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Why all those Great Depression analogies are wrong.

8 points by peter123 18y ago

olefoo 18y ago
This is an excellent article and a good reminder that when it comes to the economy, we are all only feeling up part of the elephant. Just remember that the people who produce financial porn, and who get paid to describe the deals and the play by play are not in the business of telling you the truth; they are in the business of selling ads for financial services.
dilanj 18y ago
"A final difference: After the 1929 crash, the nation had to wait more than three years for a president who simply wasn't up to the job to leave the scene. This time, we've got to wait only two more months." Golden.
- byrneseyeview 18y ago
  A cheap shot. FDR ran on a platform of cutting spending, balancing the budget, and repealing prohibition. Guess which one of these he actually did! Guess which President was the first to decide that a program of massive aid, make-work, and bailouts would be the best way to end a recession (hint: his initials were not FDR). Guess which recession was the first to which the US responded with such policies! Guess which recession was longer and more severe than any before it!
  - Darmani 18y ago
    He actually did try to balance the budget for a while -- for the first several years, whenever he raised spending, he raised taxes as well.
    - byrneseyeview 18y ago
      I don't think anybody runs on a platform of trying for a while, then giving up, and doing the exact opposite of what was promised, only in a more extreme fashion than any of your predecessors. If FDR could not keep his promises, he still did a bad job -- being an incompetent who fooled people into giving him authority doesn't make him morally superior to a mere liar.
      - pfedor 18y ago
        Well, there's also the possibility that he tried one thing for a while, which didn't work very well so he switched to something different. As to whether he did a good job or not, the fact that he was reelected three times seems to indicate that he didn't do too badly.
        byrneseyeview 18y ago
        Horseshit. People only say that kind of thing to rationalize supporting everything someone does, even when that someone is a liar. Maybe FDR was lying, maybe he wasn't. Maybe he secretly changed his mind without telling anybody. Then, of course, you have to admit that the wrong guy won in 1932, since what FDR ended up doing was more of what Hoover did: public works, bank bailouts, and more government intervention in the economy. As to whether he did a good job or not, the fact that he was reelected three times seems to indicate that he didn't do too badly. 1972. 2004. Do you have actual political beliefs, or do you just assume that the average voter defines the morally correct view? Since the FDR who ran for office in 1932 has basically nothing to do with the FDR who rant the country thereafter, you have a lot of 'splainin to do. Somehow, the voters were right to 1) vote for the guy who promised to reverse Hoover's policies, and 2) vote for the guy who then changed his mind and continued them. Meanwhile, FDR was right to 1) do exactly what Hoover didn't, and then 2) do exactly what Hoover did. I don't think there's even a name for beliefs this ludicrous.
        pfedor 18y ago
        People only say that kind of thing to rationalize supporting everything someone does, even when that someone is a liar. Why on Earth do you think I would need to rationalize supporting everything president Roosevelt did? I wasn't even born then. Do you have actual political beliefs, or do you just assume that the average voter defines the morally correct view? I don't particularly care about the "morally correct" view, I do assume however that voters have some sense of their own well being, and if they feel things are getting worse they will more likely vote for change. That's why democracy works.
- anamax 18y ago
  FDR's policies lengthened the Great Depression by 7 years. http://www.newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx http://www.newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prol... Then again, Joe Biden thought that FDR gave a presidential address by TV in 29 to reassure the country.
byrneseyeview 18y ago
I can't believe he would be so foolish as to cite safety nets as proof that this won't be so bad. The biggest crashes so far have been in mortgage-backed securities (created by government entities, owned by government entities, insured by government entities, subsidized by taxes) and banks (heavily-regulated -- it's not like there's a Fed equivalent for oil companies, that would give Exxon millions of barrels of oil at a huge discount to market prices if they asked nicely). Meanwhile, loosely-regulated hedge funds are outperforming almost every other asset class. Safety nets do not prevent crises; they delay and concentrate them. People take safety nets into account -- if we knew, for example, that the government wouldn't let stocks drop more than 20% without bailing us all out, we'd all leverage our portfolios four to one (not strictly legal, but you can do it fairly easily with derivatives). This would make the 20%-drop insurance plan far too expensive, and make stocks so overpriced that such a drop would be inevitable. GSEs, deposit insurance, social security, and unemployment insurance all have similar moral hazard issues. The effective insurance plans are not the ones that reduce risk (assuming behavior is the same). They are the ones that reduce actual risk relative to apparent risk -- which means they could be the rules that increase risk. Unfortunately, "Effective, but superficially harmful" is a perfect description of a policy that will never be enacted by a democratically elected government, so we're stuck with what we have.
quantumhobbit 18y ago
Dostoevsky said, "All happy families are alike; all unhappy families are unhappy in their own way." The same can be applied to the economy. We aren't likely to repeat the mistakes that led to the Great Depression. Instead we find new and interesting ways to screw up. I doubt that this will be anywhere near as bad as the Great Depression. However, the claim that this time is different shouldn't be as reassuring as it sounds. We simply can't evaluate this depression(or recession if you prefer) in terms of the last. Its apples and oranges.
- david927 18y ago
  That's Tolstoy (Anna Karenina). But I agree with your point. It won't be my grandma's depression, it will be my own.

