I also think it's possible that nothing the government did ended the Great Depression. It may be that, like Topsy, it "just growed". Though global events like this are rare, financial crises aren't, and the fact is that eventually they do end, and are replaced by very very rapid growth. The economy grows very rapidly because financial crises push output far below productive capacity, so after the initial shock, the return to trend presents itself as growth near or over 10% a year. If your economy drops by 33%, it takes four and a half years at 10% annual growth just to return to where you were before the crisis; meanwhile, your labor force and productive capacity have presumably grown somewhat, so you need to go even further to close the output gap.
I post about these things as, hopefully, something close to a matter of science. It is an empirical question whether the multiplier for government spending is greater or less than one. It is an empirical question whether the multiplier for the spending we just did is greater or less than one. It is an empirical question whether the sorts of crises we are now in produce liquidity traps such that fiscal shock therapy can result in a permanently higher level of growth.
I do not say that we will know the answer to these empirical questions; I daresay we won't, at least not to a certainty. But there *is* an answer out there in the ether, yet most of the public debate about these questions is not much tied to empirics. They are being debated as emotionally as if the topic were the relative virtues of the debaters' spouses.
Once again, I am driven to quote the immortal Charles Murtaugh: the universe is not here to please you. Fiscal stimulus will make the economy grow faster, or it will not make the economy grow faster, without regard to whether taxation is theft or universal healthcare is an immediate moral imperative. I doubt I'm the only one who is wearied by the way so many of the participants in the debate seem to already know the answer they want, and are merely looking for a set of questions that will get them there most expeditiously. Was there ever a time when people didn't think that tricky economic conundrums could, or should, be used to "prove" that their personal values about the level of taxation and spending are a scientific fact? Probably not. Still, given how important this question is, I wish more people would treat this as a problem to be solved, a question to be answered, rather than a battle to be won.
You may now return to your regularly scheduled programming.
The immortal Charles Murtaugh...you mean the biologist and former blogger? I've heard that quote many times before but didn't know he was the source.
Wait. The universe is not here to please me?
WTF are you talking about?
Clearly you're wrong.
(Yes. This is sarcasm.)
Why is it so important to have a single action or policy identified? I would guess it was a multiple of things working together that ended the great depression.
The end of the current fiscal crisis won't happen because of a single policy, either.
I'm not an economist, I'm a farmer. And economics only makes sense to me when I view it through the lens of a complex, organic system like my garden, where different species are competing for resources. I learn, through practice, what promotes growth. Over-planting and over-feeding are as dangerous as not weeding or feeding. Too much water as bad as too little.
The best results come from a host of common-sense activities all taken in moderation, and from constantly watching the activity in the garden. And from using the host of tools available.
It's a crock to say that neither side is interested in empirical evidence and that both sides are equally just playing politics.
Just one side is pathologically anti-empirical. It should be blindingly obvious which, but I'll give you a hint - they presided over the Crash of '29 and the Crash of '08.
Megan, so sad that comments on this blog don't also appear on your Business page for the same entry.
sorry this is off-topic.
Chris, do tell which "side" presided over the crash of '08, and explain how the other "side" did not preside over it!
The irony would be more amusing if the reality was not so serious. Oh, well. May as well have a good laugh.
I have been lax about updating my series, but I claim some small credit for spotting this as a failure of economics, just a tad earlier than most.
I was on-board when Paul Kedrosky started saying "More fuel for my take that skepticism-verging-on-nihilism is the right answer when faced by economists splitting along party lines."
Welcome to the party.
I don't care what ended the Great Depression in particular. I care about what reliably ends recessions.
And to discover that, you need to study more than one recession.But we seem to be endlessly rehashing just one of them...
Its okay if you don't know what ended the 20th century depression - for most of us its long been a settled argument that FDR's programs played the largest part in ending the recession. I mean revisionist history is fun and all, but economists have considered this question settled for some time now. Its inconvenient that it doesn't fit your ideological narrative, but there it is.
Ulike many economists, or many of those who try to write like an economist, at least tarot card readers don't pretend to base their utterances in empirical observation. When choosing between quacks, the quack who is frank in being rooted in the supernatural is preferable.
Please turn over the next card, Mike!
My apologies, Will. I just read Michelle Malkin and learned that this economic meltdown started under the Obama administration.
Ok, here's the reality of the situation. Our political class, both parties, have completely screwed up. Both sides acted like fools.
Only a partisan hack can't see that.
Now maybe reasonable people on both sides can try to point fingers at areas where the other party "screwed up more".
Both the truth is, our politicians have completely failed us, and anyone arguing otherwise deserves to viewed as so partisan that their opinion on matters of policy should no longer be trusted.
