Study Says Stimulus Prolonged Depression By Seven Years

[CycloWizard]

Originally posted by: sactoking
Show me one person who recognized the "causal factors" and predicted the Great Depression.

Redneck logic FTL.

So, just so I have this straight: causal factors only exist if they are understood beforehand? Thank you for educating this redneck in your acid-trip-based version of logic.

 

[Phokus]

Originally posted by: CycloWizard

Originally posted by: DaveSimmons
How about this:

Ohanian and Cole blame specific anti-competition and pro-labor measures ...

Again, not borrowing or deficit spending as you claim in your OP comments, only the specific policies of unions excessive wages and promoting antitrust violations.

So you are going to ignore anything else that is quoted from the article other than your one truncated sentence? Really? Isn't it hard to see with all that sand in your eyes?

Must be hard for you considering your 'paper' and it's central theme was debunked directly

http://www.econ.wisc.edu/works...Eggertsson%20paper.pdf

Can government policies that increase the monopoly power of firms and the militancy of unions increase output? This paper studies this question in a dynamic general equilibrium model with nominal frictions and shows that these policies are expansionary when certain ?emergency? conditions apply. These emergency conditions?zero interest rates and deflation?were satisfied during the Great Depression in the United States. Therefore, the New Deal, which facilitated monopolies and union militancy, was expansionary, according to the model. This conclusion is contrary to the one reached by a large previous literature, e.g. Cole and Ohanian (2004), that argues that the New Deal was contractionary. The main reason for this divergence is that the current model incorporates nominal frictions so that inflation expectations play a central role in the analysis. The New Deal has a strong effect on inflation expectations in the model, changing excessive deflation to modest inflation, thereby lowering real interest rates and stimulating spending.

edit:

And to see why this was significant:

The third was between 1930?1933 when the rate of deflation was approximately 10 percent/year, part of the United States slide into the Great Depression, where banks failed and unemployment peaked at 25%.

and what happens when deflation isn't controlled:

A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.[7] Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause.

deflations = bad, mild inflation = good

 

[Craig234]

Originally posted by: sactoking

Originally posted by: Craig234
I don't know any credbile economists who agree with you on that.

Well, I don't know any credible economists, so if you do, please let me know who they are.

There were all kinds of warnings,

Really, I don't remember seeing ANYONE saying "Be careful, the DJIA will drop 1,900 points from 9/29/08 to 10/6/08!".

especially in light of what we now know about how the economy works.

Fundamental attribution error. We THINK we know how the economy works now. We THOUGHT we knew how the economy worked on 9/28/08. We THOUGHT that NYC was safe on 9/10/01. No amount of 'lookback' now changes the fact that we DIDN'T know what was coming, and it won't change the fact that we WON'T know when the next monumental event will happen.

Just as there were plenty of people who saw the 2008 crash coming, if not the precise timing or degree,

Then they really didn't see it coming, at least no more so than the person who sits back and pontificates about whether the market will go up or down tomorrow with no specific details of how much or why. Anyone who claims they "predicted" the crash either needs to show their extensive track record of correct predictions of their bank account to show that they're a billionaire as a result of said prediction.

I started to write a reply, and after the fifth or sixth correction to your basic errors in logic, I decided it's a waste of time. Good luck, though.

 

[DaveSimmons]

Originally posted by: CycloWizard

Originally posted by: DaveSimmons
How about this:

Ohanian and Cole blame specific anti-competition and pro-labor measures ...

Again, not borrowing or deficit spending as you claim in your OP comments, only the specific policies of unions excessive wages and promoting antitrust violations.

So you are going to ignore anything else that is quoted from the article other than your one truncated sentence? Really? Isn't it hard to see with all that sand in your eyes?

Have you read the article? Almost every paragraph supports that the paper's claim is antitrust and wages extended the deficit.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

Again, not deficit spending, not your claim in the OP.

 

[sactoking]

Originally posted by: CycloWizard
So, just so I have this straight: causal factors only exist if they are understood beforehand? Thank you for educating this redneck in your acid-trip-based version of logic.

If you know beforehand that something will cause something else, you have causation. If you don't know beforehand that something will cause something else, you can TRY to find causation, but any attempt to do so is prone to attribution error, the human need for explanation, and the gross misconception that everything has to be explained.

