11-12-2016, 04:11 PM
(11-12-2016, 02:51 PM)Mikebert Wrote:(11-12-2016, 02:33 PM)Warren Dew Wrote:(11-12-2016, 10:07 AM)Mikebert Wrote:(11-12-2016, 07:41 AM)Galen Wrote: I suggest that you review the effects of the Smoot-Hawley tariff. As bad as TPP is it still seems unwise to be so optimistic. I would also recommend reviewing the Austrian School of Economics theory of the Business Cycle. It will give you a better handle on where the US is than the Keynesian or Monetary School of Economics will.
Secretary Mellon recommended Austrian* policy in 1929 (which was not followed):
Two schools of thought quickly developed within our administration discussions. First was the "leave it alone liquidationists" headed by Secretary of the Treasury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people." (Hoover 1952:30)
But Mellon was secretary in 1921, too, so it stands to reason that the federal government followed Austrian policy over 1921-22. The Fed hiked rates by 300 basis point then so I know they did not pursue any sort of monetary stimulus. So if the historical analogy holds, Republicans will at least consider Austrian* policy (sometimes called austerity) for the next recession. If they have balls they will try it, we'll get to see if it delivers prosperity, as Austrians claim.
Here's the deal. Economically conservative Republicans accept various aspects of classical economics in the neoclassical school that has arisen more recently. Nobody has tried a liquidationist approach (full austerity) to a recession since 1921 (assuming that is what was done then). Most other economists believe such a policy makes recessions worse or even lead to depression. I have no clue what Trump thinks, if anything, on this issue.
*A brand of classical economics pursued by Austrian economists Ludwig von Mises and several of his students (F. A. Hayek is the most famous) after most every other economist had moved on to Keynesian or monetarist approaches.
Hoover, Herbert. 1952. The Memoirs of Herbert Hoover, Volume 3: The Great Depression 1929-1941. MacMillan Company, New York. https://hoover.archives.gov/research/ebooks/B1V3_Full.pdf
There is a difference between the Austrian approach and austerity. The Austrian approach is laissez faire - hands off. Austerity involves action on the part of the government: raising taxes, reducing spending. The Austrian approach does not.
The Austrian approach worked in 1921 and not using it caused a failure in 1929.
To employ laissez faire one still requires price stability. To get back on gold after WW I required austerity. Mellon employed a rather sophisticated tax policy to produce the surpluses needed to bring the price level back to the pre-war levels. But other than this effort there was no effort to prevent liquidation, which is consistent with a description as laissez faire.
You mean the "sophisticated tax policy" of cutting income tax rates? I don't think that's usually thought of as part of "austerity", even when the tax rate cuts do result in an increase in tax revenues.