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The change in the depression was massive government intervention. Hoover reacted quickly with unprecedented price support programs and stimulus to preserve the

The change in the depression was massive government intervention. Hoover reacted quickly with unprecedented price support programs and stimulus to preserve the status quo. FDR upped the ante, and kept doing it for many years. There was a depression because the mistakes of the 20s were not swiftly liquidated. The policy prescription for the current crisis is to beef up food stamps and heating assistance programs so people don't starve or freeze, and then let all nonviable businesses fail as quickly as possible so they can be reconstituted as profitable companies.

Retric 18y ago
That sounds like a great idea but are economy is based off of consumer spending which can just free fall. "From 1929 to 1934, U.S. personal income plunged 44%, real output nosedived 30% and the unemployment rate soared to 25% of the American labor force." and the great depression still had 5 years left. "By Jan 1, 1934, as many as half of all residential mortgages were delinquent" let alone all the ones that had already failed. And it can fall far further in the next one. It's a house of cards and the bottom is far further than you might expect.
- kingkongrevenge 18y ago
  I don't understand how this is a response to anything I've said. Yes, consumer spending needs to plummet. Many thousands of retail businesses need to shut down. They are not viable. The profits in recent years were from phantom earnings: totally unsustainable and artificially credit growth, mounting consumer credit card debt and MEWs. The quicker we get the liquidation and write-downs over with the better.
  - Retric 18y ago
    Yes, consumer spending needs to plummet. Why? We had a positive personal savings rate last month. Once you have a positive saving rate there is no long term problem with spending. (http://www.bea.gov/briefrm/saving.htm http://www.bea.gov/briefrm/saving.htm) Now government spending is honorably out of whack, but that's not really related to what you're talking about. (http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2005/0508.html http://www.frbsf.org/education/activities/drecon/answerxml.c...)
baguasquirrel 18y ago
The general view amongst economists is that Hoover's price supports were the one thing that caused the depression. FDR implemented limited socialism, which did nothing to alleviate the depression-- there was not much he could do about it at that point --but was rather meant to keep people in homes, and clothed.

Retric 18y ago

That sounds like a great idea but are economy is based off of consumer spending which can just free fall. "From 1929 to 1934, U.S. personal income plunged 44%, real output nosedived 30% and the unemployment rate soared to 25% of the American labor force." and the great depression still had 5 years left. "By Jan 1, 1934, as many as half of all residential mortgages were delinquent" let alone all the ones that had already failed. And it can fall far further in the next one. It's a house of cards and the bottom is far further than you might expect.

kingkongrevenge 18y ago
I don't understand how this is a response to anything I've said. Yes, consumer spending needs to plummet. Many thousands of retail businesses need to shut down. They are not viable. The profits in recent years were from phantom earnings: totally unsustainable and artificially credit growth, mounting consumer credit card debt and MEWs. The quicker we get the liquidation and write-downs over with the better.
- Retric 18y ago
  Yes, consumer spending needs to plummet. Why? We had a positive personal savings rate last month. Once you have a positive saving rate there is no long term problem with spending. (http://www.bea.gov/briefrm/saving.htm http://www.bea.gov/briefrm/saving.htm) Now government spending is honorably out of whack, but that's not really related to what you're talking about. (http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2005/0508.html http://www.frbsf.org/education/activities/drecon/answerxml.c...)

baguasquirrel 18y ago

The general view amongst economists is that Hoover's price supports were the one thing that caused the depression. FDR implemented limited socialism, which did nothing to alleviate the depression-- there was not much he could do about it at that point --but was rather meant to keep people in homes, and clothed.