Face it, we don't know nearly as much as we think we do and all our efforts to learn more only serve to confuse us further.

Hell, if you believe this guy the Great Depression was directly attributable to hookworm. The problem is that in retrospect, we can't directly attribute it to ANYTHING (nor can we attribute it's length to anything) since randomness has no causation.

 

[sactoking]

Originally posted by: Craig234
I started to write a reply, and after the fifth or sixth correction to your basic errors in logic, I decided it's a waste of time. Good luck, though.

That's funny, coming from you. If you have a problem with the logic used, you can take it up with Benoit Mandlebrot.

 

[CycloWizard]

Originally posted by: Phokus
Must be hard for you considering your 'paper' and it's central theme was debunked directly

http://www.econ.wisc.edu/works...Eggertsson%20paper.pdf

Can government policies that increase the monopoly power of firms and the militancy of unions increase output? This paper studies this question in a dynamic general equilibrium model with nominal frictions and shows that these policies are expansionary when certain ?emergency? conditions apply. These emergency conditions?zero interest rates and deflation?were satisfied during the Great Depression in the United States. Therefore, the New Deal, which facilitated monopolies and union militancy, was expansionary, according to the model. This conclusion is contrary to the one reached by a large previous literature, e.g. Cole and Ohanian (2004), that argues that the New Deal was contractionary. The main reason for this divergence is that the current model incorporates nominal frictions so that inflation expectations play a central role in the analysis. The New Deal has a strong effect on inflation expectations in the model, changing excessive deflation to modest inflation, thereby lowering real interest rates and stimulating spending.

edit:

And to see why this was significant:

The third was between 1930?1933 when the rate of deflation was approximately 10 percent/year, part of the United States slide into the Great Depression, where banks failed and unemployment peaked at 25%.

and what happens when deflation isn't controlled:

A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.[7] Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause.

deflations = bad, mild inflation = good

I generally ignore your posts because they have no basis in reality. However, as you're a stubborn bastard, I'll address this one. The "paper" you reference is not published in a journal: it is simply on a guy's website. Thus, it is not part of the archival literature and has not passed peer review. Therefore, in scientific terms, it doesn't exist. Besides, it's written by a government guy telling us that the government knows what's best. I know that is enough for you, but for those of us with critical thinking skills, it means nothing. I'm not saying he's wrong, only that a conflict of interest, coupled with the absence from similar findings in the archives of peer-reviewed literature, make me take it with a grain of salt.

 

[CycloWizard]

Originally posted by: sactoking
If you know beforehand that something will cause something else, you have causation. If you don't know beforehand that something will cause something else, you can TRY to find causation, but any attempt to do so is prone to attribution error, the human need for explanation, and the gross misconception that everything has to be explained.

Face it, we don't know nearly as much as we think we do and all our efforts to learn more only serve to confuse us further.

Hell, if you believe this guy the Great Depression was directly attributable to hookworm. The problem is that in retrospect, we can't directly attribute it to ANYTHING (nor can we attribute it's length to anything) since randomness has no causation.

So if I get hit by a bus because I was talking on my cell phone rather than looking both ways before crossing the street, the bus hitting me is simply a random event which was not caused by anything? You, sir, are an idiot.

 

[CycloWizard]

Originally posted by: DaveSimmons
Have you read the article? Almost every paragraph supports that the paper's claim is antitrust and wages extended the deficit.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

Again, not deficit spending, not your claim in the OP.

*facepalm* How the hell do you think the New Deal policies short-circuited these things? Read for comprehension rather than talking points and perhaps you will uncover the secrets of teh intarwebs!!1!

 

[Craig234]

Originally posted by: sactoking

Originally posted by: Craig234
I started to write a reply, and after the fifth or sixth correction to your basic errors in logic, I decided it's a waste of time. Good luck, though.

That's funny, coming from you. If you have a problem with the logic used, you can take it up with Benoit Mandlebrot.

The constant errors are yours, not Mandelbrot's.

But you did begin with a question, not an error, asking who are credible economists.

Of course there are many to cite, but a few who have plenty of good commentary available are Paul Krugman, Simon Jonson, and Joseph Stiglitz.