I personally like Bernake's analysis that the Bank Holiday and going off the gold standard ended the Great Contraction of 1929-33 and after that it was pretty much a normal business recovery.
The 1933-37 expansion was 50 months, the longest on record until the 1960s and real GDP surpassed the 1929 peak in 1936. This clearly falls within the parameters you established above. the economy fell for 3.5 years and took 3.5 years to return to the prior peak-- pretty much a normal cycle.
I agree with you that fiscal policy did not play a major role and the 1937-38 recession was due primarily to the fed tightening by raising reserve requirement.
Many claim that fiscal policy did not play a role in the 1933-37 recovery, but caused the 1937-38 recession. For this analysis to be valid it would imply that fiscal policy is asymmetrical,i.e. it has a low impact or very small coefficient when the deficit is growing but a very large impact or coefficient when the deficit is contracting. This could be true, but I have seen no one actually make that claim or demonstrate an equation like this when explaining
economic growth in the 1930s.
I'll repeat the point I made here the other day.
If you assume that trend real GDP growth was 3.5%
from 1900 to 1935 the real economy got back to trend growth in 1941 and operated above the 3.5% trend --or potential real GDP -- all through WW II. These facts or analysis imply that the economy had returned to normal at the start of the war and the depression was over. Consequently, the war had little impact on ending the depression.
But Megan, this is a crisis, and a crisis is an opportunity to push an agenda which you otherwise couldn't accomplish. What could be more important than that?
Chris, ol'Michelle is just your mirror image.
To add... I think our government needs some sort of "recall" option where ever X number of years we can decide if we want to dump all the politicians and start over - peacefully.
I would hope that most sensible Americans would vote "yes" for removing every current member of Congress and barring them from ever "serving" (aka fleecing) the public again.
The issue with elections is we really can't change for the better. Just change who is doing the fleecing and in what area we get fleeced.
Your desire to take the emotion out of the debate is admirable. However if your target is the debate relative to public policy, the assumption that this is a "problem to be solved" is a big one. Some of us libertarians believe in the principle that government does not exist to solve problems. So when confronted with an immense problem in the private sphere, we must resist the urge by beurocrats/technocrats/populists to "do something" on a massive scale, especially when such action brings our government another step closer to fiscal insolvency. The question of WHETHER to do something, I think, is more worthy debate than WHAT to do.
Economists, Hayek said, "happily proceed on the fiction that the factors which they can measure are the only ones that are relevant. The correlation between aggregate demand and total employment, for instance, may only be approximate – but as it is the only one on which we have quantitative data, it is accepted as the only causal connection that counts. On this standard, there may thus well exist better 'scientific' evidence for a false theory, which will be accepted because it is more 'scientific,' than for a valid explanation, which is rejected because there is no sufficient quantitative evidence for it."
No shit, you don't know, Megan. Econometrics are no substitute for a priori reasoning.
The other thing I find interesting about essentially all mainstream analysis of the depression. They all blame the 1929-33 contraction on monetary policy but as soon as the recovery starts in 1933 analysis switches over to fiscal policy and essentially ignores monetary policy.
But monetary policy did not really change in 1933.
So the question then becomes what offset tight money in the 1933-36 period. I suggest it was FDR's Treasury operations that pumped liquidity into the system -- largely through gold purchases --that offset continued Fed tightening.
"I don't know"?!! What was that McCardle. They are going to take your blogging license away if you admit to not knowing the unknowable.
Chris: "It should be blindingly obvious which, but I'll give you a hint - they presided over the Crash of '29 and the Crash of '08."
Is this satire? Do you really believe in the Great Man theory of history? A political party caused the crash? Really, that's your take on events?
"Now maybe reasonable people on both sides can try to point fingers at areas where the other party "screwed up more".
Both the truth is, our politicians have completely failed us, and anyone arguing otherwise deserves to viewed as so partisan that their opinion on matters of policy should no longer be trusted."
It's also folly to simply point at politicians when accounting for this mess. It took a nation of millions screwing up in myriad ways to create this mess. You can't look at this and say "It was Bush!" or "It was Congress!" while ignoring the millions of ordinary Americans who made their contributions by acting like irresponsible children.
It's amusing how you want to just focus on whether or not FDR's spending ended or helped to end the depression. This is a forest/trees thing here. You focus in on that one tree, as if it tells the story of whether Roosevelt's iniatives were worth anything at all.
But while you focus on that one tree, you're missing all the others: the thousands of people who didn't starve because they had employment in public works projects, the number of families who didn't lose homes, businesses, or work because the works projects imposed a false bottom to keep the deflationary spiral from continuing down, the bridges, roads, schools & other public buildings and dams & hydroelectric facilities built under public works programs that continued to serve us for at least 2 or 3 generations...all of that was accomplished. You can argue that all of those public works projects would have eventually been built by the private sector, and that may well be true...but you can't argue that a lot of people both in and out of the public works programs didn't benefit from the higher employment levels they created.
