https://www.dailysignal.com/2014/10/18/truth-great-depression/
Originally appeared in the Washington Times.
What Really Ended the Great Depression
Stephen Moore / @StephenMoore / October 18, 2014
“What is history but a fable agreed upon?” as Napoleon once put it, and never has that been more true than the story of the Great Depression and its aftermath. With liberals again pitching more government spending “stimulus” in Washington, it’s critical we get this history right.
A great historical myth is that Franklin Roosevelt’s New Deal programs ended the Great Depression. After seven years of New Deal-era explosions in federal debt and spending, the U.S. economy was still flat on its back, and misery could be seen on the street corners.
By 1940, unemployment still averaged a sky-high 14.6 percent. That’s some recovery.
So, what did end the Great Depression? Again, the history books get this chapter of history wrong. Most history books tell us that it was government spending on steroids to mobilize for World War II after the Japanese attacks on Pearl Harbor on Dec. 7, 1941.
Well, it is true that the economic output surged, and unemployment fell, but periods of all-out war are very different than periods of peace. Is it any surprise that unemployment fell dramatically when nearly 12 million Americans joined the military?
The author’s mother, a teenager in that period, used to tell him that during the war, when fuel was scarce and needed for the military, you wouldn’t be caught dead driving to the movie theater or a party.
It was regarded as unpatriotic and selfish. People continued to produce even with high tax rates (94 percent during the war) when their tax dollars were financing the fight against the Nazis and the Japanese.
For nearly four years — from 1942 to 1945 — America was not a free-market economy. We were an all-out wartime economy — with the normal laws of economics suspended.
However, a war is no way to fix an economy — obviously. Countering terrorist acts of the Islamic State is not a jobs program.
During World War II, when we built ships, tanks, fighter planes, dropped bombs and sent our troops into harm’s way, we weren’t creating wealth.
A war is no more stimulating to the economy than a burglar stealing your money, the Japanese tsunami in 2011, Hurricane Katrina in 2005, or a tornado that levels an entire town.
Without such disasters, the resources spent reconstructing (or destroying in the case of war) would be spent either purchasing useful, life-enhancing products for consumption or investing in technology and capital equipment needed to increase economic output.
War in self-defense might be necessary to protect our families, but any economic growth derived from it is far less beneficial than growth derived from free people making individual decisions on what to consume and in what to invest.
In the 1940s, government spending did indeed surge. The federal share of gross domestic product (GDP) rose from less than 12 percent in 1941 to more than 40 percent in 1943-45.
In other words, almost half of everything that was produced in the nation was to fight the war. Domestic spending on many FDR New Deal programs in education, training and social services dropped more than 90 percent.
The real issue is what caused the economy to surge after the war was over.
This story is also not covered in the history books. Shortly after his third re-election in 1944, and at a time when the outcome of the war was no longer in question, FDR and his domestic advisers plotted a “new” New Deal with such spending items as national health insurance.
The Keynesians (pronounced cane-sians) (Government intervention, spending , is needed to stimulate the economy)were sure that the massive reduction in government spending would catastrophically tank the economy.
Paul Samuelson, the dean of neo-Keynesians at that time, warned in 1943 that unless wartime spending and controls were extended, there would be “the greatest period of unemployment and industrial dislocation which any economy has ever faced.” Business Week predicted unemployment would hit 14 percent with the postwar cutbacks.
Here’s what happened. Government spending collapsed from 41 percent of GDP in 1945 to 24 percent in 1946 to less than 15 percent by 1947. And there was no “new” New Deal.
This was by far the biggest cut in government spending in U.S. history. Tax rates were cut and wartime price controls were lifted. There was a very short, eight-month recession, but then the private economy surged.
Here are the numbers on the private economy. Personal consumption grew by 6.2 percent in 1945 and 12.4 percent in 1946 even as government spending crashed.
At the same time, private investment spending grew by 28.6 percent in 45 and 139.6 percent in 1946.
The less the feds spent, the more people spent and invested. Keynesianism was turned on its head.
In 1946, the unemployment rate averaged below 4 percent, and it stayed that low for the better part of a decade. This all happened during the biggest reduction in government spending in American history under President Truman.
So, this brings us to our next big question.
July 10, 2021
Does the Biden Administration Understand Inflation?
There seems to be a lot of confusion today about inflation. Pick up the paper or follow an internet site and you will read that the inflation rate this year is expected to be 2% or 3%. What they really mean is that prices are expected to rise 2% or 3%.
But is that inflation?
Inflation is an increase in the money supply. So why is the difference in definition critical? Prices rise because of inflation; they are the result of inflation but they are not inflation, nor are they the cause of inflation.
This is important because the government is the only one that can increase the money supply. This is done in a number of ways, but for the moment just think of it as printing more money.
That is what countries have done when they ran out of money; they just printed more money until it came to the point where their money was almost worthless, where a wheelbarrow load of money would just barely purchase a loaf of bread like post WWI Germany.
