It’s Friday, and we need to give a big hat tip to tla2001 for forwarding this great video. This is Daniel Hannan, Conservative MEP for the Southeast of England taking Gordon Brown, Prime Minister of Britain to task for how he is managing the financial crisis. His eloquent condemnation of massive borrowing by government couldl be directed to several American politicians. [I'm not pointing fingers, but members of both parties are guilty and we know who they are.] This is really worth a listen.
This isn’t the only thing worth discussing this morning though- there’s a lot going on. This is an open thread- we’d love to hear from you.
Ummm … Except this is exactly how we climbed out of the Great Depression – Massive Government Spending. And if anyone pleads “WWII got us out of the Depression!” – a) They’re an idiot and wrong as the all indicators showed the country had well recovered before WW II, but also b) WW II? Massive Government Spending.
I have to disagree. I think that WWII got us out of the depression despite the massive government spending and intervention in the economy.
It wasn’t the massive spending of the war that vanquished the depression in the U.S., but the fact that most of the factories and infrastructure everywhere else in the world were reduced to rubble. The world’s excess manufacturing infrastructure and the U.S. economic competitors were bombed out of existence.
CB-
One of the differences between now and then was the amount of saving going on. Soldiers weren’t in a position to spend a lot. Their wives took jobs in munition factories, etc. and they saved a lot.
When the soldiers came home they needed housing, refrigerators, cars, etc. for all the babies coming along. Demand was fueled by people who were using their own money to buy goods, and Americans worked to supply them.
This time around Americans are broke, tapped out, in over their heads. Many are losing jobs, and of the ones that aren’t, many are scared they will be next.
The government doesn’t want us to save this time around- they want us to spend, to continue to borrow more than we can possibly pay back.
It is this basic difference between now and WWII that makes me think that Hannan is right- the government won’t spend it’s way out of this one.
Yes, during the War there was full employment, and nothing to spend money on (rationing), so everyone bought War bonds – after the War, people had money to buy – hence the post-war boom.
Now – no money, but endless amount of built up junk in garages (the old joke – Only in American do you park your $40,000 car in the drive because your garage is full to the roof of junk). . .so – we have about 5 years worth of junk to buy and sell on Ebay and Craigslist, so no one will be buying new consumer products. Also, drive through most neighborhoods and see two cars sitting in each drive, and a third at the curb. We have about 5 years of oversupply of cars. Considering 10% unemployment, people don’t need three cars if there is no job to drive to. That means lots more used cars for sale, competing with new car sales.
One thing that is not going to happen is a great stimulation of manufacturing jobs in the US. The twin Genies of automation and the global labor pool are not going back in their bottles.
Hutch-
That’s a problem, isn’t it?
It’s tough to compete in the global market when foreign workers are paid $45 a month. Americans are reluctant to work for that.
You’re welcome Twist!
Dan F. As Amity Shlaes so well stated in Forgotten Man, “The question should not be whether WWII ended the depression, but rather why did the depression last until WWII?”
In 1937, conditions worsened to the point of that year being referred to as “a depression in a depression.”
The American Geophysicist M.King Hubbert may have stated it best, “We are not in the position we were in 1929-30 with regard to the future. Then the physical system was ready to roll. This time it’s not. We are in a crisis in the evolution of human society. It’s unique to both human and geologic history. It has never happened before and it can’t possibly happen again.”
America in 1929 and the years following was begging to grow and political policy halted that growth. In 2009, political policy is begging for growth, and America has no more to give.
twist -
Basically took the day off today
Dad’s Taxi was carting around cats among other things. After the last drop I was driving back up Robie when the CBC afternoon show played this request from an 8 year old listener. (They’ve been pretty goofy today, 7AM World Report ended with host Judy Maddren announcing she was one of the 800 staffers who’d been fired yesterday.)
Anyway, nobody, not even Igor, could be “depressed” listening to this classic fluff right out of the Implode-O-Hood (name isn’t warmongering, it’s from Cindy’s hairstyle).
… oh well, back to work …
“Bank Failure #21: Omni National Bank, Atlanta”, Calculated Risk, March 27, 2009.
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OK, this “technical analysis” (click on the chart) from Big Picture has me feeling better again.
RE: “You cannot spend your way out of recession”
I disagree. It may be unwise or it may have other, worse consequences, but spending (especially government spending) is one well-established way to help end a recession.
RE: “It’s tough to compete in the global market when foreign workers are paid $45 a month. Americans are reluctant to work for that.”
It’s impossible to compete at those wages, which is why it baffles me so that so many people think we should try to hold onto low-skilled manufacturing jobs.
Low-skilled manufacturing is not the economic future for America. Let it go. Let China and India and Mexico have it.
We should be focusing on new technologies.
