Great Depression

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Great Depression and Current Recession Compared

October 9, 2009 in Economics by Greg | 1 comment

Earlier this week, Robert Higgs, Senior Fellow in Political Economy at The Independent Institute, spoke about the similarities and differences between the Great Depression and the current recession at the Economic Liberty lecture series. Although he finds considerable differences between the two events, he feels there are only a few similarities between the Great Depression and the current recession.

Below are my notes of his presentation.

There are some similarities as well as differences.

The media and journalists have rushed to see these similarities.

I was shocked.

The Great Depression was so much more horrible, devastating, than the current recession.

They were using this talk to sell some type of policy to the people who look to the government for answers.

I don’t feel the two events are fully comparable.

People would be much happier living through today’s recession than during the Great Depression.

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Another New Deal

July 16, 2009 in Socialism by Greg | 3 comments

Today I read The Future of Freedom Foundation’s three part series on “The Fallacies of Another New Deal” by William L. Anderson:

A number of people, including economist (and 2008 Nobel Prize-winner) Paul Krugman of Princeton University and a columnist for the New York Times, have called for the installation of another series of government programs akin to the New Deal, a “new” New Deal. For example, William Greider, writing for The Nation, declares,

Let me be clear. The scandal is not that government is acting. The scandal is that government is not acting forcefully enough — using its ultimate emergency powers to take full control of the financial system and impose order on banks, firms and markets.

He adds,

The government, meanwhile, may have to create another emergency agency, something like the New Deal, that lends directly to the real economy — businesses, solvent banks, buyers and sellers in consumer markets. We don’t know how much damage has been done to economic growth or how long the cold spell will last, but I don’t trust the bankers in the meantime to provide investment capital and credit. If necessary, Washington has to fill that role, too.

Because “New Deal” talk is in the air, perhaps we need not only to understand the programs of Franklin Roosevelt’s New Deal, but also to understand why the economic conditions existed that made his series of radical programs politically possible. Fear and economic chaos give politicians an opening they might not otherwise have when times are normal or even good. However, most, if not all, of the time, politicians and government policy-makers are the ones who are responsible either for the crises themselves or for creating the conditions that brought the crises into existence. The events leading up to the Great Depression were no exception, just as the current financial crises have government intervention stamped all over them.¹

This is an excellent series of articles that explain what led up to the Great Depression and why the policies of the New Deal exacerbated the situation. A good read if you are concerned about Monetary and Economic Freedom.

Sources:

Anderson, William L. “The Fallacies of Another New Deal”. 10 July 2009. The Future of Freedom Foundation. 16 July 2009.↩

House of Cards

April 3, 2009 in Business by Greg | 5 comments

The House of Cards is a CNBC documentary about the greatest financial crisis in the United States since the Great Depression. If you didn’t get a chance to see this program, the trailer is below.

As mentioned in the post Milton Friedman on Greed, this is part of a new series of posts dealing with the free market system.

In this program, correspondent David Faber:

. . . reveals how a financial house of cards was slowly built following the 9/11 attacks. As the U.S. government tried to revive the economy by repeatedly dropping interest rates, families lunged at the opportunity to refinance their mortgages. Faber introduces viewers to mortgage lenders like Daniel Sadek who drastically reduced borrowers’ credit requirements and raked in personal profits of $5 million a month.

Wall Street began to consume risky mortgages and turn them into products they could sell to hungry foreign investors. Banker Michael Francis tells Faber that no matter how risky the package, during the peak of the lending frenzy any mortgage-backed security could find a home on Wall Street.

Exploring just how far the effect of the credit crisis extended, Faber travels to Narvik, Norway, a town far above the Arctic Circle that was convinced it could solve its budget problems by investing in Wall Street’s wares. Mayor Karen Kuvaas and Narvik’s other town leaders hoped to become “great heroes” by reaping the income from financial ventures they believed were safe.¹

I especially enjoyed Alan Greenspan’s comments. In this video he “defends decisions he made that critics say laid the groundwork for the crisis. Greenspan also admits that even he did not understand the details of the more complex securities on the market.”²

In 2004, in the midst of the housing boom, President George Bush had a chance to do a little bragging in his State of the Union Address.“This economy is strong and growing stronger,” he said, to applause in the House chamber. “New home construction (is at) the highest in almost 20 years. Homeownership rates (are at) the highest ever.” Just one month later, then-Federal Reserve Chairman Alan Greenspan encouraged the mortgage industry to come up with new kinds of loans — so even more people could buy homes. “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” Greenspan recommended in a speech to the Credit Union National Association.³

Those are rather telling statements from the former Chairman of the Board of Governors of the Federal Reserve System. How much confidence should we have in our elected leaders – let alone their appointments? If you’ve been reading this blog, then you already know that there are quite a few appointed economists with pseudo-knowledge. Perhaps that’s how they got appointed in the first place. . .

Enjoy the teaser to the House of Cards!