Tag: Great Depression

Welcome Back to 1931

Welcome Back to 1931

Charles Kindleberger’s classic book on the Great Depression was originally published 40 years ago. In the preface to a new edition, two leading economists argue that the lessons are as relevant as ever.

Daily commentary: thoughts on austerity as a policy tool and on India as a black swan

Daily commentary: thoughts on austerity as a policy tool and on India as a black swan

The news flow today is about the same as it has been throughout the week: JPMorgan Chase and Facebook in the US and Greece and to a lesser degree now Spain in the EU. I think these are the wrong narratives to be focused on. As I wrote yesterday, I believe China will suffer a hard landing but that India will be worse than China. In my view, the economic slowdown in India is the biggest story that’s not making headlines.

Then there is the debate over austerity. I posted on how we had the same debates about austerity under the gold standard while Hoover was President in the US during the Great Depression (see Hoover on austerity to balance the budget and defend the dollar in 1932). Here’s my view on that debate.

Hoover on austerity to balance the budget and defend the dollar in 1932

Hoover on austerity to balance the budget and defend the dollar in 1932

I have written quite a few posts highlighting the statements made by Herbert Hoover during his US presidency as he struggled with the economic contraction of the Great Depression. The general tenor of Hoover’s comments and actions goes to redoubling efforts toward balancing the federal budget in order to bring back the fiscal discipline that Hoover felt was proper irrespective of the macro environment and that Hoover also believed would support the US dollar.

In the past, some commenters have expressed doubt about Hoover’s deficit hawk bona fides. Having looked through the assortment of Hoover documents at the American Presidency Project, what is clear to me is that Hoover was indeed committed to balancing the budget by cutting expenditure and raising taxes despite the economic slide.

Obviously we would add 10 zeros but you get the picture

Obama’s FDR Moment

The FDR moment occurred in 1933 when FDR took the reigns of monetary policy from an ineffective Fed and sparked a robust recovery in aggregate demand. The Fed had allowed aggregate demand to collapse for three years when FDR responded. He signaled that he wanted the price level to return to its pre-crisis level (i.e. increased expectations of higher nominal spending) and acted upon it by having the Treasury Department devalue the gold content of the dollar. This dramatically increased the monetary base and spurred a sharp increase in aggregate demand. So how could President Obama have his FDR moment?

Herbert Hoover: Nothing is more important than balancing the budget with the least increase in taxes

Herbert Hoover: Nothing is more important than balancing the budget with the least increase in taxes

The following is a March 1932 speech by then US President Herbert Hoover about the growing US deficit. As I indicated in previous posts on Hoover’s travails, the President earnestly wanted to balance the budget (see Herbert Hoover: White House Statement on Federal Expenditures, June 1931). However, as bank failures mounted and credit growth not only waned but turned into massive credit contraction, the fuel for GDP growth was expunged and revenues evaporated.

Right-wing political extremism in the Great Depression

Right-wing political extremism in the Great Depression

The enduring global crisis is giving rise to fears that economic hard times will feed political extremism, as it did in the 1930s. This column suggests that the danger of political polarisation and extremism is greatest in countries with relatively recent histories of democracy, with existing right-wing extremist parties, and with electoral systems that create low hurdles to parliamentary representation of new parties. But above all, it is greatest where depressed economic conditions are allowed to persist.

Unemployment Insurance for the 21st Century: The Job Guarantee as an Alternative to Enforced Idleness

Unemployment Insurance for the 21st Century: The Job Guarantee as an Alternative to Enforced Idleness

A new universal direct job creation program would improve working conditions in the private sector as employees would have the option of moving into the JG program. Hence, private sector employers would have to offer a wage and benefit package and working conditions at least as good as those offered by the JG program. The informal sector would shrink as workers become integrated into formal employment, gaining access to protection provided by labor laws.

Running through Italian unilateral euro zone exit scenarios

Running through Italian unilateral euro zone exit scenarios

A unilateral exit would be a devastating event for Italy and the euro zone. Inflation would be high but bank and national solvency issues would recede. If the exit were done under these nationalistic pre-conditions of redomination, most of the adjustment burden would fall on foreign creditors. Italy would become export competitive again and could focus on economic growth strategies instead of ones of fiscal adjustment.