 

[Phokus]

Originally posted by: CycloWizard

Originally posted by: Phokus
Must be hard for you considering your 'paper' and it's central theme was debunked directly

http://www.econ.wisc.edu/works...Eggertsson%20paper.pdf

Can government policies that increase the monopoly power of firms and the militancy of unions increase output? This paper studies this question in a dynamic general equilibrium model with nominal frictions and shows that these policies are expansionary when certain ?emergency? conditions apply. These emergency conditions?zero interest rates and deflation?were satisfied during the Great Depression in the United States. Therefore, the New Deal, which facilitated monopolies and union militancy, was expansionary, according to the model. This conclusion is contrary to the one reached by a large previous literature, e.g. Cole and Ohanian (2004), that argues that the New Deal was contractionary. The main reason for this divergence is that the current model incorporates nominal frictions so that inflation expectations play a central role in the analysis. The New Deal has a strong effect on inflation expectations in the model, changing excessive deflation to modest inflation, thereby lowering real interest rates and stimulating spending.

edit:

And to see why this was significant:

The third was between 1930?1933 when the rate of deflation was approximately 10 percent/year, part of the United States slide into the Great Depression, where banks failed and unemployment peaked at 25%.

and what happens when deflation isn't controlled:

A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.[7] Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause.

deflations = bad, mild inflation = good

I generally ignore your posts because they have no basis in reality. However, as you're a stubborn bastard, I'll address this one. The "paper" you reference is not published in a journal: it is simply on a guy's website. Thus, it is not part of the archival literature and has not passed peer review. Therefore, in scientific terms, it doesn't exist. Besides, it's written by a government guy telling us that the government knows what's best. I know that is enough for you, but for those of us with critical thinking skills, it means nothing. I'm not saying he's wrong, only that a conflict of interest, coupled with the absence from similar findings in the archives of peer-reviewed literature, make me take it with a grain of salt.

Lol, 'simply a guy's website', he has more credentials in his left nut than you'll ever have in your whole body. His SPECIALTY is in recessions/depressions. Attack the source, not the ideas.

Fields of interest
Macroeconomics, Monetary Economics, International Finance, Political Economy

Gauti B. Eggertsson joined the Federal Reserve Bank of New York in November 2004. He is a macroeconomist, with special interests in monetary policy and international finance. His current research focuses on monetary policy at zero interest rates, interaction of monetary and fiscal policy and economic crisis, in particular the Great Depression in the United States and the Great Recession in Japan. He holds a Ph.D. from Princeton University and a BS from the University of Iceland. He has taught at Princeton University and currently teaches International Finance for graduate students in Economics at Yale University.

Most of the ideas in that paper (which was meant to address the UCLA paper specifically) can be found in his PUBLISHED papers:

http://www.newyorkfed.org/rese...rtsson/GreatExpAER.pdf

Great Expectations and the End of the Depression
American Economic Review, 2008: 90(4)

This paper suggests that the US recovery from the Great Depression was driven
by a shift in expectations. This shift was caused by President Franklin Delano
Roosevelt?s policy actions. On the monetary policy side, Roosevelt abolished
the gold standard and?even more importantly?announced the explicit objective
of inflating the price level to pre-Depression levels. On the fiscal policy
side, Roosevelt expanded real and deficit spending, which made his policy
objective credible. These actions violated prevailing policy dogmas and initiated
a policy regime change as in Sargent (1983) and Temin and Wigmore
(1990). The economic consequences of Roosevelt are evaluated in a dynamic
stochastic general equilibrium model with nominal frictions. (JEL D84, E52,
E62, N12, N42)

[snip]

This coordination ended the Great Depression by engineering a shift in
expectations from ?contractionary? (i.e., the private sector expected future economic contraction
and deflation) to ?expansionary? (i.e., the public expected future economic expansion and
inflation). The expectation of higher future inflation lowered real interest rates, thus stimulating
demand, while the expectation of higher future income stimulated demand by raising permanent income

list of published works:

http://www.newyorkfed.org/rese...ts/eggertsson/pub.html

edit: also, good job on ignoring the part about the deflationary spiral (which i did NOT copy from his paper)

I'm guessing you didn't even read your own OP as to see why it was relevant:

"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

edit2:

in fact, he addresses the UCLA paper in his published paper as well:

