Monday, December 01, 2008

New Deal Policies Didn't End the Great Depression

One reason the New Deal couldn’t end the Depression and probably extended it is because it wasn’t merely a quick economic boost or the shoring up of vital institutions that, once fallen, might set off a domino effect on other businesses. Rather, over many years its programs merely swiped money from the relatively efficient private sector and gave it to government programs that were often deliberately inefficient. Anybody familiar with the architecture of structures built under the Works Progress Administration knows they are readily identified by their use of too much material, too much space, and hence too much labor.

As free-market economist Henry Hazlitt observed in his classic 1946 book, Economics in One Lesson: “For every public job created by a bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work...But there are other things that we do not see, because, alas, they have never been permitted to come into existence.”

FDR also spooked entrepreneurs, corporations, and would-be stock market investors with a tremendous tax attack. The income tax top marginal rate increased to 79% between 1930 and 1940 (see chart above), the corporate income tax rate doubled from 12 to 24%, and Roosevelt tacked on an “excess profits” tax to boot. He imposed an excise tax on dividends, liquor taxes, and a capital stock tax, while increasing liquor taxes. Finally, he instituted the Social Security payroll tax with a 2% rate.


11 Comments:

At 12/01/2008 9:58 AM, Blogger wcw said...

Uncritically reading the WSJ editorial page is a warning sign.

Uncritically reading Michael Fumento makes me question your sanity.

If you need it, please, get help.

 
At 12/01/2008 11:29 AM, Blogger 1 said...

wcw whines: "Uncritically reading Michael Fumento makes me question your sanity"...

Not offering intelligent alternatives makes it obvious you need help...

 
At 12/01/2008 11:37 AM, Blogger fboness said...

West coast whiner.

Got it.

 
At 12/01/2008 12:41 PM, Blogger wcw said...

1, do forgive me. I didn't realize you needed my help. An intelligent alternative to the WSJ editorial page are the WSJ news pages. The Journal is a fine paper, if no longer quite as good as the FT. Intelligent alternatives to Michael Fumento include our host (when he writes in his own words), you, me, and the zombified corpse of Carl "Meal Ticket" Hubbell. Anyone, really, except maybe Donald Luskin -- and I stress the 'maybe'.

fb, I am comfortable with my skill sets, which include math, macro trading and mocking mouthbreathing ideologues. I am better at the first two, but I try. Immer besser, as the Miele slogan goes.

 
At 12/01/2008 6:25 PM, Blogger spencer said...

How long do you expect people to believe that a tax increase enacted by Herbert Hoover long before the bottom in economic activity was the cause of the depression.

the tax increase you are talking about happened three years after the economic peak and one year before the depression bottom.

If you actually look at the data for the 1930s you find that there is a positive correlation between real gdp growth and the tax rate.
Moreover, you get the same positive correlation if you lag the tax increase by one year.
The actual data says there is a positive correlation between growth and the tax rate, just the opposite of what you claim. Show me any data to support your thesis.

 
At 12/02/2008 12:12 PM, Blogger 1 said...

"An intelligent alternative to the WSJ editorial page are the WSJ news pages"...

No it isn't wcw, those pages have far to many AP articles in them to be considered an alternative...

"if no longer quite as good as the FT"...

LOL! Yeah, I think reading a rag written by socialist Brits is always a good alternative to the facts...

"I am comfortable with my skill sets, which include math, macro trading and mocking mouthbreathing ideologues'...

Hmmm, good to the point where reality never has a chance to set in I see...

 
At 12/02/2008 11:17 PM, Blogger Arman said...

Well said Spencer.
I am aghast at how otherwise intelligent people ignorantly think that the start of the depression was in 1933.

 
At 12/03/2008 3:51 PM, Anonymous Anonymous said...

OK, so I liked this blog entry, then I was discussing it elsewhere and someone brought up a graph showing the GDP increasing during the same period.

How can I resolve the conflicting claims? It seems to me that there must be some number mangling going on to arrive at rising GDPs for this period, or the injection of inflated cash, or something.

Anyone have any ideas on the increasingly higher taxes, horrible unemployment rates...and claims of rising GDP for this period?

 
At 12/04/2008 1:47 PM, Anonymous Tony Danza said...

Maybe they had US GDP priced in Pounds from a depreciating dollar.

 
At 12/05/2008 6:03 AM, Blogger Arman said...

>How can I resolve the conflicting claims?<
There is only one set of GDP figures that I have found. Try and find another!
http://en.wikipedia.org/wiki/Image:Gdp20-40.jpg
There are two sets of unemployment figures floating, and one conflicts with the rising GDP that I have never seen disputed.
The depression ENDED in 1933. Conventional PROPAGANDA demands that FDR's anti right tactics would be detrimental to the economy. Educated (indoctrinated) opinion is validated through the fabrication of data.

 
At 12/07/2008 1:16 PM, Blogger Arman said...

The big problem is that an education in economics does not make you conversant with facts, but indoctrinates you with opinion. I was 20 years out of my business college when I became aware that the depression ended in 33. That is a very pertinent fact to be included in the curriculum. Why is it omitted?? Because it doesn't fit in with the indoctrinated opinion!

 

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