It Ain’t Over, Folks

[Galen]

(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.

Essentially correct.

[Eric the Green]

(11-14-2016, 10:51 PM)X_4AD_84 Wrote:

(11-12-2016, 05:15 PM)Eric the Green Wrote: Marypoza, Paul Ryan is in charge of the USA now. There will be no filibuster in the Senate. Do you think Trump is going to veto his bills? Will he veto Ryan's plans to destroy Medicare and Social Security? Will he veto the destruction of Wall Street reform and the Consumer Protection Bureau? Will he veto repeal of the minimum wage? Read the Republican Platform I posted. That was not written by cheetorag or whatever you call it.

We know already Obamacare is gone, to be privatized with most of its provisions gone. Trump will repeal all the mileage standards and coal regulations, and every other restriction that business complains about. Do you deny global warming? Deportations will occur, and federal funding will be cut to any cities that offer sanctuary. This is all in the news; and more.

Trump will definitely veto some of the Bills that come across his desk. He's an Alt-Right Populist. There are still many people of more conventional (read "Establishment") polity in Congress. They may be pretending to get along with Trump now.

I guarandamnty it won't last.

OK, your prediction has been registered.

[Mikebert]

(11-12-2016, 04:11 PM)Warren Dew Wrote:

(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.

I looked into it more.  Basically it was just reducing tax rates and closing loop holes.  The tariff was kept high. Seems pretty banal today.  I guess the sophistication implied in my original source was that the income tax was new at the time and most legislators were focused on the politics and did not understand taxation strategy.  In any case Mellon came to be celebrated as his tax policy continued to generate surpluses right up until the economy collapsed.