Several papers study the Great Depression in DSGE models, and the current paper shares
many elements with them. The main difference is the focus on the regime shift associated with
Roosevelt?s rise to the presidency, which is used to explain the recovery. While many of these
papers recognize the importance of expectations, they do not model explicitly why and how they
changed in 1933 with Roosevelt?s inauguration.10 In fact, a surprisingly large part of the literature
treats the recovery as inevitable and/or exogenous and coincidental with Roosevelt inauguration,
while in this paper output would have continued to contract in the absence of the regime change.
Furthermore, most previous analyses do not take the zero bound on the short-term nominal interest
rate explicitly into account. The short-term nominal interest rate remained at zero throughout
the recovery phase 1933?37. This fact is important, according to the model, because it implies
that monetary policy only operated through expectations. At a theoretical level, the focus on
regime changes separates this paper from the large literature on the zero bound.11
There are numerous examples. See, e.g., Robert E. Lucas and Leonard A. Rapping (1972); Michael Bordo,
Christopher Erceg, and Charles Evans (2000); Lawrence Christiano, Roberto Motto, and Massimo Rostagno (2003);
and Harold Cole and Lee Ohanian (2004).

 

[Jaskalas]

Originally posted by: bamacre
Just wanted to point out that the general belief that the gov't prolonged the Depression isn't new.

It most certainly isn't.

 

[DaveSimmons]

Originally posted by: CycloWizard

Originally posted by: DaveSimmons
Have you read the article? Almost every paragraph supports that the paper's claim is antitrust and wages extended the deficit.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

Again, not deficit spending, not your claim in the OP.

*facepalm* How the hell do you think the New Deal policies short-circuited these things? Read for comprehension rather than talking points and perhaps you will uncover the secrets of teh intarwebs!!1!

By ignoring antitrust violations, NOT deficit spending

By requiring negotiating with unions to get the chance to engage in monopoly abuse, NOT deficit spending.

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait,

Does that say "deficit spending"? No, it says the policies argued for being the cause were antitrust and union wages.

 

[Hayabusa Rider]

"Credible" and economist should never be used in the same sentence.

 

[JKing106]

Originally posted by: CycloWizard

Originally posted by: MovingTarget
Wow, fail. Ask anyone who lived through the depression what they thought of Roosevelt's New Deal. There are still quite a few around and they overwhelmingly approve. The author is an idiot.

Thanks for the rigorous analysis. :thumbsup:

I'll take the word of someone who lived through it over a partisan troll any day. Kthnxbye.

 

[imported_gardener]

Originally posted by: CycloWizard

It is churlish to claim the economic stimulation brought on by the govenment expenditures of the New Deal and WW2 caused or extended the great depression, when in fact, it is precisely those expenditures that built the middle class, and with it this country's economy.

I don't need to read some bullshit quoted by some attention seeking poster to understand history.

 

[heyheybooboo]

Originally posted by: bamacre

Originally posted by: Moonbeam
I am writing a book that proves that Clinton was the devil and Reagan saved the world. I am going to sell it to millions of morons who are all jacked up already willing to believe it. There are billions to be made telling people what they want to hear as many millions as there assholes.

You're a day late and a dollar short.

I'd like in on some of that action.

 

[Craig234]

Originally posted by: Hayabusa Rider
"Credible" and economist should never be used in the same sentence.

It's nicknamed 'the dismal science' for a reason, but I'd put a lot more stock in what, say, Paul Krugman has to say about economics than you, no offense.

In fact, you might benefit by watching his series of talks to the London School of Economics recently about how wrong economists have been.

 

[SigArms08]

How's Japan been doing with all their gov't stimulus?

 

[fskimospy]

Originally posted by: CycloWizard

Originally posted by: eskimospy
That's an interesting study. The majority of economists disagree with it, but interesting nonetheless. It also poorly explains other countries' emergence timelines from the Great Depression.

Whether someone disagrees with a statement has no bearing on the truth of said statement. Nor does this study attempt to explain other countries' behaviors.