DanF,
Judging by the vitriol and condescension dripping from your post, you are obviously a Keynesian lefty. Fine. Please help us understand the notion behind the multiplier effect- and if you truly believe in massive government spending why you would not push for the U.S. to incorporate a command economy on a grand scale. And please reconcile this with the myriad historical examples of failure of this economic model(USSR, Cuba, North Korea) both in terms of standard of living and basic freedoms and liberty.
Thanks.
Kid
John-
I loved that chart from the Big Picture. Usually I have a terrible time with “Head and Shoulders” formations and such. I just assume that means the CEO has dandruff. This chart though, makes perfect sense to me. : )
OT- Mr. Twist, my youngest son and I just got back from an antique auction. You would not believe how cheaply everything was going for. I’ve gone to antique auctions for years, and the prices were lower today than they were back in the 1980s.
Obviously auction prices would deflate faster than retail prices, but I believe this is indicative of more deflation to come.
The economics of it all aside, it was a lot of fun. At a few dollars a piece, I could pick up some fun old pieces and not worry that they will depreciate terribly. Now I just have to figure out where to put them.
NVMike-
The problem with focusing on new technologies is that given the current state of the economy, people aren’t buying new technologies- they are sticking to the basics.
I think as a nation we are going to have to accept a lower standard of living and try and be more competitive. Hopefully with “new technology” we won’t have to work for peanuts to do it.
When I say “lower standard of living”, I don’t mean that we will need to be living in grass huts. I think though that we can be comfortable with less.
I polled about a dozen friends and asked them all “What was the most expensive toy you had as a kid?” Almost invariably they said their bike.
So many kids today have hundreds of dollars of MP3 players, computers, etc., but I don’t think they are happier than we were playing with Barbies and G.I. Joes and playing on the playground.
My father was a manager for a major electronics company and made good money. We were comfortable. When I describe our lifestyle though to my kids, they think we lived in poverty.
Our house had no HOA, the neighborhood had no greenbelts. Our electronics consisted on one TV, a radio, and a record player. We had no cable and 5 channels. There was no microwave and we had one land line with no extension. We not only managed to survive such “deprivation”, we were happy.
I know there are a lot of people today [Especially those who are currently unemployed.] who are not living a lavish lifestyle. You can drive around almost any major city though and see the neighborhoods of McMansions and think “Where are all these rich people coming from, and how can they afford these places?” The truth is, there is not that many rich people-wonky financing made buying oversized houses and oversized cars possible, but not sustainable.
We have to a large extent borrowed money from overseas to allow us to buy what they make. This is not sustainable. We need to produce something of worth to keep ourselves solvent and independent.
Despite all this doom & gloom, America is still a great economic engine. In time, we will recover.
Overconsumption has always been viewed as a problem in this country.
I think it was Will Rogers who decades ago said something to the effect, America is a great country. It’s the only country in the entire world where you can DRIVE yourself to the poorhouse!
It still applies today!
Twist, you’re thinking PCs and MP3 players, I’m thinking alternative energy, medical imaging, bimoedical and genetic engineering, stem cells, etc.
We can be the world leader in any of those fields.
I agree with the rest of your post, but it’s not related to the specific point I was addressing.
Clarence-
I agree, we will recover. I have often thought that the hard working generation that survived the Depression were the same folks that made the dumb financial mistakes of the 1920s. They paid a big price for their mistakes, but they learned from it. It is my hope that we will do the same thing, no matter how deep or shallow this recession turns out to be.
NVMike,
China and India are producing more high tech skilled labor than we are. As a percentage of their populations those with higher education degrees is low. The number however is huge. The degrees are often in science, engineering and mathematics not the fluff so many US students seem to take. The number of people needed to grow, make, and/or ship the basic necessities, and even the luxuries, of life has decreased in the same exponential way that technology has increased. What work will the average, the common, the mundane, find to do in the future? The ranks of those who receive more than half of their income from a tax derived source is already staggering to contemplate. We live in interesting times but what challenges my grandchildren will face, I can’t imagine.
Massive government spending is predicated on future massive tax collection which at this point is predicated on hyper-growth in our economy. What is far more likely is hyper-inflation. Specific actions produce specific results.
That possibility of growth outpacing debt existed in 1946, but that has not been true since 1970.
Per-capita GDP growth at the level necessary to counteract the growth of our combined private and public debt has become a mathematical impossibility.
The advice above from Twist to live more simply is as sound as it gets.
clarencebeeks,
As far as economic recovery, the state of Indiana alone is expected to lose 1 Million additional jobs in this year of 2009.
Assuming that our economy will eventually turn around must be based on far more than hope.
I am not attempting to be argumentative, but the very fiber of our economy is based on over- consumption supported by over-borrowing.
We are currently slated to borrow two generations into the future to continue this socially contrived illusion.