Austrian Economics and the Great Depression

[Renegen]

Quote from Cutten:
Argentina pursued a massive government stimulus plan, restrictions on banks, nationalizations, currency and capital controls, increased taxes etc - the classic Keynesian/socialist recipe. Brazil, in almost identical circumstances, hired a former Soros economist and made him central bank chief, hiked rates into the high teens, and pursued a policy designed to get spending back in line with taxation. Would you care to guess about the relative economic performances of both those countries since then?

Yet despite all this, despite the economic performance under FDR, despite Japan's 19 year doldrums since the 1990 bust began, despite the success of laissez-faire in Asia and Brazil compared to the disasters of socialism in Argentina, or 1970s Britain and America, people still think that government intervention is the right response to a bad recession. So we'll see the same BS happen again and again - don't count on the outcome being any different this time. [/B]

If you're going to use extremely easy and simplistic economic view, so will I. Look at these two GDP numbers :

Argentina GDP growth
2008 7.03
2007 8.63
2006 8.45
2005 9.15
2004 9.10
2003 8.75
2002 -10.75
2001 -4.40

Look at those numbers, 8, 9%. You talked right out of your ass without even spending 5 seconds to look them up. In 2001 they had their crisis and the people stood up and kicked the president out of the country. The low numbers are understandable.

Brazil GDP growth

2008 6.38
2007 5.93
2006 3.76
2005 3.16
2004 5.71
2003 1.17
2002 2.64
2001 1.35


HAHA, you are a farce. It's so typical of brainwashed sheep to repeat what others have said without ever checking the facts, bah bah bah. Is that how you also do your trading?

You have no idea what you're talking about. Shock therapy (what you suggested worked in Brazil) only leads to destruction of many industries because of extreme high interest rates and then foreigners come and buy assets. Also, Argentina has had an extremely eventful political situation.

Their military dictatorship ended in 1983, then from that point to 2001 it was ruled by foreign corporations ruling the country and bribing presidents. Since 2001 when the people revolted, it has started following policies that are good for itself.

The biggest myth is that countries follow policies good for "their economy". They DO NOT. They follow policies good for "their elites". Unless you kick them out like Argentina did in 2001, you won't succeed.

Or what about the fact Argentina has positive current account while Brazil negative? Talk about better responsible financially. There are so many statistics that prove you wrong, but since you were so simple all I needed was to show GDP.

 

[Daal]

Quote from Cutten:

Take a look at the GDP, unemployment, stock and bond market data for the 1930s. Unemployment was in double digits for years, an unprecedented situation. Also bear in mind that Hoover implemented a lot of statist policies too.

Lots of economic data(industrial production, wholesale prices) BOTTOMED exactly in 1933, was this a result of FDR policies?Pretty likely, not the spending but taking the US off the gold standard and inducing inflationary expectations

 

[fhl]

Quote from Renegen:

If you're going to use extremely easy and simplistic economic view, so will I. Look at these two GDP numbers :

Argentina GDP growth
2008 7.03
2007 8.63
2006 8.45
2005 9.15
2004 9.10
2003 8.75
2002 -10.75
2001 -4.40

Look at those numbers, 8, 9%. You talked right out of your ass without even spending 5 seconds to look them up. In 2001 they had their crisis and the people stood up and kicked the president out of the country. The low numbers are understandable.

Brazil GDP growth

2008 6.38
2007 5.93
2006 3.76
2005 3.16
2004 5.71
2003 1.17
2002 2.64
2001 1.35


HAHA, you are a farce. It's so typical of brainwashed sheep to repeat what others have said without ever checking the facts, bah bah bah. Is that how you also do your trading?

You have no idea what you're talking about. Shock therapy (what you suggested worked in Brazil) only leads to destruction of many industries because of extreme high interest rates and then foreigners come and buy assets. Also, Argentina has had an extremely eventful political situation.

Their military dictatorship ended in 1983, then from that point to 2001 it was ruled by foreign corporations ruling the country and bribing presidents. Since 2001 when the people revolted, it has started following policies that are good for itself.

The biggest myth is that countries follow policies good for "their economy". They DO NOT. They follow policies good for "their elites". Unless you kick them out like Argentina did in 2001, you won't succeed.

Or what about the fact Argentina has positive current account while Brazil negative? Talk about better responsible financially. There are so many statistics that prove you wrong, but since you were so simple all I needed was to show GDP.

let's see
here's a chart of credit default prices

yeah, that argentina, that's some country.

 

[makloda]

Quote from Cutten:It is also not hard to get out of a post-bubble bust. Look at Asia in 1997-98 - they had a bust even worse than the current one. Yet by 2000 they were fine [..] just pursue laissez-faire, as Asia unintentionally did in 1998 onwards, and let the markets bust out unproductive activity and poorly managed businesses, and then new ones will arise in their place.

You conveniently failed to mention that the MAJOR EXPORT MARKETS of the south-east Asian nations were not in a recession in 1998: USA and Western Europe. They happily continued to import goods from Asia.

How would Asia have fared in 1998 with their laissez-faire approach had US and Western European demand for Asian exports imploded by 30% annually?

 

[Daal]

Quote from Cutten:

Argentina pursued a massive government stimulus plan, restrictions on banks, nationalizations, currency and capital controls, increased taxes etc - the classic Keynesian/socialist recipe. Brazil, in almost identical circumstances, hired a former Soros economist and made him central bank chief, hiked rates into the high teens, and pursued a policy designed to get spending back in line with taxation. Would you care to guess about the relative economic performances of both those countries since then?