Of course someone's opinion doesn't affect whether someone else is right or not, but you know exactly what I meant and you're being deliberately obtuse. You and I are not university research economists, we lack the experience and the training necessary to independantly evaluate this paper on its own merits, and even if we did have the experience and skills we would likely not have the time to apply them to every paper that comes down the pipe. Because of these two deficiencies on our part, we do what every rational human being on this planet does, and we defer to the experts on the issue... or at least lend significant weight to the professional opinions of similarly qualified people. We do this because we aren't crazy. Therefore, the opinions of other economists on this issue (which is hardly new), are directly relevant.

You already know this.

While this study does not attempt to explain other countries' behaviors, many other countries enacted policies that were quite similar to some of the functions of the New Deal, and so were the economists' theory to hold up we should be able to see some similar effects in other environments. I am not aware of any such effects. In fact, debt fueled, large scale government spending seems to be correlated with emergence from the Great Depression. I'm no expert though.

 

[Hayabusa Rider]

Originally posted by: Craig234

Originally posted by: Hayabusa Rider
"Credible" and economist should never be used in the same sentence.

It's nicknamed 'the dismal science' for a reason, but I'd put a lot more stock in what, say, Paul Krugman has to say about economics than you, no offense.

In fact, you might benefit by watching his series of talks to the London School of Economics recently about how wrong economists have been.

I certainly am no expert in the field, but I understand something that seems to be lacking in economic science, namely that changing variables in the economy cause unforeseen effects. Those effects then modify the conclusion of any premise making it unreliable.

Take the stock market. It's relatively simple compared to then entire economy ( since the markets are a subset of the whole ball of wax, so to speak), yet no one has figured it out. That's because there is inherent uncertainty in human action.

If FDR hadn't done what he did, then perhaps the conclusions would be correct if all the consequences could be accounted for, which they cannot. No one knows what would have happened as a result, because no one was given the choice.

It's like predicting weather with arbitrary precision. It cannot be done, even in principle.
I don't see this as being different as reactions to policies can not be predicted. It's all hypothetical.

 

[First]

Looking at the paper, a couple of the conclusions about price ceilings and floors enacted by gov't is pretty well established as inefficient and not worth doing on any significant scale in most industries in a particular economy. The union collision conclusions are interesting and don't surprise me as wide-spread CBA's are probably not a good thing in most cases. A significant level of privatization of labor decisions has to exist and merely be balanced with common sense labor laws; like how, by state law, you can't discriminate against people due to age in CA, but can basically do so without much/any repercussion in Texas.

 

[Craig234]

Originally posted by: Hayabusa Rider

Originally posted by: Craig234

Originally posted by: Hayabusa Rider
"Credible" and economist should never be used in the same sentence.

It's nicknamed 'the dismal science' for a reason, but I'd put a lot more stock in what, say, Paul Krugman has to say about economics than you, no offense.

In fact, you might benefit by watching his series of talks to the London School of Economics recently about how wrong economists have been.

I certainly am no expert in the field, but I understand something that seems to be lacking in economic science, namely that changing variables in the economy cause unforeseen effects. Those effects then modify the conclusion of any premise making it unreliable.

Take the stock market. It's relatively simple compared to then entire economy ( since the markets are a subset of the whole ball of wax, so to speak), yet no one has figured it out. That's because there is inherent uncertainty in human action.

If FDR hadn't done what he did, then perhaps the conclusions would be correct if all the consequences could be accounted for, which they cannot. No one knows what would have happened as a result, because no one was given the choice.

It's like predicting weather with arbitrary precision. It cannot be done, even in principle.
I don't see this as being different as reactions to policies can not be predicted. It's all hypothetical.

The problem with your point is that you are arguing against economics in general, while I named a few specific people I consider credible. You challenged them, not the field.

That's why all your 'supporting points' are about econmics in general that I didn't discuss, and not a peep about the three people I named.

You clearly have a speech ready to go against economics, and I've got some bad things to say about the field too. But you gave the speech in responce to the three people.

 

[Hayabusa Rider]

I wasn't thinking of any particular economist Craig and I would consider one who realized the limitations of retrospective analysis as one more on the ball that the authors of this study. Unless they are qualitatively more intelligent than homo sapiens then I have a hard time buying their conclusion. It reduces to a virtually unlimited numbers of "if-thens" not amenable to statistical solutions.

 

[marincounty]

It's possible that FDR's stimulus prolonged the depression by seven years, but not likely.
It's also possible that had we continued Hoover policies we would still be in a depression.