That's the forest, and that's the value of the current stimulus. It's not going to fix things, but that doesn't mean there's no value in imposing a bottom to how far they can fall.
Shouldn't that lack of certainty about what might actually work cause even non-libertarians to think twice before calling for the government to "do something"?
As libertarian, my most optimistic hope at this point is that it might be possible to start getting more people to stop reflexively advocating the use of government force to make others do what they want unless they can sincerely say two things:
1. "I am reasonably certain that the results I want are very important."
2. "I am reasonably certain that what what I want the government to force people to do is very likely to get the results I want."
JTHC75, you are correct, of course, and the depressing thing (actually, one of the depressing things) is that it is taking the same immaturity of millions to produce the horrendous level of analysis which is now dominating the public debate regarding our current unhappy state of affairs.
Imagine the most wise economist in the world. Now imagine this wise economist being scrupulously honest regarding what has been empirically proven, or even what has approached being empirically proven, regarding economics and economic history. I'd wager that such an economist would be largely ignored, because our polity is largely uninterested in hearing the sober reality that many, many, things are unknown or even unknowable, and instead gravitates to pompous charlatans who yammer in empty and baseless certitudes. If we are lucky, the charlatan who is lucky will be the one most listened to. If we aren't there will be more unecessary suffering.
Just for entertaiment's sake, I wish more than a few nameless prominent economists of various stripes, and nearly all prominent journalists who write on the subject of our current ills, would be forced to wear, Mickey Mouse-style, a gown and pointed hat with stars and crescent moons stenciled on them. Truth in packaging, and all that.
JTHC75, you are correct, of course, and the depressing thing (actually, one of the depressing things) is that it is taking the same immaturity of millions to produce the horrendous level of analysis which is now dominating the public debate regarding our current unhappy state of affairs.
Imagine the most wise economist in the world. Now imagine this wise economist being scrupulously honest regarding what has been empirically proven, or even what has approached being empirically proven, regarding economics and economic history. I'd wager that such an economist would be largely ignored, because our polity is largely uninterested in hearing the sober reality that many, many, things are unknown or even unknowable, and instead gravitates to pompous charlatans who yammer in empty and baseless certitudes. If we are lucky, the charlatan who is lucky will be the one most listened to. If we aren't there will be more unecessary suffering.
Just for entertaiment's sake, I wish more than a few nameless prominent economists of various stripes, and nearly all prominent journalists who write on the subject of our current ills, would be forced to wear, Mickey Mouse-style, a gown and pointed hat with stars and crescent moons stenciled on them. Truth in packaging, and all that.
Jennifer, where did you purchase your finely calibrated false-bottomometer, which allows you to know that the extremely complex bill just passed will end up doing more good than harm?
I'd feel better about this legislation if it had merely paid off the first 100k of everyone's mortgage, or just given each household 100k. It might do more harm than good as well, but it at least would be more simple to measure.
Will - hey, that would be a great idea.
Too bad it would cost upwards of $8 trillion (that's assuming $100K per every four people in the US).
More spending in the economy, no matter who's doing it = more people working = more people who can still spend = less likely that I, too, will lose my job and with it my house and everything I've worked for my entire life.
There's no question that spending more will translate into more economic activity, so I'm really not sure where the "more harm than good" is coming from. No reasonable person expects that the stimulus plan is going to "fix" the economy in and of itself. On the other hand, only unreasonable people believe it will make the economy worse.
Yeah Will, you silly man, what other effects could spending more possibly have other than generating more economic activity??
Hey, no one is responsible! And we are all responsible. A million different factors that you can't comprehend are responsible. And no one really knows who is responsible. And anyone who thinks he or she might know who is responsible is being irresponsible.
B Spock says
"No shit, you don't know, Megan. Econometrics are no substitute for a priori reasoning."
This is the most important quote that I have read on this website in days; I take it that libertarians think this about econometrics/economics, but would not make claims like this about, say, physics? In any case, thanks very much.
Will Allen says
"Just for entertaiment's sake, I wish more than a few nameless prominent economists of various stripes, and nearly all prominent journalists who write on the subject of our current ills, would be forced to wear, Mickey Mouse-style, a gown and pointed hat with stars and crescent moons stenciled on them. Truth in packaging, and all that."
That is very funny. "Mickey Mouse style," indeed.
Jennifer, how much money has been appropriated to deal with this economic crisis since last fall? How much more will be in the next year? Are you really sure that 8 trillion will be shown to be such an outlandishly larger figure in the end?
Yes, I know you believe that increased spending only has the effect of increasing economic activity.