Recently, we have had a number of “gifts” from the government. The last one was $1,400 per individual, or $2,800 for each couple. But with more money in circulation, prices tend to rise.
Thus, though all of us got the “free money” it is the middle to lower class who actually pay for that money in the rising cost of gasoline, food and other required expenses.
But what is inflation, actually? Few subjects are more misunderstood by the general public, which tends to view inflation as “rising prices.” This mistaken view, shared and promoted by many economists, obscures the true nature and origin of inflation.
First of all, rising prices are the effect of inflation, not inflation itself, which is simply an expansion of the money supply via money creation, resulting in diminishing purchasing power of the money already in circulation.
Governments have often resorted to inflation–printing money–to pay off debts. This generally leads to soaring prices and devaluated currency.
So, what’s the difference, or is it just a matter of semantics? The difference lies with who is responsible. As prices rise we have a tendency to blame the “greedy” vendor. He raised prices to make another buck. But is that necessarily the case? More likely he raised his prices because his costs have gone up; both labor and materials.
So, how about price-gouging? Here is one definition from Wikipedia:
“Price gouging is a term referring to when a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair, and is considered exploitative, potentially to an unethical extent.”
But who decides what is reasonable or fair? And, further, what is considered exploitative?
Maybe we cannot provide a legal definition of price-gouging, it is just that we will know it when we see it.
But here is a factor we often do not think about: Commodities are scarce; all commodities. So, the price rises until supply and demand tend to meet. If a “disaster” causes supply to be interrupted, and supply is reduced the only choices are to raise prices or to limit demand by some process.
So, we blame the vendors when prices rise, but if inflation is actually caused by government “printing” more money, then we may more realistically blame the government. I know this may be a subtle difference, but it is an important one. When we place the blame where it belongs, with the government, then we are less apt to blame the particular vendors and work to reduce government hand outs.
This distinction is rarely made in the popular press.
More often than not the press only talks about rising prices and calls that inflation, when in fact prices rise because when the government prints more money, with no additional product, more dollars for the same product simply means higher prices.
Every economist knows this, yet few bother to make the distinction clear.
Even the White House appears to be confused on what is inflation.
The White House admitted recently that they were surprised by the rise in consumer prices in March, the largest jump since 2008.
“So we hadn’t forecasted that. The forecasters hadn’t expected that,” White House Chair of the Council of Economic Advisers Cecilia Rouse said, adding the Federal Reserve was also “a bit surprised by the jump.”
You would think that governments would have learned from history. Truly they have not.
Governments, especially socialist governments, have often resorted to printing money to get what they wanted rather than just raising taxes. The only way to stop the rise in prices is simply to only spend the money on hand and stop just printing more money to pay for government services.
Don’t believe me about the history? One final point.
February 17, 2022
Myths about the Depression and Franklin Roosevelt’s program
By Mark C. Ross
Much mischaracterization surrounds the greatest economic crisis in American history. Let’s look back to the election of 1932, where Franklin Roosevelt defeated the otherwise popular Herbert Hoover to become only the third Democrat to be elected president since the Civil War.
The mythology concerns the why of Roosevelt’s superior popularity. Most folks you might ask would say FDR had a grander vision of what it would take to end the Depression — and they would be wrong.
First off, the stock market crash of 1929 had not yet fully morphed into the Great Depression by 1932. Paul Johnson, in Modern Times, makes the case that FDR won because he campaigned on ending Prohibition. He was a “Wet” and Hoover was a “Dry.”
Many still blame the Depression on Hoover — not as president, but rather as secretary of commerce under Coolidge. Hoover sent boat-loads of money to Latin American nations to stimulate markets for American exports. The recipient regimes were often soon overthrown, and the money was embezzled, damaging the financial resources of the US government.
The primary myth is that the New Deal worked.
The reality is and what is fairly well understood, and thus not a myth, is that the Great Depression was brought to an end when a profound national emergency began at Pearl Harbor.
From about 25% unemployment, we quickly went to nearly full employment, some via conscription and much also via an overwhelming demand for labor.
Consumer products, such as automobiles, were not available, and workers were instead encouraged to take a portion of their pay in war bonds. Over time, the conversion of disposable income into a form of savings bond was a significant source of individual wealth.
When the war ended, there was serious worry that the Depression would start all over. Plans were afoot to provide unemployment insurance for the many returning military personnel. But the accumulated war bond wealth had a major impact.
The construction boom of the 1920s that ended with the crash of 1929 started all over again, both with the war bond money and the added help of improved building technologies, largely associated with the Seabees. And thus began the postwar Baby Boom.
So what have we learned today?
Is increasing welfare benefits, paying off student loans, and printing more money going to get us out of our current mess? Absolutely not.
It wasn’t government spending, but the shrinkage of government spending, that finally ended the Great Depression. That’s what should be in every history book — but isn’t.