3 ms·

One of the key things that made the 30s so horrible was that Hoover and Roosevelt both pressured industry to not cut wages, which they complied with, but they c

One of the key things that made the 30s so horrible was that Hoover and Roosevelt both pressured industry to not cut wages, which they complied with, but they cut employment instead.

WalterBright 3y ago
The key thing was the Fed mismanaging and misunderstanding how money worked. My dad (grew up in the 30s) said that simply "nobody had any money".
- throw0101b 3y ago
  > The key thing was the Fed mismanaging and misunderstanding how money worked. The key thing was the Fed was (early on) complying with how the gold standard worked, which is a finite amount of cash being available, and only being able to be increased by having more of the shiny stuff. > When the Great Depression hit in 1929, the Fed’s instinct was to do little and let the economy and markets correct. But the Fed seemed to have no sense of how big the credit bubble from the 1920s was. Consequently, from 1929–1933, the Fed remained committed to a tight monetary policy. Under the gold standard then in force, when the gold balances held by the government contracted, the money supply did so as well. Faced with the increasing economic turmoil, US businesses and the public at large trusted gold more than paper currency. Overseas investors, fearing a potential devaluation of the dollar, preferred gold too. This created a gold drain. As the Fed’s gold stocks declined, the United States unwittingly reduced credit in the economy. Over the 1929–1933 period, the US money supply contracted sharply, declining by roughly one third between 1929 and 1933, and the country experienced its worst ever downturn, with unemployment soaring to roughly 25%. * https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost-of-1937-the-fed-stalls-on-rate-hike/ https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost... This is one of the reason why the gold standard (or any "hard" currency) is a bad idea: * https://www.moneyandbanking.com/commentary/2016/12/14/why-a-gold-standard-is-a-very-bad-idea https://www.moneyandbanking.com/commentary/2016/12/14/why-a-... The sooner the US (and other countries) got off the gold standard, the sooner their economies started to recover: > In the end, recovery from the Great Depression does not begin until countries give up on the combination of the Bagehot Rule and of commitment to sound gold-standard finance. Those countries that have central banks willing to print up enough money so that people are willing to spend it--it is when you adopt such policies that your economy begins to recover. If you don’t, you become France, which sticks to the gold standard all the way up to 1937, and never gets a recovery. When World War II begins, Nazi Germany’s production--equal to France's in 1933--had doubled between 1933 and 1939. French production had fallen by 15%. * https://delong.typepad.com/delong_long_form/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/delong_long_form/2013/10/the-grea... There was a misstep in 1936 when there was pressure to raise rates and also to reduce spending due to deficits, and so rates were raised and austerity was enacted… and the economy tanked again.
- ramesh31 3y ago
  >My dad (grew up in the 30s) said that simply "nobody had any money". People hear this and think "everyone was broke", but there literally was just no money. We hadn't fully figured out modern monetary policy at that point, and the old ideas of austerity reigned supreme for policymakers.
  - WalterBright 3y ago
    Your clarification is accurate.
  - OscarCunningham 3y ago
    I remember thinking about this when my dad lost his job after the 2008 crash. He worked on machines that made computer chips. People still wanted computer chips. And yet there was no means to connect the two.
  - cryptonector 3y ago
    > the old ideas of austerity reigned supreme for policymakers. And yet, no. No one spoke of austerity. The government wasn't austere. Hoover's Treasury Sec., Andrew Mellon, wanted to "liquidate, liquidate, liquidate" in 1929, but that didn't happen. More government largesse than Roosevelt went with would not have resolved things, not all other things being equal.