Making your observation-based cogent arguments as usual, eh, Bob? Let us know when you've stopped drooling on the keyboard, and have something to say.
Will Allen says
"Making your observation-based cogent arguments as usual, eh, Bob? Let us know when you've stopped drooling on the keyboard, and have something to say."
I was just trying to pay you a compliment on your humorous description of economist-as-sorcerer's apprentice.
Do you think, by the way, that questions about physics should be resolved by the better argument, rather than say, measuring stuff?
“Over-planting and over-feeding are as dangerous as not weeding or feeding. Too much water as bad as too little.
“The best results come from a host of common-sense activities all taken in moderation, and from constantly watching the activity in the garden. And from using the host of tools available.”
Peter Sellers, is that you?
No reasonable person expects that the stimulus plan is going to "fix" the economy in and of itself.
But, you see, if we can pretend that stimulus advocates believe that, then the right can mount self-righteous strawman attacks on them, battling against arguments that aren't being made. Truth is a lot less fun than fiction.
"I take it that libertarians think this about econometrics/economics, but would not make claims like this about, say, physics? "
Austrain economics has it's own equivalent of the Heisenburg Uncertainty Principle, as that quote from F.A. Hayek's Nobel Prize acceptance speech explains. We don't have a way to gauge things like moral hazard, at least not yet.
Bob, if you were trying to be complimentary, or merely civil, and I let our last exchange influence me into believing you were merely continuing the style of rhetoric you chose to employ the last time you addressed me, I apologize.
As to your question, I think logically sound arguments are essential to any field of study. I also think measuring stuff, over and over and over again, while, if possible, holding all but one variable constant, is kinda' nice. I have always been frustrated, and especially so in recednt months, with people, recognized experts and lay people alike, when they write on economics, because they so often write with a certitude that would lead a non-cynic to believe that their assertions were the result of a very rigorous empirical process. If only it were so.
A long time ago, I was visiting DeLong's site, and he made some ridiculously precise claim about the 1993 tax increase contributing a certain amount to economic growth in the following years. When I inquired as to how he was able to seperate cause and effect among a multitude of uncontrolled variables in something as complex as the U.S. economy, he more or less informed me that because he is very good at mathematics, and his calculations were correct, my doubt as to the soundness of his argument was unfounded. This is too often what passes for intellectual rigor in DeLong's chosen field.
One reason I have sympathy for libertarian views, although many if not most libertarians would denounce me as an infidel, is that I am extremely skeptical about the certainty with which many, many, people claim to know that government action x will produce outcome y, or only outcome y. No, that doesn't prove that having the government fail to act will produce a desired outcome. However, I do know having the government fail to act more often results in fewer citizens, who would prefer to not be involved in that activity, being threatened with physical coercion for failing to support it. I'm no anarchist, or even much of a libertarian, but I sure wish more people would set the bar higher before deciding that that the blunt instrument of government was just sure, or even very likely, to produce a better state of affairs.
RW, given you recently wrote the following, regarding the source of the extraordinary speculative bubble in residential real estate, and thus a source of a large measure of our current unhappiness.....
"Then, as now, the cost of capital was less relevant as was the lack of limitations on debt. When an investor could borrow 95% of the cost of a stock as was the case during the 1920's stock market, investors were inclined to overpay, buy too much and make bad decisions. When a home buyer could borrow 100% of the cost of his home, as was the case until recently, they were inclined to overpay, buy too much and make bad decisions. Same problem, different asset, and the exact cost of money had little effect on the outcome.
The government didn't cause this but through neglect. Raising rates alone would not have been enough to stop it.
The private sector caused the problem because it was profitable in the short run on a micro level to engage in such practices, and being the selfish beings that we are, we tend to think in the short run and in the micro when it appears to suit us. Long run thinking is a discipline that needs to be imposed from the outside, and the Austrians don't address how to impose it."
....one would think that you would be more circumspect about denigrating others' intellectual honesty and/or the soundness of their logic.
Gee, Will, being that I deal with finance and business professionally, I think that I understand how it works in practice, and not just as an abstract right-wing political construct that one might read about on websites such as this one.
Now, if you have a valid critique based upon something factual, I'd like to see it. So far, you've been pretty much rolling snake eyes in that department, and frankly, I'm disappointed.
Well, golly, RW, your credentialism is just so convincing, one barely knows how to respond, but it'll just have to suffice to note that your comments, which I quoted, completely ignores the, yes, factual history of what entities created the large market in mortages with extremely high loan to value ratios. You haven't the foggiest notion of what you are writing about, ya' ol' professional expert, you.
