From: mccall@mksol.dseg.ti.com (fred j mccall 575-3539)
Subject: Re: What kind of recession we're in
Organization: Texas Instruments, Inc
Distribution: usa
Date: Sun, 26 Jul 1992 15:51:29 GMT

In article <1992Jul22.175313.21429@sco.COM> geoffg@sco.COM (geoff galitz) writes:
>
>	I'm not trying to attack, but actually see this issue from another 
>viewpoint.  Can you explain why Roosevelt's policies made the recession
>worse?  And how Bush's were going to help us recover?  And how would
>Clinton's take us back to a recession?  

Well, I don't know about the last two (I don't think anything Bush has
proposed will help -- the idea of reducing my withholding by a few
bucks to 'stimulate consumption' was simply stupid, in my view; he
didn't reduce the TAX, just the withholding), but I'll take a swing at
why FDR's policies made the Depression worse.

First, let's take a look at what needs to happen as the economy goes
into recession and how to get out of it.  Generally, the economy
recovers from recessions as serious as the Great Depression by the
adjustment of wages and prices back downward to more 'realistic'
levels.  As wages and prices drop, some consumption picks up and we
slowly pull out of the recession.  If there is accomodating fiscal and
monetary policy, the recovery will be faster, since the government
will be increasing the money supply and borrowing money on the 'soft'
credit markets to finance deficit spending, which puts money back into
the economy so that consumer demand can increase, too.

Now let's look at what happened during the Great Depression.  First,
the money supply SHRANK by 25%.  Making credit tighter during a
recession is exactly the WRONG thing to do.  Next, we saw the
enactment of a number of laws which inhibited or prevent wages from
coming down; 'the dole', collective bargaining laws, minimum wage
laws, etc.  While these may all be good things, enacting them at a
time when the economy is in the sort of recession that existed during
the Great Depression is a policy catastrophe of the first magnitude.

Let's look at the effects of these laws.  First, shrinking the money
supply causes credit to be at least as difficult to obtain as it was
previously.  In fact, I believe that during the Great Depression, the
money supply was actually contracted MORE then the economy did, so
this meant that credit was MORE difficult to get.  This prevents
businesses that might do so from expanding, new businesses from
starting, makes businesses more risk averse, etc.  This exacerbates
the problems in an already weak economy.

Next, payments to someone for not working will allow them to be more
choosy about taking a lower paying job, which inhibits the downward
movement of wages (and hence prices).  Since both wages and prices are
'sticky' on the downward side anyway, this merely makes things worse.
It tends to exacerbate structural unemployment, prevent workers from
moving to entry level jobs in other industries, etc.  

Next, collective bargaining allows workers who remain employed to
force wages to hold steady or rise, even at a time when they really
need to drop to move the economy.  This also holds prices artificially
high, which leads to lower consumption.  It also prevents workers who
are not in the union who do not have jobs from getting jobs, since the
higher wages pretty much require a smaller workforce.  This is the
reason why the labor/capital mix has changed so much to the capital
side in this country.  This contains at least the germ of good policy
(prevention of the sort of industrial feudalism that existed in the
post-Industrial Revolution world), but the time to enact it is when
the economy is UP, not down.  Enacting it when the ecomomy is down
just makes sure that it stays down.

Minimum wage laws do the same sort of thing.  While, in general, a
good idea (they keep 'wage slavery' to a minimum, for example),
enacting them during a major recession is simply stupid.  When times
are as bad as they were during the Great Depression, minimum wage laws
simply establish an artificial floor for wages and prevent the long
run adjustments of wages and prices.  If they exist BEFORE the
recession starts, they are probably not a major impacter, but enacting
them DURING such economic times merely reduces the number of jobs even
further and drives more businesses out of business.

I'll let someone who is pro-Bush explain what his policies are going
to do for us; ditto for Clinton's.

-- 
"Insisting on perfect safety is for people who don't have the balls to live
 in the real world."   -- Mary Shafer, NASA Ames Dryden
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Fred.McCall@dseg.ti.com - I don't speak for others and they don't speak for me.
Newsgroups: talk.politics.misc,alt.politics.elections