History Repeating

Anyone who reads this blog regularly will know of my derision for Keynesians, and that I find the fact that the theories they hold so dear to are currently in prominence throughout the world's corridors of power deeply disturbing.

I've said this before and I'll say it again - history proves you can't spend your way out of a deep recession/depression. And reinflation may work in a shallower recession, such as the NASDAQ downturn at the start of the century, but all this means is that you delay an inevitable recessionary/depressionary crisis that makes its predecessors pale in comparison in terms of economic devastation.

That's what I believe we're looking at now, as in the 1930's: the bubble that cannot be reinflated. And trying to do so will only worsen the situation.

I always bang on about the Great Depression and how, contrary to the views of the prevailing mainstream consensus (that same prevailing mainstream consensus who didn't see this coming when it was staring anyone of the Austrian persuasion in the face for years), it was - FACT - too much monetary, fiscal and regulatory government intervention which caused the "Great"Depression. Emphasis on "Great". In that FDR greatly deepened, entrenched, and generally worsened the crisis. That is FACT.

But just to prove my point, and because I'm too lazy to produce any of my own stats, I'll give you some nuggets of solid statistical fact from Robert Murphy's new book, "The Politically Incorrect Guide to the Great Depression and the New Deal".

One prevailing nonsense totally taken apart by Murphy is that of Hoover as Free-Market-Do-Nothinger, following whose tenure Roosevelt had to come in and fix everything.

The only way this little story could be any further from the truth would be if Hoover was also secretly an Egyptian woman and Roosevelt a closet sufferer of syphilis. Here are the FACTS (Factually Accurate Cunting Truths, Shitheads!):

"Hoover's response to the stock market crash was an enormous increase in government spending, with the budget exploding by 42 percent over his first two years … it is true that Hoover blinked and tried to tame the unprecedented (at the time) peacetime deficits. But this was only after the "stimulus" approach failed horribly."

Stimulus in the 1930's: FAIL
Stimulus today: WILL ALSO FAIL.

Because the approach fundamentally does not work. In fact, the government is the most inefficient "spender" in society. Spending can stimulate growth if consumers want to spend, but they will only spend at the level they are comfortable with, and on what they think is best for them - and they're a damn sight clearer on what is the best, most efficient way to spend their money than the government is with their - no, sorry, our - money. And by taking our money and spending it on the utter shit they do - do I need FACTS to back up that assertion, I mean we see it literally every single day, on every hare-brained half-baked initiative and authoritarian scheme - they take from the productive parts of the economy and give it to the unproductive. The same way that in the bailouts, they give to the unproductive and implicitly take from the productive.

Another FACT, this time countering monetarist misconceptions:

"So we see that immediately following the stock market crash, the Fed began flooding the market with liquidity and in fact brought its rates down to record lows…. If the ostensible cause of the Great Depression — the one factor that set it apart from all previous depressions — was the Fed's unwillingness to provide sufficient liquidity, then how could it possibly be that the Fed's record rate cuts proved inadequate to solve "the problem?" "

Record low interest rates and excess liquidity in the 1930's: FAIL.

Stands to reason that those policies repeated to combat this depression will, also, FAIL

Are there any historical successes in dealing with a depression, then? Is there any hope *sob sob*.

Why, yes, little Helm's Deep boy, there is always hope. Enjoy these couple of FACTS:

"In the Austrian view, depressions come about because expansion of bank credit results in malinvestments. Because these need to be liquidated, the government should follow a "do nothing" policy that allows the market to return to normal conditions. When this policy was followed, recovery from depression took no more than a few years, in the 1873 depression, in contrast to the total failure to recover during the New Deal. The results were even better in the 1920–1921 depression, when both Wilson and Harding slashed government spending: "the 1920–1921 depression was so short-lived that most Americans today are unaware of its existence." (p. 71)"

But sadly, one can't help but think that this solution is not one which is around any nearby corner. It's far more likely that something like this is around the bend:

"Ordering the public to turn over its gold — under penalty of a $10,000 fine and up to ten years in prison — was a clear-cut robbery."

That was Roosevelt's gold policy. Seeing as Roosevelt is Obama's historical bumchum, and Gordon Brown is his present-day bumchum, I may renege on buying an ounce of gold when my trust fund comes through in September. What thieving bastards (they will probably be).

So, basically, to sum up, either the Keynesians are right, and the only problem with the various attempts at stimuli in the 1930's was that they weren't enough (a theory with absolutely no basis in reality or history), or we're all f*cked.

Which is it?

H/T David Gordon at Mises blog.