Economic history

Paul Krugman:

Or if you prefer more British precedents, it echoes the Snowden budget of 1931, which tried to restore confidence but ended up deepening the economic crisis.

Hmm, not all that sure of that: was it 1930 or 31?

Anyway, we do in fact know what reversed the economic decline in the UK in the early 1930s. Coming off the gold standard in 1931. Growth reappeared in 1932…..following that 25% reduction in the value of the £.

We might also remind ourselves what\’s happened to the value of the £ in the last couple of years….something like a 25% decline, isn\’t it?

So let\’s carry on with the comparison of today with the Great Depression, shall we?

Last time around we cut spending and devalued the pound. This brought growth some 5 years earlier than increasing spending did in the US.

This time around we\’re cutting spending and we\’ve already devalued the pound.

Everyone seems to be betting that what worked last time won\’t work this time. And I\’m really struggling to understand why?

11 thoughts on “Economic history”

  1. Because we’re not cutting spending. And we are printing money. Which another country tried in the 1930s and they got more than an extreme devaluation..

  2. Also it’s already bad – the point of trade is imports, not exports, and we now have to pay 25% more than we did before.

  3. We have already slashed interest rates.Brown was counting on all those people with variable
    rate mortgages having hundreds of pounds a month extra doing the Keynesian thing and spending it in the shops.This, as Bean of the Bank complains ,they have n’t done.So what worked then is not working now.
    Over to you for an explanation: you’re the economist, or so you keep saying.

  4. Kay Tie:
    >Which another country tried in the 1930s and
    >they got more than an extreme devaluation..

    Just in case the country you are referring to is Germany, I’d like to correct that the hyperinflation occurred in 1921-1923. In November 1923, the printing presses were stopped, twelve zeros were dropped from the numbers, and after that the currency was pretty stable.

    It is often claimed that Hitler’s rise to power was due to the people’s experience of the hyperinflation, but it’s good to understand that it was all over 10 years before Gleichschaltung.

  5. well DBC…maybe those people with variable rate mortagages have more of a memory or have read more than ladybird book history than you…or are more intelligent and are rapidly paying down those loans just in case…you make me laugh!

  6. this could all be cured by a special tax to be levied on polly t, george m, john b, and all those other moronic leftie goons with above-average incomes

  7. @diogenes
    The variable rate mortgage holders who have been gifted hundreds of pounds a month in reduced mortgage repayments are hardly going to have as long memories as myself (coming up 67) or better knowledge of economics. Paying off their mortgages simply throws good money after bad into the cavernous maw of land values
    when it might be better spent on the product of their fellow citizens’ labours. If they can’t be arsed to spend the money, perhaps interest rates
    should go up so older savers could get hold of it:
    they are likely to spend to the max.
    Oh and while we’re on the subject,go and take a running jump.

  8. DBC Reed,

    Banks spotted the BoE slashing of rates a mile off as many variable rate mortgages track a bank’s own standard variable rate measure rather than the BoE’s. This gave them the room to redefine their variable rate to maintain them despite the BoE rate being slashed.

    The BoE rate may be low but it is a much greater benefit to banks than to borrowers fortunate to be tracking it with a low margin.

  9. Paying off their mortgages simply throws good money after bad into the cavernous maw of land values, when it might be better spent on the product of their fellow citizens’ labours

    Ah, nope, paying off their mortgages means that the people who loaned them the money for the mortage will have more cash. In other words, the banks will have more cash. The banks will do something with that money. The options are:
    1. The banks lend the money to some other person. This person will do something with it, like invest it, or spend it on consumption goods, thus employing their fellow citizen’s labour, or they will use it to buy land themselves, to do which someone else will have had to have sold the land, and thus will wind up with the repaid money from the mortgage.

    2. The banks spend it on bonuses for their staff. The staff will then wind up either investing it, or spending it on consumption goods, or buying land (and when you buy land, you create a seller of land).

    3. The banks return it to their shareholders. The shareholders will either invest it, or spend it on consumption goods, or buy land (and when you buy land, someone must sell land).

    I expect wide-spread ignorance about Riccardian equivalence, or comparative advantage, but it’s amazing that so many people haven’t noticed that when they exchange money for land, another person must be exchanging land for money.

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