Also, here's a clue; the moment someone starts throwing around empty labels like "right wing", "left wing", etc., they reveal themselves to be a gasbag fit for Limbaugh, Olbermann, and the like. Congratulations.
your comments, which I quoted, completely ignores the, yes, factual history of what entities created the large market in mortages with extremely high loan to value ratios.
I suppose that you'd like to lay the entire blame at the feet of Fannie and Freddie, and none on the doorstep of private industry.
That figures. We should keep in mind that Fannie and Freddie were privatized, and behaved like their brethren on Wall Street, chasing fees just like everybody else. They were clearly not the only market for bad debt, as loan data would indicate.
But please, don't allow the facts to get in the way of a good argument. Around these parts, that just won't do.
I think Pearl Harbor ended the Great Depression. It did this suddenly, Dec. 7, 1941, by creating instant common cause between the economic factions in U.S. society. It replaced self-centered thinking and the motive forces of greed and anxiety with a symbol -- defeating Imperial Japan and the Nazis. This collective change of focus was far more powerful economically than the New Deal. Suddenly, the chasm between the financially secure and the unemployed was bridged, and money flowed as required by their common endeavor. After the war, this unity of purpose beyond class was enduring.
In the present credit crisis, already the breach is widening between those who consider themselves to be responsible borrowers and those who cannot repay their loans, and between the employed and the unemployed. An example has been the Treasury response to Lehman Brothers collapse. The Treasury did not intervene in that instance, as such to make an example of them, to send a message to Wall Street about what behavior can be gotten away with and what can’t. Judgmental reasoning will only make a bad situation worse. The past is past, and the best we can do is learn from it, move on, and let it go. Our task is to avoid repeating the Great Depression, not to prove or disprove the efficacy of behaviorism. Solutions must attempt to find common values as a basis for coordinated effort. As a surprising example, the administration’s high-speed rail funding passed Congress without notable objection and is proving to be a remarkably popular idea.
This forum is finding some of these values, and it is certainly gaining in influence. Comments are trending to original thought (from starchy, economic ivorytowerianae), in full seriousness and passion, facilitated by exactly the right person. I think commenters who repeat dogmatic mantras quickly move on to worthwhile contributions, and Megan’s self-disclosure and objectivity model exactly the right attitude.
No, RW, I wouldn't like to lay the blame entirely at the feet of Freddie and Fannie, and none at the feet of private industry. That sort of one-dimensional thinking, like when one writes ..."The government didn't cause this but through neglect. ....The private sector caused the problem..." is astoundingly stupid, and I try to leave astounding stupidity to people like, well, never mind.
Say, what sorta' Kollege of Expert Professionalism did you attend, which taught you to be such a sophisticated being, which allowed you to discern that an entity which is able to borrow money at rates only available to the U.S Government, and has been specifically instructed by Congress to expand the rate of homeownership, is privatized when it is moved off the books by the government? Did you attend class with Jeffrey Skilling?
which allowed you to discern that an entity which is able to borrow money at rates only available to the U.S Government
Right, we're back to the "interest rates are to blame for our ills" argument, yet again. Forgive me, I forgot that this blog was stuck somewhere between Innsbruck and Vienna, the economic land that time (and most smart people) forgot.
Bad deals get done, low cost of capital or otherwise, when the money is readily available to do them. They get done, whether the government crows about homeownership or it doesn't. Asset bubbles existed long before there was a Fannie Mae and Freddie Mac.
And as the subprime drum beaters don't seem to understand, most "bad" loans are not in default. Their "badness" comes from a lack of sufficient collateral, not from a lack of payment. Those who believe that this crisis is strictly a function of defaulted subprimes don't even know the half of it.
Goodness sakes, do they teach reading or logic at your alma mater? The point of Fannie and Freddie borrowing at government rates is not that the specific rates are too low or too high, it is that a "privatised" entity which can borrow at rates only available to the U.S. government is not truly privatised. There was no primary or secondary market in high ltv home loans until Congress created it.
You don't anything more than a few years in the past, do you?
I certainly can't type; "know anything", of course.
The point of Fannie and Freddie borrowing at government rates is not that the specific rates are too low or too high, it is that a "privatised" entity which can borrow at rates only available to the U.S. government is not truly privatised.
I understood the irrelevance of your point in the prior post; it didn't increase in accuracy the second time that you posted it. Next time, make relevant observations, and we'll have something to talk about, because I'm still disappointed.
It isn't so much about the cost of capital, as it is about the promise of opportunity. If there is a belief that there are profits to be made, some will chase them, whether the entry price is high or low.
I find that most people who don't actually deal with a money for a living focus strictly on costs, and don't understand what actually motivates people. Austrians, take note: In the real world, profit seekers chase revenues and marginal benefit. Fixating on interest rates is the wrong approach; humans don't do that nearly as much as you think.
