NEW SMYRNA BEACH -- I am a child of the Great Depression. I was a mere 4 years old when it ended a couple years after after Germany's 1939 invasion of Poland. When I came into the world in 1935, six years had already passed since the New York stock market crash of 1929, that sent seismic shocks around the world for a decade. Rations were part of my youth in Cincinnati before my family moved to New Smyrna Beach where I started my high school years.
Are we destined now to repeat history?
Here we are more than a decade into a new century and we are embroiled in a gut wrenching recession, that some, including myself, see as a depression that has gone on for quite a while and shows no indication of easing up.
The reader needs information that will allow him to estimate when if ever the depression will end and how quick and powerful the recovery will be if one happens.
To this end we present some history of depressions, the Austrian theory of the business cycle and some economic ideas. This information should enable the reader to have a better idea of what to expect and be prepared for it.
First, looking at depressions in the US we see that the country has suffered through dozens of depressions since its founding. It is very crucial to note that until the Great Depression of 1929, all depressions were over in about two years. At most they lasted five years.
The reader is probably that if all other depressions were over in such a short time why did the Great Depression last so long? An what made it different from all of the others?
The quick answer is that in all of the depressions prior to the big one, the government did virtually nothing to counter them. As a consequence of this lack of government action the depressions passed quickly.
In the Great Depression and the present depression the government did a number of things which all resulted in greatly prolonging the depression. To understand this answer the reader needs to understand what is really going on during a depression. To get the most accurate and correct available view from a historical and economic theory standpoint we present the "Austrian School" explanation of the business cycle.
In the first phase of a business cycle, too much liquidity or money is pumped into the economy. This excess liquidity -- or easy money -- distorts the economic picture. It pushes up the prices of everything including houses and stocks.
The easy money makes business ventures look feasible when they really aren’t, and in general, they lead people to embark on business ventures that are not viable under conditions where the money supply is more normal. The easy money makes it appear that the population in general is more inclined to save and invest than it really is.
At the height of the business cycle, the country has a lot of business ventures and investments and prices that simply are not sustainable when money gets tighter. Things are booming, but it cannot go on indefinitely.
Eventually, money becomes tight again and all of the ventures and investments that required easy money regime to exist start to collapse. Many ventures and businesses that were not really feasible go bankrupt or sell out at a loss to more stable entities.
Without government interference this process is over typically in a year or two, maybe four or five at the outside. The weak, unsustainable enterprises and investments are liquidated and the country’s assets end up in stronger hands.
The country is ready to go forward again. Human nature being what it is, the banking system eventually starts to create too much money again and the whole business cycle starts over.
Looking back at the Great Depression, we see that contrary to some accounts of that era, great liquidity was pumped into the system.
The government prohibited the reduction of prices and wages and businesses were organized into cartels to keep prices and wages up and competition out. Taxes were raised sharply with the highest rate going from 25% to around 65% and the lower rates also going up greatly.
The Smoot Hawley tariffs greatly reduced foreign trade. A great number of stimulus programs were put into place building infrastructure and a lot of things that were not really needed.
Here in New Smyrna Beach, we have a city hall and chamber building that were built during the Great Depression. The cross state barge canal and a bridge across it were started during that time as well.
Some of the remains of this fiasco can still be seen on the way to Gainesville. Unions were given more power. There were a lot of other counterproductive measures taken, but we have listed enough to make our point. The reader should be totally assured that none of these measures did anything to ease the Great Depression.
The idea that Franklin Roosevelt’s measures cured the depression is totally false.
Looking at our present depression, it is seen that many of the mistakes of the Great Depression are being repeated or threatened to be repeated.
First, the land is being deluged by money or liquidity to try to prop up unsustainable businesses and mortgages. We have made it difficult to liquidate bad loans and mortgages, which in turn has paralyzed the credit markets.
We have bailed out bad businesses and ventures. We have created a mountain of regulations and threatened large increases in taxes on business and individuals. We have embarked on huge spending and stimulus programs that do no good whatsoever.
“Obamacare” has cast a dark cloud over the whole nation as it threatens to envelop us in a morass of new taxes, regulations and loss of personal freedom. More privileges and powers have been granted to unions. We have put severe restrictions on our energy sector through regulations and taxes.
Although beneficial trade pacts have been signed with some smaller countries we are looking at the possibility of a destructive trade war with China.
Businessmen and entrepreneurs are being looked on with distain. The list goes on and on, but this is enough for the reader to realize that we are generating another great depression through government action.
From this description of a depression and its causes, it is obvious that we should reverse most of the measures we have taken to mitigate the depression.
We need to dry up the excess liquidity and let failing economic ventures such as businesses and unsustainable mortgages be liquidated. We need to permanently cut taxes, regulations, threats to property ownership and finally promote foreign trade in every way possible.
By all means, we should quit even thinking about a trade war with China.
We need to open ou own the country up to drilling for oil, gas, oil shale and tar sands. Get the EPA to quit putting more onerous restrictions on air quality and virtually everything else it is doing. Subsidies for so called “green energy,” especially ethanol, windmills, and solar panels should stop immediately. All of the stimulus spending should stop immediately and any unspent funds returned to the treasury.
This list is in no way complete, but would go a long way to improving our situation. The conclusion that the reader should come to is that the longer and harder we stick to the present set of cures to get out of this depression the longer we will stay in it.
If the government did nothing to add to our economic problems such as increase taxes, increase requirements for carbon emissions, automobile mileage and business regulations, we could have a very slow, but positive recovery.
If the government continues to increase regulations, EPA requirements and other bad things, there is no known limit to how long the depression can last. However, if the government were to do some to the things that were just recommended the recovery could be swift and powerful.
Ironically, in this depression of the early 21st century, government money -- ECHO and CRA grants totalling several million -- are being pumped into rehabbing the chamber building. When it comes to government spending, the failures of the past are repeated time and again, even locally.