. Like there is another one - you know, when a poor man gives you a well-paying job. There is only one kind of economics - and that is the trickle-down one. even when the government gives you a job, it is trickle-down.
mannfm11| 7.29.10 @ 4:40AM
There is a miss on the first page, so I didn't even read the other pages. The lie is told over and over again the Fed did nothing to support the money supply. There are 2 money supplies in balance sheet finance, the one banks owe each other and the one in the accounts of the people. The whole thing is a set of liabilities, not assets. Expansion of money in banking is 100% debt and expanded debt leads to depressions. This is not taught in schools of economics because it is the manner in which the elite milk the masses of their labor and their property. Expanding it leads to a level of debt that cannot be serviced. Probably the last legitimate thing the Fed did in its roughly 100 year life was liquidate the excess in 1919. The Fed was a creation of bankers who knew it would allow them to expand their capacity to create debt exponentially and the capacity of the government to issue debt and covertly steal from the private sector.
mannfm11| 7.29.10 @ 4:51AM
“In the real world banks extend credit, creating deposits in the process, and look for the reserves later” ((Moore 1979, p. 539) citing (Holmes 1969, p. 73); see also more recently (Disyatat 2010, “loans drive deposits rather than the other way around”, p. 7)).
http://www.debtdeflation.com/b.....we-it-yet/
http://www.debtdeflation.com/b.....behind-us/
lonestarm| 7.31.10 @ 5:39PM
The irony is that John Maynard Keynes himself understood the long term effects of the policies he helped market as economics. The real core of his being was socialism. He was a socialist activist in England before he was an economist.
His response to the challange, "but in the long run your policies always fail" was answered by, "..in the long run we are all dead."
Translated from Keynesian into plain english, "Who cares: It was intended as a rationalization for socialist spending, and was never really intended to expand the economy."
Similarily, Obama knows that his policies reduce revenues. That doesn't matter. Destroying private wealth is the key to reducing the people to serfdom. For him it is worth it.