The left continues to resist any suggestion of spending cuts right now. In their view, a depressed economy is no time to slash spending; that would only further weaken demand. The successful austerity policies adopted in response to the downturn of 1920, however, offer a clear rebuttal to this notion. And this is not an isolated instance in the heap of economic history. Similar government restraint and cutbacks marshaled strong recoveries from the depressions of 1837 and 1893. In 1837, financial panic swept the country. According to economist Jim Powell, …
Make sure to listen to a recent radio interview with Nicholas Wapshott, author of the new book, “Keynes Hayek: The Clash That Defined Modern Economics.” What was the relationship between Keynes and Hayek really like? Why did Keynesian thought dominate from WWII until 1980? Why did Hayekian thought dominate from 1980 until the recent crisis? Which thought will utlimately win? What’s an important lesson economists and policymakers can take away from this book today? Be sure to listen to answers to these questions and more by listening to the link above!
Remember the Great Depression of the 1920s? If not, that’s because it didn’t happen. The recession of the early ‘20s quickly ended after spending and taxes were cut dramatically. It provides a clear lesson in “austerity” that President Obama should heed. In 1920, newly elected President Warren Harding inherited a very sharp downturn from his predecessor, Woodrow Wilson. According to Cato economist Jim Powell, the downturn was “almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit. The estimated gross …
Proponents of government spending are fond of citing 1937 as an example of when government implemented sharp austerity, and the economy derailed. This argument is dead wrong. On Thursday, New York Times columnist Paul Krugman argued that fiscal austerity right now would make our economic crisis worse. “Even if we manage to avoid immediate catastrophe, the deals being struck on both sides of the Atlantic are almost guaranteed to make the broader economic slump worse,” writes Krugman. As his proof, he offers that “if the negotiations succeed, we will be set to replay the great mistake of …
During the Great Depression, Franklin Delano Roosevelt promised to act in the name of “the forgotten man,” that is, the poor man, the old man, the man “at the bottom of the economic pyramid” in need of government help. Amity Shlaes explained that FDR redefined the forgotten man and his plight. “As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil …
The obvious reason to prevent a tax hike by extending current tax rates is that doing so will prevent further economic harm to an already flat economy. How do we know that tax increases will cause economic harm? Three examples: 1932, 1937 and 1993. After the 1929 stock market crash, the Smoot-Hawley tariff of 1930 raised import prices and more importantly threw a bucket of cold water on global trade flows, helping send the economy into deep depression. The economy had very little chance to recover. Along with gross and …
Raising taxes on successful businesses is one thing we cannot afford to do. Large, successful businesses that create jobs would be hit the hardest, but small businesses would also be hurt by such a tax increase. Although economists disagree on many aspects of economic growth and recession, there is near-unanimity on at least one issue: raising taxes during a recession is a bad idea. It seems clear then, that a jobs-killing tax increase, such as the one planned by President Obama, is a bad idea. Of course, Obama has argued …
A financial bubble fueled by easy money and loose credit bursts. Unemployment shoots up, and gross domestic product falls sharply. Some in the U.S. Congress blame foreigners for unfair trade practices and pass a trade bill that prompts widespread retaliation, exacerbates the popping of the bubble, and sends the country into further economic trouble. That is what happened with the Wall Street Crash of 1929, the Smoot–Hawley Tariff Act of 1930 and the Great Depression. Americans might hope our leaders would learn from our past mistakes. But the leftist majority …
An ugly financial bubble bursts. A misguided U.S. Congress responds by blaming foreigners and passes a trade bill that prompts widespread retaliation and exacerbates the initial popping of the bubble. That was 1930 and the Great Depression. Fast forward 80 years. An ugly financial bubble has burst and the U.S. Congress—having already failed with trillions in deficit spending—is now blaming foreigners. A bill in front of the House Ways and Means Committee (and scheduled to be sent to the House floor next week) blames Chinese exchange rate policies for the …
Tax hikes helped the U.S. economy go from downturn to depression in 1932.Throughout the mid-30s there were glimmers of economic recovery until taxes were raised again in 1937, helping send the economy into another recession. So, why would it be smart to raise taxes now during such a fragile economic recovery? Art Laffer, once a member of President Reagan’s Economic Policy Advisory Board, explains why tax hikes in 2011 are going to depress output, production and reported income. The result, he says: a dreaded double-dip recession. On or about Jan. …
