World GDP

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Cartoon: The First Economist

4 Minute Economic History

How to Avoid Great Depression II

If government wishes to alleviate, rather than aggravate, a depression, its only valid course is laissez-faire – to leave the economy alone. Only if there is no interference, direct or threatened, with prices, wage rates, and business liquidation will the necessary adjustment proceed with smooth dispatch... The proper injunction to government in a depression is cut the budget and leave the economy strictly alone.
Murray Rothbard

A Program of True Economic Reform

1) End the Fed.

2) Restore sound money to the economy.

3) Lower taxes and cut government spending.

4) No bailouts.

5) Allow prices and wages to fall to levels set by the market.

6) Regulate the government, not private property and markets.

read the entire essay

My thoughts: This is an outstanding essay that provides many fact and figures debunking the idea that massive government intervention can solve economic problems.

Real GDP Since 1930

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The New Deal Prolonged the Depression

The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR's policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.

The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32...

The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation's antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of "fair competition" which spelled out what producers could and could not do, and which were designed to eliminate "excessive competition" that FDR believed to be the source of the Depression...

The main lesson we have learned from the New Deal is that wholesale government intervention can -- and does -- deliver the most unintended of consequences. This was true in the 1930s, when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk.

President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries -- including autos and steel -- are no longer internationally competitive.
Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn't directly address the specific impediments that our economy faces is unlikely to achieve either the country's short-term or long-term goals.

read the WSJ article

Post World War II Recessions

On Thursday, Federal Reserve Chairman Ben Bernanke pledged that the central bank is ready to slash interest rates again to prevent housing and credit problems from plunging the country into a recession. The Fed has cut its key lending rate three times since September, for a total reduction of 1 percentage point...

It's typical that unemployment and job losses continue to climb even after the recession formally comes to an end, as businesses respond to the downturn by cutting future spending plans.

In the most recent recession, the eight-month period in 2001, the unemployment rate was under 5 percent for the first six months of the economic slump...

But the year and a half that followed the recession seemed just as bad or worse to many Americans, as unemployment rose to 7.8 percent by mid-1992. That allowed Bill Clinton to defeat a sitting president, George H.W. Bush, as his campaign leadership kept reminding themselves "It's the economy, stupid."

read the CNN story

Good chart. Horrible article. The author lacks understanding of what a recession is. A recession is a 2-consecutive quarter decline in GDP growth. The US economy is far from being a solid healthy economy, but that does not mean it is in a recession. Unemployment is 5%, which is still consider full employment. Yes, the employment rate did increase 0.3%, but it could be an outlier in the long run picture. It is too early to tell. The economiy created a net gain of over 1 million jobs last year. Interest rates are near historically low levels.

There is the slump in the housing market, the sub-prime "crisis", falling dollar, and other things to be concerned about, but people should not be panicking.