Here's my position on what ended the Great Depression: I don't know. - Megan McArdle
The jury is still out on evolution. - George W. Bush
Will, why are you maligning RW, the author of such gems of economic wisdom as "To get out of this recession, we need growth..." and "In the real world, profit seekers chase revenues..."? Clearly, he's a financial sophisticate the likes of which this world rarely has the privilege to host. If you don't understand that, you're beyond help and he shouldn't be bothered to explain it any longer.
I find that most people who don't actually deal with a money for a living focus strictly on costs, and don't understand what actually motivates people.
He's also a PhD psychologist.
Clay, given your fondness for inaccurate metaphors and apparent inability to digest a concept as basic as systemic risk, I'll take that last bit as a compliment. Thanks for playing.
RW, if you understood my point, which was that your characterization of Freddie and Fannie being privatised is false, why did you then write a complete non-sequitur, with your sarcastic remark about interest rates being the source of our ills, which had exactly nothing to do with what I wrote?
Look you are an ignorant, wholesale fraud, who has stupidly asserted that Fannie and Freddie were private entities, who has stupidly ignored the fact that a large primary and secondary market in home mortgages with extremely high loan to value ratios only came into being after Congress created an entity for the purpose of creating those markets. You have created a world in your mind, apparently because you are too damned lazy to examine whappened in the observable world.
why did you then write a complete non-sequitur, with your sarcastic remark about interest rates being the source of our ills, which had exactly nothing to do with what I wrote?
Why do I bother skimming your tripe if you don't even read it yourself?
You were the one banging on about interest rates when you argued that, "it is that a 'privatised' entity which can borrow at rates only available to the U.S. government is not truly privatised."
Obviously, the interest rate is of great concern to you. After all, you brought it up, believing (wrongly) that rates were a critical factor that explain present circumstances.
I shot your point down, because it remains as fallacious now as it was earlier. (No need for you to repeat it; it won't be true later today or tomorrow, either.)
Those who play the money game are more interested in the spread and the fees that the loans can generate than they are in the base rate. If the promise of return is there, they will pursue it, irrespective of the absolute interest rate. Profits matter more than price.
If anything, higher rate environments encourage greater "creativity" than do lower rate environments, because variable rate products and looser terms make money cheaper and easier for the consumer to get, which can be useful during those periods when money is relatively expensive.
But when money is cheap, as it was this decade, borrowers should have been flocking to fixed rate debt. It's obvious that the lenders had other ideas in mind for their borrowers.
Had the lending frenzy been driven by finance basics instead of fee generation, the lower interest rates of this decade should have spawned an abundance of fixed rate loans, and kept the exotic products to a minimum. (After all, exotic products aren't really needed when money is cheap.) But bankers and brokers obviously preferred these riskier products for their own profit-driven reasons that had little to do with the needs of the consumer or the economic system.
I suppose that I could type that more slowly, but it apparently won't help you or your friends, I'm afraid. Next time, I'll just cut and paste.
i love will allen
i HATE the stimulus package, and i am going to quit my job, because the messiah has been elected, and i now have free healthcare, mortgage is paid for, and i get major food stamps! Catch you on the flip side.
Everyone in the top ten percent of the tax bracket should just stop working, live on savings for 6 mos or more...how is this country going to continue? The wealthy stop working...someone is going to have to step it up...is Ob going to do it? Maybe Mishy
Or maybe A gore or N pelosi will stop flying around the world , in their private planes, and spend the dollars saved (instead of their "carbon credits:) to save this country's economy
The other thing, if i quit working, i will have to quit smoking cigs...(where will all your tax dollars come from?) I hope you now target the fatties, the multiple mcdonald visiters every day. Obesity kills more than cigarettes....why are smokers targeted? Lets pick on the obese.
(This has been a sarcastic editorial...i hope you al l enjoy it) Smoking is bad ummkay, Drinking is bad, ummkay. Why are they the only vices taxed? why are fast food, chips, junk food not taxed...i believe they cause more heart disease, cancer, diabetes, DEATH!
Please, doctors, you can weigh in. I do not go to doctors because i do not want to read "tobacco abuse" on my chart, whether i smoke one or 20 cigs a day. I also take offense at them asking me if i have suffered domestic abuse....is this a new thing? No wonder that someone with major medical coverage does not go to the doctor.
In conclusion, this country is whack, i am so ready to leave, move to anywhere else, and i will be taking my tax dollars, and the extra tax dollars i spend on alcohol and cigarettes. Good luck America. Hope your fast food junkies can pay the taxes i am. Hope the Messiah can keep it together..my son says he will be re-elected...i dont think so.
The economic recovery from Great Depression was a matter of expectation. Increase in money supply may be just a side product.
