Kicking against the prevailing view

This is what we might call \”not serious\”. Purely a look at the underlying logic of what everyone is telling us we must do about the economy, recessions, depression, double dips and all that.

Very roughly speaking, as a piece of economic history, we\’ve had a series of recessions over the last couple of centuries. The business cycle does its stuff perhaps, maybe it\’s all to do with external shocks, maybe it\’s swings in animal spirits, whatever.

We\’ve had two that might be considered \”depressions\”. The one we all know about, the 30s in the US and another that\’s not so well known. So unwell known that without looking it up I\’m not sure when it was myself. 1870s? Looking it up, yes, 1870s.

Of all those recessions /depressions the only one where people have tried to do huge great gobs of Keynesian counter-cyclical spending, that stimulus stuff, job creation schemes and the like, was the 1930s one, the one where such things worked so well that we call it the Great Depression.

In comparison with the 1920-21 recession which was as deep in the fall in output, but which went away pretty rapidly without such Keynesian counter-measures.

Now I agree, there\’s been a huge amount of work done on how the macro-economy works and very large numbers of people much brighter than I insist that all these measures do indeed work.

It\’s just that looking at that bare bones record I\’m not all that sure where the support for the idea is. The one time we seriously tried all these measures turned out worse than almost all of the times that we didn\’t try those measures.

So where is the empirical support for such measures: rather than the logical support gathered from theories about how the macro-economy works?

Jus\’ askin\’, you understand.

And yes, of course I know what the theories are. I\’m asking where\’s the proof in action? You know, like the apple falling on the bonce for Newton\’s ideas, the perturbations of Mercury\’s orbit for Einstein\’s? What can we point at as a matter of historical record to show that doing all these things is better than doing nothing?

15 thoughts on “Kicking against the prevailing view”

  1. Better for whom; the electorate or the elected? Poliicians need to be seen doing something or thye don’t think they’re doing their job properly!

  2. also, isn’t it a bit daft to construe the Great Depression as an episode of Keynesian expansionism that failed? The “prevailing view” you imagine yourself to be kicking against does not consist of fiscal stimulus accompanied by monetary contraction. Try googling “Milton Friedman Great Depression”

  3. Oh yes the old von Miserabilist stand- by: just let the markets clear (and the workers starve) and the economy as a disembodied entity will soon be right as rain.A fanciful even foppish sentiment not borne out by the facts of the 1870’s which in the United States look more like civil war.Look up The Great American Railroad strike;the Molly Maguires: The Haymarket Massacre. If this is an orderly market adjustment,its no wonder that ordinary Americans viewed the executed Haymarket scapegoats as martyrs (and the left still celebrates May Day in their honour).
    Mr. Worstall’s grasp of history is tenuous going on non-existent.

  4. just let the markets clear

    Yes.

    (and the workers starve)

    A separate issue, and of course we don’t want people starving.

    If one believes, as I do, that the recessions are mostly caused by prior government meddling creating the preceding bubbles, then more government meddling is hardly going to be the answer, particularly when that meddling always seems to involve the sensible paying (via tax and/or inflation) for the reckless. Note when I say government here, I am of course including the central banks as well as the politicians.

  5. @Ed
    The usual dilettante guff: we let the markets clear and oh dear people starve in the process,but we never said we’re perfect. Why don’t you read up on some of the events of the period? The whole episode is where a lot of the
    critique of of the self-regulating market comes from,not least Henry George’s analysis of land hoarding as a cause of free market failure.

  6. @DBC Reed, perhaps I wasn’t clear. We don’t want people starving, and I’m happy for government involvement to prevent that. For example, a CBI may be the best way to do this as it will be a constant cost in good times and bad, unlike means-tested benefits which hammer the public finances with additional costs at exactly the wrong time, not to mention the high effective marginal tax rates they create for the poor, etc.

    However, preventing starvation can be accomplished perfectly well without having government intervention to support failing businesses or to prevent necessary falls in overpriced asset values such as shares or house prices. I would also prefer that governments stopped creating recessions in the first place, rather than cause more problems for the future with their attempts to “solve” the problem.

    I haven’t read very much of Henry George’s work, but I am a firm supporter of a shift in taxation from productive activity to land values.

  7. @Ed
    There is no way that government intervention played any part in the American 1870’s crisis: the country was full-on laissez faire. As you have not researched Henry George overly much,or at all,you may not be aware that he was writing in the context of California which had a very small population and an abundance of land but still got into trouble.So the lesson is: all free trade does in the long run is put up the value of land, dirigiste government or laissez faire.Considered old hat, matters are now so out of hand that entrants to the UK labour market have to shoulder a burden of 100 thousand pounds just to live here, for the land underneath their houses,so old hat or not George’s prescriptions and descriptions from this dire period of American history hold good ,more relevant than ever. More freedom in the land market will not deal with the problem of the shortage of sites as this is compromised by an equal freedom to hoard land while its price increases.And the same goes for money: why invest it in producing goods and services when you would be better buying up old houses which increase in value because of artificial shortages?
    Free trade or free men? You don’t even have the freedom to look for work in London because you can’t afford to move there.

  8. @DBC Reed, I completely agree about land prices. They should be much lower in a country as sparsely populated as the UK.

  9. Stalin had an economist, whose name I forget.. the guy coined the term ‘creative destruction’ and argued for its necessity. No innovation, no new industry, and thus no growth, was possible without first plowing under the old one. No automobiles without the end of the buggy industry, yada yada.

    Stalin was not pleased to hear that the business cycle was not just inevitable but necessary. He had already claimed, like Clinton did decades later, to have eliminated the business cycle, and that it would be a good thing for the workers.

    Stalin had the economist shot. We still remember ‘creative destruction’ but we don’t remember that the guy who came up with the idea was shot by Stalin.

    Maybe personally. He liked that.

  10. @Ed,
    I attack the very basis of laissez faire ( enlisting
    Henry George and the tradition of taking account of land prices that goes back to the beginnings of economic time: Turgot ,Quesnay and all that) and your response is a snarkey one-liner!Does n’t appear proportionate .To repeat: laissez-faire is economics for fops leading to the rich keeping land (George) and money (Gesell) off you beloved markets. Markets are n’t going to clear if land and money can sit it out.
    On another tack,attacks on R.Murphy would be a great deal more effective if focused on his refusal to countenance LVT which he thinks regressive. He is the one “progressive” accountant/economist who impairs what could be a united front on LVT ,more important than ever now its not just farmers staggering under a load of debt for land.

  11. @DBC Reed, I was agreeing with you about land prices being too high! Please note that we do not have laissez-faire in property in this country, what with restrictions on building, and successive governments that have subsidised house prices via both monetary and fiscal policies.

    I’m not sure what you mean by “Markets are n’t going to clear if land and money can sit it out.” On land, I support LVT and relaxing planning permission. Money can sit it out? Do you mean that people with savings should be forced to spend them for the supposed good of the economy?

  12. @Dave in Dallas

    Arf?

    Creative Destruction is the phrase of Joseph Schumpeter, one of the greatest economists to have lived.

    He didn’t work for Stalin and didn’t get shot… I think you’ve got something very wrong there.

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