8 points by peter123 18y ago

This is an excellent article and a good reminder that when it comes to the economy, we are all only feeling up part of the elephant. Just remember that the people who produce financial porn, and who get paid to describe the deals and the play by play are not in the business of telling you the truth; they are in the business of selling ads for financial services.

dilanj 18y ago

"A final difference: After the 1929 crash, the nation had to wait more than three years for a president who simply wasn't up to the job to leave the scene. This time, we've got to wait only two more months." Golden.

byrneseyeview 18y ago
A cheap shot. FDR ran on a platform of cutting spending, balancing the budget, and repealing prohibition. Guess which one of these he actually did! Guess which President was the first to decide that a program of massive aid, make-work, and bailouts would be the best way to end a recession (hint: his initials were not FDR). Guess which recession was the first to which the US responded with such policies! Guess which recession was longer and more severe than any before it!
- Darmani 18y ago
  He actually did try to balance the budget for a while -- for the first several years, whenever he raised spending, he raised taxes as well.
  - byrneseyeview 18y ago
    I don't think anybody runs on a platform of trying for a while, then giving up, and doing the exact opposite of what was promised, only in a more extreme fashion than any of your predecessors. If FDR could not keep his promises, he still did a bad job -- being an incompetent who fooled people into giving him authority doesn't make him morally superior to a mere liar.
    - pfedor 18y ago
      Well, there's also the possibility that he tried one thing for a while, which didn't work very well so he switched to something different. As to whether he did a good job or not, the fact that he was reelected three times seems to indicate that he didn't do too badly.
      - byrneseyeview 18y ago
        Horseshit. People only say that kind of thing to rationalize supporting everything someone does, even when that someone is a liar. Maybe FDR was lying, maybe he wasn't. Maybe he secretly changed his mind without telling anybody. Then, of course, you have to admit that the wrong guy won in 1932, since what FDR ended up doing was more of what Hoover did: public works, bank bailouts, and more government intervention in the economy. As to whether he did a good job or not, the fact that he was reelected three times seems to indicate that he didn't do too badly. 1972. 2004. Do you have actual political beliefs, or do you just assume that the average voter defines the morally correct view? Since the FDR who ran for office in 1932 has basically nothing to do with the FDR who rant the country thereafter, you have a lot of 'splainin to do. Somehow, the voters were right to 1) vote for the guy who promised to reverse Hoover's policies, and 2) vote for the guy who then changed his mind and continued them. Meanwhile, FDR was right to 1) do exactly what Hoover didn't, and then 2) do exactly what Hoover did. I don't think there's even a name for beliefs this ludicrous.
        pfedor 18y ago
        People only say that kind of thing to rationalize supporting everything someone does, even when that someone is a liar. Why on Earth do you think I would need to rationalize supporting everything president Roosevelt did? I wasn't even born then. Do you have actual political beliefs, or do you just assume that the average voter defines the morally correct view? I don't particularly care about the "morally correct" view, I do assume however that voters have some sense of their own well being, and if they feel things are getting worse they will more likely vote for change. That's why democracy works.
anamax 18y ago
FDR's policies lengthened the Great Depression by 7 years. http://www.newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx http://www.newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prol... Then again, Joe Biden thought that FDR gave a presidential address by TV in 29 to reassure the country.

byrneseyeview 18y ago

I can't believe he would be so foolish as to cite safety nets as proof that this won't be so bad. The biggest crashes so far have been in mortgage-backed securities (created by government entities, owned by government entities, insured by government entities, subsidized by taxes) and banks (heavily-regulated -- it's not like there's a Fed equivalent for oil companies, that would give Exxon millions of barrels of oil at a huge discount to market prices if they asked nicely). Meanwhile, loosely-regulated hedge funds are outperforming almost every other asset class. Safety nets do not prevent crises; they delay and concentrate them. People take safety nets into account -- if we knew, for example, that the government wouldn't let stocks drop more than 20% without bailing us all out, we'd all leverage our portfolios four to one (not strictly legal, but you can do it fairly easily with derivatives). This would make the 20%-drop insurance plan far too expensive, and make stocks so overpriced that such a drop would be inevitable. GSEs, deposit insurance, social security, and unemployment insurance all have similar moral hazard issues. The effective insurance plans are not the ones that reduce risk (assuming behavior is the same). They are the ones that reduce actual risk relative to apparent risk -- which means they could be the rules that increase risk. Unfortunately, "Effective, but superficially harmful" is a perfect description of a policy that will never be enacted by a democratically elected government, so we're stuck with what we have.

quantumhobbit 18y ago

Dostoevsky said, "All happy families are alike; all unhappy families are unhappy in their own way." The same can be applied to the economy. We aren't likely to repeat the mistakes that led to the Great Depression. Instead we find new and interesting ways to screw up. I doubt that this will be anywhere near as bad as the Great Depression. However, the claim that this time is different shouldn't be as reassuring as it sounds. We simply can't evaluate this depression(or recession if you prefer) in terms of the last. Its apples and oranges.

david927 18y ago
That's Tolstoy (Anna Karenina). But I agree with your point. It won't be my grandma's depression, it will be my own.