- cryptonector 3y ago
  I think there were a lot of problems, but most of them boil down to "heavy-handed government intervention in the markets". That includes pressure to keep wages high and mismanagement at the Fed.
  - throw0101b 3y ago
    > I think there were a lot of problems, but most of them boil down to "heavy-handed government intervention in the markets". The Fed was very hands off in the early 1930s: > […] At the onset of the Great Depression in 1929–1930, the Fed maintained a “hands-off” approach, believing the economy simply needed to “wring out its excesses.” This is somewhat ironic in that Fed policy itself greatly contributed to the financial excesses of the 1920s. Nevertheless, the Fed failed to recognize the nature of the economy. > When the Great Depression hit in 1929, the Fed’s instinct was to do little and let the economy and markets correct. But the Fed seemed to have no sense of how big the credit bubble from the 1920s was. Consequently, from 1929–1933, the Fed remained committed to a tight monetary policy. Under the gold standard then in force, when the gold balances held by the government contracted, the money supply did so as well. Faced with the increasing economic turmoil, US businesses and the public at large trusted gold more than paper currency. Overseas investors, fearing a potential devaluation of the dollar, preferred gold too. This created a gold drain. As the Fed’s gold stocks declined, the United States unwittingly reduced credit in the economy. Over the 1929–1933 period, the US money supply contracted sharply, declining by roughly one third between 1929 and 1933, and the country experienced its worst ever downturn, with unemployment soaring to roughly 25%. * https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost-of-1937-the-fed-stalls-on-rate-hike/ https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost... It was the interventionist policies of new New Deal and its various spending and jobs programs that helped the recovery begin. As well as getting off the gold standard: * https://delong.typepad.com/delong_long_form/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/delong_long_form/2013/10/the-grea... If you think things are bad with government intervention and regulation, you may wish to examine history about things before it became a thing: * https://en.wikipedia.org/wiki/Panic_of_1893 https://en.wikipedia.org/wiki/Panic_of_1893 * https://en.wikipedia.org/wiki/Panic_of_1896 https://en.wikipedia.org/wiki/Panic_of_1896 * https://en.wikipedia.org/wiki/Panic_of_1907 https://en.wikipedia.org/wiki/Panic_of_1907 IMHO the (US) financial system has been much more stable with more of a government / Fed hands-on approach. Certainly there were crashes (1987) and bubbles (1999), but that was more on the private sector side. At least one problem was due to not enough oversight: * https://en.wikipedia.org/wiki/Savings_and_loan_crisis https://en.wikipedia.org/wiki/Savings_and_loan_crisis
deleted 3y ago
[deleted]
imtringued 3y ago
Cutting wages never works because you need to cut the wages according to the marginal utility of a dollar and cut the wages where the utility per dollar is lowest. Now here is a rhetorical question, who exactly do you think has the power to set wages? Obviously those with a low marginal utility of money. This means the wages of those with the highest marginal utility get cut. The money saved from the wage cuts will find its way to the capital markets, while the money spent on consumption has decreased leading to a reinforcement of the problem. This will have to continue until the person with the lowest marginal utility of money has received a wage cut, which generally happens when the company goes bankrupt.
- cryptonector 3y ago
  Perhaps, but when the industry doesn't cut wages because the government insists on it, and instead you get high unemployment, that's not better.
- randoglando 3y ago
  What does "marginal utility of money" mean? Is the person with the lowest "marginal utility of money" the CEO?