When there was World War II in the globe, the uncertainty could make investors and consumers keep money in their wallets, to prepare for the worst. This led to low consumption and low investment. Big government spending could not fool investors and consumers to spend more in investment and consumption.
When World War II was over, there was Marshall Plan, and begining of a peaceful period. This change in expectation encouraged businesses to increase their investment, consumers to increase consumption. Mass return of soldiers need to spend money on food, necessities, and these increased domestic consumption. Europeans needed to buy US goods and services after war, to rebuild almost everything. This is huge demand for goods and services in private sectors. Without fear of big war, businessmen would be foolish not to invest and to make money.
Zic - one of the key differences between your garden and the global economy is that you can see all your garden. No one can see all the global economy. We are dependent on statistics reported by other people, some of which are very unreliable (for a while, every region in China was reporting higher GDP growth than China was reporting for the whole of China), statistics that may well miss about half the important stuff, but we don't know that, etc. Even if top macroeconomists are as smart as you, I don't expect them to be able to be as effective under those circumstances.
Dhalgren - it's very insulting to biologists to compare our state of knowledge about macroeconomics to our state of knowledge about evolution. Biologists have done a lot of hard work in laboratories with things like fruit flies, peas, bacteria, or even directly examining DNA, etc, and outside the lab with breeding programmes, fossil digs, etc. Evolution can be caused and directly observed in a lab environment in controlled experiments, and has been. However, we cannot do controlled experiments on the global economy, and we can't even see it all at the same time. Even if we ignore all the possible causes for biases amongst economists, there is ample reason to think that macroeconomists can't be as confident about their science as evolutionary biologists are about evolution.
For this reason, it's unwise to compare Megan's uncertainty to Bush's stated uncertainity. Megan is being appropriately uncertain because we just don't have the scientific data to support certainity.
RW, you illiterate dunce, I specifically wrote that rate level was not what I was referring to. I merely was noting that an entity that could borrow at at rates only avaailable to the U.S. Government was an arm of the U.AS. Government, and not a private entity. You cannot possibly be this stupid, thus it simply must be the case that you are dishonest.
Or it could be that WWII - not just the massive war production, but the fact that much of the world, enemy and ally alike, were decimated after it, and thus could not compete with us - created the America we know today.
It's depressing to think about, but could it be that our "non-negotiable" way of life is predicated on militarily defeating all our competitors?
Personally, if that's the choice, I'd rather live in a peaceful world in which America is secure but not dominant, than one in which hegemony is predicated upon a state of constant war.
I merely was noting that an entity that could borrow at at rates only avaailable to the U.S. Government was an arm of the U.AS. Government
My browser has a cut and paste feature, but I'd prefer not to use it to requote myself. Nonetheless, you're on the wrong track, you don't get it, and I'm still disappointed with you.
The pricing of money was never particularly important, and Fannie and Freddie were not lumbering government agencies, but GSE's that were listed on stock exchanges, were owned by common shareholders desiring returns, and that strived for the same high earnings that every other lending institution did. If you believe that Fannie or Freddie were akin to the DMV, then you really don't know what you're talking about.
Kind of depressing reading all of these comments. Megan has a very nice post telling the simple truth: Nobody understands this very well. And then everyone just shows up and repeats his or her opinions, as if he or she did. Can't you tell when you don't really understand something?
What's more interesting to me than the question of what ended the Great Depression is what Megan's saying about the state of reason in our public discourse more broadly. We pretend that good ends = good means -- that if a policy goal is moral and just, it must also be the most effective for solving any given problem. My post on that:
http://www.jesselava.com/2009/02/quest-for-cognitive-consonance.html
Yes, you drooling half-wit, RW, Congress sold stock in Freddie and Fannie, thus privatising the upside, including the large campaqign contributions for various members of Congress. Congress, of course, also laid the entire risk of failure to repay their liabilities on the taxpayer, which is why they could incur debts at a price only available to those entities backed by the taxpayer.
In addition, their charter from Congress did not require that they employ capital in a way that maximized returns for shareholders, but rather that they increase the rate of howeownership. Here's a clue, Mellon: truly privatized entities do not have specific instructions from Congress as to what purposes their capital must be devoted to, nor can they incur liabilities as if those liabilities are guaranteed by the taxpayer. Again, prior to Congress creating these two entities, there was no market of any size, primary or secondary, in resedential real estate mortages with extremely high loan to value ratios, because truly private entities did not see it a a viable market, and thus did not risk capital in pursuit of it.
The sort of titanically deficient intellect it takes to describe Fannie and Freddie prior to September 2008 as "privatised" is simply breathtaking. Congratulations, you moron.
their charter from Congress did not require that they employ capital in a way that maximized returns for shareholders...
...Yet they did, anyway. If you follow markets and their performance, then you know that they followed the Wall Street model quite nicely.
