this sounds an awful lot like the old debate trick I've previously referred to as the fiat shuffle. Just to refresh: The way the trick works is that, for the purposes of arguing the merits of a given policy, you assume away various real-world political barriers to the policy's being enacted--in debate lingo, you get to "fiat" the policy and restrict the argument to whether this would be a good thing without fussing over whether you could get the votes in the House (or whatever) to do it. The shuffle comes when you assume the same political constraints back in again as part of an argument that the proposed policy would create pressure for other salutary reforms, or to dismiss alternatives as infeasible.Now, this isn't a clear case of fiat shuffle, because it's easy to imagine that we might have had the political will to resist the bailouts, but that this would not have been sufficient to forestall still more aggressive intervention later assuming things would have gotten far worse. Still, despite a an initial defeat in the house, the bailout ultimately passed by a 3-to-2 margin there, and by an even more lopsided 3-to-1 vote in the Senate. Which is to say, the world in which we didn't do the bailout is clearly a world with a pretty radically different political culture, presumably populated by legislators with a very different average worldview. When would the inhabitants of that world have given up their resistance to intervention, and how much more dramatic would the intervention have been when they did? Damned if I know, but projections based on the current composition and views of Congress probably don't apply.
I'm not totally sure that's true. If so many conservative and libertarian pundits hadn't caved, I can imagine a world in which the Republicans continued their intransigence, and the Democrats (for understandable political reasons) refused to pass it without them.
But leaving this aside, we actually have some empirical evidence here. In 1929, the federal government and the federal reserve took little action to bail out the banks. In 1932, we elected FDR.
That was a long time ago. But when you look at modern financial crises from Iceland to Argentina, what you see is that they have a tendency to produce some, well, radical changes in the political culture. Moreover, those trends usually tend towards populism, redistribution, and state control of substantial segments of the economy. So if we hadn't had our Pelosis now, we'd have had them by 2012. To a first approximation, I'd say that the bailouts are the reason that we won't have a single-payer health system or actual national automakers any time soon.
You presume Friedman as wrong? We got fdr because Hoover kept money tight. Had he not, the depression would have been over before 32.
Fdr might have never happened.
It's not clear how the Fed would have kept the money supply from contracting without bailing out banks.
You might be right but I think your reasoning is weak.
..we actually have some empirical evidence here. In 1929, the federal government and the federal reserve took little action to bail out the banks. In 1932, we elected FDR.
No, you don't have proof, you have 20/20 hindsight.
His election proves that America prefered FDR (and Democrats generally) to Hoover but, from the perspective of 1932, nobody knew exactly what policies FDR was going to implement, and we have no way of knowing the policies that people hoped he'd implement. The smack-down the Congressional Democrats took later in the 1930s shows that maybe FDR's populism might not have been all that popular.
If some recent writers are correct that FDR's policies actually aggrivated the Depression then you are also arguing a self-fulfiling prophecy. It's akin to someone in 2079 saying that the financial difficulties we're currently working through weren't so bad because Obama couldn't pass national health care in 2009.
..the Democrats (for understandable political reasons) refused to pass it without them.
Oh, come on. Probably a million commentors pointed out that if the Democrats passed the bailout without Republican votes and it worked (as it appears it may have), they would have been political heroes for a generation. That they declined to do this is pretty convincing evidence they either had no confidence in the plan, or willing to put the US economy in jeopardy for political advantage in the 2008 elections.
The smack-down the Congressional Democrats took later in the 1930s shows that maybe FDR's populism might not have been all that popular.
Did Republicans end up controlling either legislative body back then? Or just make it harder for FDR to pass his programs? The reason they suffered any smackdown was because FDR listened to the fiscal scolds(the Pete Petersons of his day) and stopped New Deal programs before the country recovered enough from the Great Depression.
