Learning from the Past

Here is just a tiny bit from a post by John Mauldin on The Big Picture website. You really should read the whole thing. This bit talks about the lessons we should learn from the Great Depression. There is also material talking about money supply and deflation. All of it is worth reading carefully. So, here is just a taste:

So at the height of the Depression, in 1933, as Roosevelt was coming into his first term, we had 25% total unemployment; 37% (!) of non-farm workers were unemployed; 4004 banks had failed; $3.6 billion in deposits was lost. That’s like trillions in dog years, okay? At least in 2009 dog years. You end up with bread lines, and the stock market just keeps going down, down, down (with a few marvelous bear-market rallies — maybe like what we are seeing today?).

Roosevelt comes along and we get the New Deal. He applied massive stimulus. By the way, his stimulus hired people. He put them to work building parks and the Tennessee Valley Authority. They were building a lot of infrastructure. He didn’t put it into Democratic
wish lists and permanent wealth transfers and welfare and special-interest agendas to increase the overall budget beyond what we could ever hope to actually pay for (without even more radical tax increases), which the Obama Administration is clearly doing. We’ll get to the effectiveness of current policies in a moment.

Then let’s look at what he did in 1937. With the economy somewhat on the mend, he tried to balance the budget, raise taxes, reduce deficit spending. And what happened? We had another deep recession and unemployment jumped back up to 20%. It was hard to pull that stimulus back out. And it’s particularly dangerous to raise taxes in a weak economy.