Does reality ever intrude upon that right-wing inner sanctum of yours? (No need to answer that; I can tell that the answer is "no.")
Sorry for obtruding, RW, but Will Allen thinks it's appropriate to mock anyone who says that Fannie was privatized. Show him cites, show him FM's own home page, and his response will be along the lines of 'Sure - they - say they were privatized. That's what they want you to think. I'm surprised you're that gullible.' Such is the quality of wingnuttery around these parts.
Will Allen thinks it's appropriate to mock anyone who says that Fannie was privatized.
That only proves that he isn't the brightest bulb in the chandelier. But he's obviously upset, and deserves our sympathy. Well, mine, anyway.
I think RW and Scent of Violets may be being a bit disingenuous here: While Fannie and Freddie were *nominally* privatized (which is how Franklin and Jamie G managed to get multimillion-dollar bonuses), the facts are clear that Congress created both and told 'em what business they were to engage in. They were no more private entities than the U.S. Postal Service--regardless of any lip-service to the contrary.
That said, both Will and RW might want to consider lightening up a bit.
Oh, and I agree with Megan's point: there seem to be at least two major theories as to what ended the Great D, and both sides trot out decent arguments. So absent a vote, I think she makes a valid point: nobody really knows which is correct.
The problem with your formulation, sf, is that I can find all sorts of cites for the factual claim that FF was privatized in 1968. You are not making a factual claim, you are voicing an opinion as to what constitutes 'real' privatization, and as such, cannot ever be decided as being correct or incorrect.
The same goes with your notion about 'major' theories and 'decent' arguments; what you consider 'major' and 'decent' I would say are most definitely minor and fringe. Whose opinion should be given more weight?
I suggest we go with the people who have proven track records on economic issues, how many correct (and incorrect) calls they have made. It seems that the experts as rated by this system rather solidly endorse one theory and one set of arguments. And it ain't the one you think is the correct one.
In fact, this strategy of saying 'no one really knows' is just a YAN (Yet Another Notion) talking point being passed around by the usual suspects. The theory being, I suppose, that if 'conservative' economics has been tried and found wanting, well, at least 'liberal' economic policy prescriptions can be blocked.
Will Allen has been infecting the internet for the past 10 years. I used to see him over at Delongs blog. He doesn't know what he's talking about and is incapable of having a good faith discussion on anything. He just regurgitates the latest Cato paper, NRO talking point or Red State idea. Plus he insults you like a drunken sailor when you don't tell him he's the bestest thinker ever. In short he's a typical conservative American, part of the crew that flushed the US down the toilet and is trying to hide their mistake by blaming liberals for everything from dandruff to global cooling. He deserves a lifetime wingnut award. I should get The Editors right on it.
The book Conquer the Crash by Robert Prechter has a good explanation for the cause of the Great Depression - Chapter 2: When Do Depressions Occur? - and what ended it. You'll be surprised at what he has to say...
The problem with your formulation, sf, is that I can find all sorts of cites for the factual claim that FF was privatized in 1968. You are not making a factual claim, you are voicing an opinion as to what constitutes 'real' privatization, and as such, cannot ever be decided as being correct or incorrect.
I love it. Explain in detail why they weren't private entities--bearing in mind the definition of the term--and instead of arguing against said explanation, the retort is essentially: "But I can find all sorts of cites calling them private!", at which point words no longer have meaning and there's no purpose continuing. Classic.
I think RW and Scent of Violets may be being a bit disingenuous here ...
You think?
I'm wondering what Clay means by 'explain in detail'; the only sort of explanation is something like this:
Looks to me an awful lot like an opinion. You got anything else that would count as a 'detailed explanation'? On the other hand, let's be factual for a moment and look up the definition of privatization:
Was FM owned by private agents? Factually: yep. I don't know what else to say, other than saying this is an opinion on what the definition of privatization ought to be, rather than what it factually is.
That's the difference between you and me.
While Fannie and Freddie were *nominally* privatized
I have no idea what "nominally private" is supposed to mean. I do know that a private company with securities traded on rather public US stock exchanges is, well, private.
Fannie and Freddie operated with the objective of making money. That's what their shareholders demanded, and for a time, that's what they got.
I realize that the gut reaction of most of those posting here is to blame government for, well, everything. But if you take the blinders for just half a second and look at what Fannie and Freddie actually did and how they were operated, then you might discover that (a) major lenders across the board were aggressively chasing profits, so the situation was not limited to the GSE's and (b) subprime isn't even a fraction of the problem.
If you can't admit that, then look at the mirror if you're looking for something that is disingenuous. Clearly, the financial crisis isn't even close to being limited to Fannie and Freddie. Surely, even a hardened ideologue must understand that?