But when we elected FDR, it was on a platform of balancing the budget, reducing the size of government, and rolling back Hoover's economic interventions. Then he got into office and went in exactly the opposite direction. It's hard to say that he had a clear public mandate to do so! For a quick summary, see the Wikipedia article, which says that "Roosevelt campaigned on the Democratic platform advocating "immediate and drastic reductions of all public expenditures," "abolishing useless commissions and offices, consolidating bureaus and eliminating extravagances reductions in bureaucracy," and for a "sound currency to be maintained at all hazards."" In other words, he ran as what we would now call, more or less, a libertarian, but what was then called a Cleveland Democrat, against Hoover's program of conservative big government . . . which was actually rather like GWB's in spirit.
Yes, but he also got re-elected three times
That FDR was re-elected doesn't save your point. You said:
In 1929, the federal government and the federal reserve took little action to bail out the banks. In 1932, we elected FDR.
Now, the most you can say is "in 1936, we knowingly elected someone who would bail out the banks." For 7 years preceding, it was Hoover and FDR, from what I understand, intervening vigorously. Something tells me that the average bailout-hating libertarian wouldn't really consider the response to that as having much to do with the hypothetical response to a non-bailout.
This won't wash. First of all, the country did not just elect FDR, but a large number of freshman Democrats, some of whom who were clearly quite populist. Second of all, the New Deal was extremely popular--if it had not been, FDR and Congress would have had to rethink. As it was, they picked up seats in 1934 and 1936.
In 1929, the federal government and the federal reserve took little action to bail out the banks. In 1932, we elected FDR.
Did FDR bail out banks? Or just bank depositors?
That depends on how you count going off the gold standard, the FDIC and its rather slapdash certification process during the bank holiday. Later, there were more direct programs.
"you assume away various real-world political barriers to the policy's being enacted"
That is indeed required for libertarians to believe they will have any real effect on gov't. The real world problem is that so many people are stupid or lazy or both, and vote that way. Functioning libertarianism requires at least a modicum of intelligence and self-discipline.
"In 1929, the federal government and the federal reserve took little action to bail out the banks. "
From Nov of 1929 to Apr of 1930 the stock market rallied hard, and people thought the worst was over and it was back to the roaring '20s. (sound familiar?). There would have been no point for massive policy changes.
Once the Great Depression was on in full (mid-1930 and on) the Fed tried to increase the money supply...and it failed, just as a dramatic increase in the current Fed's balance sheet, "quantitative easing," and other manipulations are failing to re-ignite inflation, just as such policies failed for the last 20 years in Japan. All sorts of efforts were undertaken to "fix" one industry after another, and if you took the dates off the policies we probably couldn't tell Hoover's from FDR's.
All discussion of the bailouts rests on Post Hoc logical fallacy. "The economy was saved by the New Deals (there were two)," "the economy was ruined by the New Deals," "it took a World War to end the Depression," etc. We might as well suggest that 9/11 was good for the stock market. Oh yeah, a week after the market reopened we had a 9 month rally, the largest of that bear market to that time. Anyone want to argue that death and destruction generate economic prosperity?
Economic prosperity is all about production. Since the gov't produces nothing, logic dictates that when political managers spend a trillion dollars (giving it to their previous colleagues, for the most part), it comes from somewhere. Either they borrow it, tax it, or steal it (via simply printing the money) from someone. That great sucking sound you hear is capital, the seed-corn of production, being diverted from the private economy and, once laundered through the U.S. Treasury, doled out to cronies and favored interests.
Economic historian Robert Higgs has argued that the reason the Great Depression was so deep and long was that people with capital were afraid to invest it in production when a new edict could take your property on any political whim (think about Chrysler and GM bondholders who were literally expropriated by the current administration's "fix" of the car industry).
If you think the bailout(s) so far have protected libertarians from a worsening fate, you're assuming that Fukayama is right and we've reached the end of history. My suggestion is to stick around...2008 was just the warm-up and the recent relief is nothing more than the eye of an historic economic hurricane.
http://mises.org/story/2902
The government did plenty. I'm confused how you could fall for the classic liberal economics interpretation: If there's an "R" they fucked everything up, if there's a "D" next to their name they were the savior of the world. Bush and Hoover were far from "lassiez-faire" and more interventionist than most Democratic presidents, up to our current one.
They clearly didn't do enough, because the banks kept failing.