One of the key things that made the 30s so horrible was that Hoover and Roosevelt both pressured industry to not cut wages, which they complied with, but they cut employment instead.

WalterBright 3y ago

The key thing was the Fed mismanaging and misunderstanding how money worked. My dad (grew up in the 30s) said that simply "nobody had any money".

throw0101b 3y ago
> The key thing was the Fed mismanaging and misunderstanding how money worked. The key thing was the Fed was (early on) complying with how the gold standard worked, which is a finite amount of cash being available, and only being able to be increased by having more of the shiny stuff. > When the Great Depression hit in 1929, the Fed’s instinct was to do little and let the economy and markets correct. But the Fed seemed to have no sense of how big the credit bubble from the 1920s was. Consequently, from 1929–1933, the Fed remained committed to a tight monetary policy. Under the gold standard then in force, when the gold balances held by the government contracted, the money supply did so as well. Faced with the increasing economic turmoil, US businesses and the public at large trusted gold more than paper currency. Overseas investors, fearing a potential devaluation of the dollar, preferred gold too. This created a gold drain. As the Fed’s gold stocks declined, the United States unwittingly reduced credit in the economy. Over the 1929–1933 period, the US money supply contracted sharply, declining by roughly one third between 1929 and 1933, and the country experienced its worst ever downturn, with unemployment soaring to roughly 25%. * https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost-of-1937-the-fed-stalls-on-rate-hike/ https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost... This is one of the reason why the gold standard (or any "hard" currency) is a bad idea: * https://www.moneyandbanking.com/commentary/2016/12/14/why-a-gold-standard-is-a-very-bad-idea https://www.moneyandbanking.com/commentary/2016/12/14/why-a-... The sooner the US (and other countries) got off the gold standard, the sooner their economies started to recover: > In the end, recovery from the Great Depression does not begin until countries give up on the combination of the Bagehot Rule and of commitment to sound gold-standard finance. Those countries that have central banks willing to print up enough money so that people are willing to spend it--it is when you adopt such policies that your economy begins to recover. If you don’t, you become France, which sticks to the gold standard all the way up to 1937, and never gets a recovery. When World War II begins, Nazi Germany’s production--equal to France's in 1933--had doubled between 1933 and 1939. French production had fallen by 15%. * https://delong.typepad.com/delong_long_form/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/delong_long_form/2013/10/the-grea... There was a misstep in 1936 when there was pressure to raise rates and also to reduce spending due to deficits, and so rates were raised and austerity was enacted… and the economy tanked again.
ramesh31 3y ago
>My dad (grew up in the 30s) said that simply "nobody had any money". People hear this and think "everyone was broke", but there literally was just no money. We hadn't fully figured out modern monetary policy at that point, and the old ideas of austerity reigned supreme for policymakers.
- WalterBright 3y ago
  Your clarification is accurate.
- OscarCunningham 3y ago
  I remember thinking about this when my dad lost his job after the 2008 crash. He worked on machines that made computer chips. People still wanted computer chips. And yet there was no means to connect the two.
- cryptonector 3y ago
  > the old ideas of austerity reigned supreme for policymakers. And yet, no. No one spoke of austerity. The government wasn't austere. Hoover's Treasury Sec., Andrew Mellon, wanted to "liquidate, liquidate, liquidate" in 1929, but that didn't happen. More government largesse than Roosevelt went with would not have resolved things, not all other things being equal.
cryptonector 3y ago
I think there were a lot of problems, but most of them boil down to "heavy-handed government intervention in the markets". That includes pressure to keep wages high and mismanagement at the Fed.
- throw0101b 3y ago
  > I think there were a lot of problems, but most of them boil down to "heavy-handed government intervention in the markets". The Fed was very hands off in the early 1930s: > […] At the onset of the Great Depression in 1929–1930, the Fed maintained a “hands-off” approach, believing the economy simply needed to “wring out its excesses.” This is somewhat ironic in that Fed policy itself greatly contributed to the financial excesses of the 1920s. Nevertheless, the Fed failed to recognize the nature of the economy. > When the Great Depression hit in 1929, the Fed’s instinct was to do little and let the economy and markets correct. But the Fed seemed to have no sense of how big the credit bubble from the 1920s was. Consequently, from 1929–1933, the Fed remained committed to a tight monetary policy. Under the gold standard then in force, when the gold balances held by the government contracted, the money supply did so as well. Faced with the increasing economic turmoil, US businesses and the public at large trusted gold more than paper currency. Overseas investors, fearing a potential devaluation of the dollar, preferred gold too. This created a gold drain. As the Fed’s gold stocks declined, the United States unwittingly reduced credit in the economy. Over the 1929–1933 period, the US money supply contracted sharply, declining by roughly one third between 1929 and 1933, and the country experienced its worst ever downturn, with unemployment soaring to roughly 25%. * https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost-of-1937-the-fed-stalls-on-rate-hike/ https://blogs.cfainstitute.org/investor/2015/09/17/the-ghost... It was the interventionist policies of new New Deal and its various spending and jobs programs that helped the recovery begin. As well as getting off the gold standard: * https://delong.typepad.com/delong_long_form/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/delong_long_form/2013/10/the-grea... If you think things are bad with government intervention and regulation, you may wish to examine history about things before it became a thing: * https://en.wikipedia.org/wiki/Panic_of_1893 https://en.wikipedia.org/wiki/Panic_of_1893 * https://en.wikipedia.org/wiki/Panic_of_1896 https://en.wikipedia.org/wiki/Panic_of_1896 * https://en.wikipedia.org/wiki/Panic_of_1907 https://en.wikipedia.org/wiki/Panic_of_1907 IMHO the (US) financial system has been much more stable with more of a government / Fed hands-on approach. Certainly there were crashes (1987) and bubbles (1999), but that was more on the private sector side. At least one problem was due to not enough oversight: * https://en.wikipedia.org/wiki/Savings_and_loan_crisis https://en.wikipedia.org/wiki/Savings_and_loan_crisis

deleted 3y ago

[deleted]

imtringued 3y ago

Cutting wages never works because you need to cut the wages according to the marginal utility of a dollar and cut the wages where the utility per dollar is lowest. Now here is a rhetorical question, who exactly do you think has the power to set wages? Obviously those with a low marginal utility of money. This means the wages of those with the highest marginal utility get cut. The money saved from the wage cuts will find its way to the capital markets, while the money spent on consumption has decreased leading to a reinforcement of the problem. This will have to continue until the person with the lowest marginal utility of money has received a wage cut, which generally happens when the company goes bankrupt.

cryptonector 3y ago
Perhaps, but when the industry doesn't cut wages because the government insists on it, and instead you get high unemployment, that's not better.
randoglando 3y ago
What does "marginal utility of money" mean? Is the person with the lowest "marginal utility of money" the CEO?