How come the evidence of the 30's is that countries that had government INTERVENE in the gold standard and print money had better industrial production, lower real wages, higher employment, lower real interest rates, better stock market performance, less price deflation compared to the countries that stuck to the gold standard

I mean really, take a look at bernanke's book, the evidence is so overwhealming its not even funny. We are talking about a sample of 26 COUNTRIES here, the mean of that data is better in the countries where the government followed the correct monetary policy.

When they were doing the wrong one, the data usually improved when they changed. This isnt Jim Rogers picking examples that fit his beliefs here, we are talking a sample of TWENTY SIX COUNTRIES. I encourage you to take a look at his charts and tables

 

[jueco2005]

Simple.........a recession began after the market began correcting itself from the 20s bubble............however the fed made things much worse by reducing credit and money in circulation.

Countries that expanded the money supply when their GDP was below their potential GDP experienced real growth because there was demand for it. Nothing wrong with that.

I really dont see a contradiction. But I think there is no right or wrong monetary policy.............there should be no monetary policy.

Quote from Daal:

How come the evidence of the 30's is that countries that had government INTERVENE in the gold standard and print money had better industrial production, lower real wages, higher employment, lower real interest rates, better stock market performance, less price deflation?

 

[hofficita]

Quote from Cutten:

Government activity can definitely create wealth. Just look at any society that successfully fought a defensive war, or that went from anarchy or rule by warlords to civilised society. The US, UK, and other allied governments prevented huge losses by winning WWII rather than allowing Hilter to take over the world. Police and courts provide immense value by deterring and punishing crime, and taking offenders off the streets. The creation of the European Union stopped centuries of bloodshed in that continent. All of these are government action and they are extremely valuable.

Nonsense.

All the examples you cite are of government acting to limit loss and destruction by preventing acts of aggression. No wealth creation there.

This civilizing of society provides the conditions for wealth creation by allowing entrepreneurs to focus their efforts on production and technology instead of worrying about being slaughtered in their sleep.

This function of government is fulfilled at a net cost to society.

 

[zdreg]

Quote from fhl:

let's see
here's a chart of credit default prices

yeah, that argentina, that's some country.

outdated but not as much as yours.
as of 1/23/09 USA 74.9 at the start of 2008 USA was 8.0. this is avery poor performance.

 

[Cutten]

Quote from makloda:

You conveniently failed to mention that the MAJOR EXPORT MARKETS of the south-east Asian nations were not in a recession in 1998: USA and Western Europe. They happily continued to import goods from Asia.

How would Asia have fared in 1998 with their laissez-faire approach had US and Western European demand for Asian exports imploded by 30% annually?

You might as well ask how would Argentina have fared with their government intervention approach had 2002-2007 seen an implosion of demand for their exports, rather than a synchronised global boom. My claim was never that a laissez-faire approach would somehow eliminate recessions or even depressions, merely that it would reduce their damage, and increase long-term growth, relative to more heavy-handed government intervention and central planning.

Can you see the flaw in your logic? You are not applying the "other things being equal" concept.

Essentially, you are making an illogical assumption that if a situation involving laissez faire had been bad, that shows laissez faire is bad. But that is not a valid conclusion at all. One must conclude not only that laissez faire would have had bad results, but that the results would have been WORSE than if - other things being equal - a government intervention solution was followed.

In the example of Asia, if you say "if the export markets were in depression, the crisis would have been much worse" (true), you cannot then logically conclude that this means the laissez faire approach would have been discredited. You need to show that if there was a global depression, the laissez faire outcome would have been *worse* than the outcome of a government intervention approach during an equally severe global depression. You need to make other things be equal.

Being economics, it is impossible to do controlled experiments. But you can at least try to keep your thought experiments as close to "controlled" (i.e. isolate exogenous variables) as possible. Introducing a hypothetical depression for the laissez-faire examples, while not applying the same scenario to the government intervention scenarios, is biased and will clearly lead to illogical and misleading conclusions.

If you notice, I did actually try to do some side-by-side comparisons, for example Argentina vs Brazil. Why did Brazil do well whereas Argentina did badly? World economic conditions were the same for both countries, after all, since their crises and aftermath practically coincided. With others things being as equal as possible, more laissez-faire Brazil trounced socialist Argentina on economic performance and recovery. How come?

 

[Cutten]

Quote from Daal:

How come the evidence of the 30's is that countries that had government INTERVENE in the gold standard and print money had better industrial production, lower real wages, higher employment, lower real interest rates, better stock market performance, less price deflation compared to the countries that stuck to the gold standard

I mean really, take a look at bernanke's book, the evidence is so overwhealming its not even funny. We are talking about a sample of 26 COUNTRIES here, the mean of that data is better in the countries where the government followed the correct monetary policy.

When they were doing the wrong one, the data usually improved when they changed. This isnt Jim Rogers picking examples that fit his beliefs here, we are talking a sample of TWENTY SIX COUNTRIES. I encourage you to take a look at his charts and tables

I'm aware of that and agree with it. However, please note that a gold standard as operated in the 1930s (an era of central banking) is a *government policy* imposed by force, not a free market solution. At no point in this thread or elsewhere have I said a gold standard is the best idea, or even a good idea. It has its pros and cons but is definitely NOT laissez-faire. Central banks by definition are not laissez-faire.

I therefore refer you to my earlier post - please try to understand what laissez-faire actually is before shooting down straw men.