more depression era comparisons

The realities of Hooverism

It might be well to consider (as I did during my drug war essay) the events which occurred during the Depression; even when there is little as yet linking them to our present predicaments. So with that in mind, consider what was done.

1) Issue a protective tariff and institute a trade war with restricted import-export. Obama's 'keep companies from sending jobs overseas banter sounds suspiciously like this and is one major reason I can't support the guy. People who pander to unions without actually understanding the economics which support the people in them do not get my vote. People who basically say 'we must keep our shitty jobs here' also do not understand the situation. I'd rather we create a marketplace with higher quality workers who are then induced to pursue some basic education to improve their standing, or to take risks by founding businesses/trades with skills they already possess. Making regulations which make international trade or production more difficult is not a good idea at this time (or at any time).

2) Raise taxes. Obama isn't proposing a major tax increase. In fact the numbers between Obama's and McCain's tax plans with raw income tax are roughly the same (about 80B separation). What he is proposing is a tax increase on corporations and the highest income brackets (which were all that existed in Hoover's time). The results of such ideas are shown to be usually historically stupid. It may be possible economically to raise, slightly, the income taxes and not see a major restriction of capital in the general economy (because again, the Laffer curve of spending). I don't think raising one of the highest corporate income taxes in the world is a good idea to encourage business growth however. In fact, I would foresee very little business expansion, and a resulting restriction of available capital. During a time when our economy clearly needs fresh capital. In fact, much like the capital gains rates, it might be possible to cut the damn tax and get more income from it. Again, Obama's economic plan makes no sense at this time, and more to the point, it's the exact opposite of what makes the most economic sense at this time.

3) Restrict money supplies through the federal reserve rates, fund rates, essentially raising interest rates. I haven't seen Obama make suggestions here, which is good, the Fed is supposed to be non-political. And it seems to have been trying to expand the money supply beyond what we needed through the 'stimulus' package, the lowering of interest rates, etc. While that did help induce the problem by making credit too accessible during the boom times of the real estate market, it does seem like a necessary move to keep money moving through the economy when that market crashes and people can run around saying the emperor has no clothes.

Unfortunately, what the Fed and its related agencies didn't do was check up on how Wall St banks/firms were managing the real estate markets. By issuing these crazy derivatives on what were in essence, fraudulent loans, and expecting to rake in massive profits by leveraging capital at ridiculous rates. And then selling these off to people who didn't understand the fundamental risks they were taking. Much like during the internet bubble where stocks with no real value went up at rocketship highs for no apparent reason, because people bought hype. The various regulatory agencies could have blown the whistle on these behaviors. The bond rating agencies could have studied the bonds being sold and issued lower ratings. Nobody cared because they were all getting rich. I think it's important when one invests money to understand what they are actually investing in. Maybe this is a crazy idea for people to grasp, but there are several credible economic minds who think the same way here who give such advice all the time. I don't think it's a common behavior for investment firms to give however. Hype and circumstance make too much noise.

As a result, a number of larger institutions are being wiped out and our Congress/Treasury Secretary are basically engineering a crazy plan to save them from their stupid short-sightedness, or at least, to save the remaining players before things get out of hand. Stewart last night said something basically accurate, "the people said to them no, we don't trust you to handle this". I think it's more accurate that people don't understand what they are doing, much as they didn't understand what their 401ks were invested in, and as a result are finally starting to ask "why should we do this". I can see a reason for doing something like they are proposing, namely to infuse capital into a major banking crisis where money has frozen up and nobody wants to make loans before such a freeze induces a major economic calamity. I don't see a reason for doing precisely what they proposed doing and I certainly don't see a reason for the House bill which died.

And I don't see reasons for doing what the likely next President wants to do either. Good times all around.