This is another response to a Keynesian critic.
My Keynesian critic says I “cannot compare the USA in 1938 and Australia in 1938 apart from both having stimulatory policy”. Well, I can and I did and justifiably so. It’s ludicrous to argue that comparisons are not justified. You also stated that in 1937 America “had the greatest change in fiscal policy under Roosevelt”. Complete baloney – and I have spent considerable time examining the data from official sources. I made my case in my post on the 1937-1938 crash. Prove me wrong and I will cheerfully (well, perhaps not cheerfully) publish it and graciously admit my error.
After that you returned to your GDP mantra even though GDP does not measure growth. In heavens name, how can an economy enjoy economic growth while at the same time consuming its capital? This is akin to a community getting rich by eating its seed corn. I pointed out in my post that it was estimated that net capital consumption dropped by minus 15.2 per cent1. Your response was to completely ignore that fact and keep on stressing Roosevelt’s grossly misleading super-duper GDP record. Continue reading The Great Depression: Australia’s record humiliates Roosevelt and refutes Keynesianism
This post is a response to a Keynesian reader.
If the 1931 spending cuts deepened Australia’s depression, as is alleged, then the rate at which unemployment had been rising would have accelerated. In fact, the reverse happened as shown by the chart below. In the year 1928-29 unemployment leapt by 74 per cent and 42 per cent in the following year. For the year ending 30 June 1931 Commonwealth spending peaked at £68,585,546, after which it fell and the Commonwealth began to accumulate surpluses until war broke out. According to Keynesianism this policy should have been an economic disaster. However, as we can clearly see from the chart, not only did the rate at which unemployment had been increasing slow down significantly, rising by only 5.8 per cent, it then began to quickly drop even though the Commonwealth increased its surplus by 277 per cent and cut spending even further. Continue reading Keynesian fallacies and the Great Depression: or how Australia left Roosevelt eating her dust
What is the real connection between inflation and unemployment? Then again, maybe that should be inflation and employment. That this has been raised several time on this site which got me thinking about a 1993 study called The Costs of Unemployment in Australia1 by Raja Junankar and Cezary Kapuscinski. The authors, both of whom are Keynesians, argued that a “fight inflation first” policy generally incurs more costs than benefits, a view that is held by most of the economics profession.
As I recall, this study elicited a favourable response from our media. The striking thing — in my view — is that though 22 years has passed it seems that not a single free market commentator made an effort to establish a link between inflation, booms and the consequent unemployment. What we do get is the likes of P. D Jonson, Peter Smith, Des Moore, Sinclair Davidson and Steve Kates2, etc., falsely asserting that the so-called boom-bust cycle is a natural part of the free market order and that we will just have to grin and bear it. (This attitude is music to the ears of the left and Keynesians because to them it justifies their own so-called solutions to the problem of recurring recessions). Continue reading Unemployment and reduced output is the cost of having inflation, not the cost of fighting it
The 1937-38 crash was literally a depression within a depression1. The seasonally adjusted production index peaked 118 in May 19372. A year later it stood at 76, a drop of 36 per cent. From April 1937 to May 1938 manufacturing output fell by 38 per cent. The situation for the iron and steel industry was catastrophic with output collapsing by 67 percent. Factory employment dived by 25 per cent, factory payrolls by 36 per cent while aggregate unemployment peaked at 20 per cent. Such a rapid contraction in production was and is unprecedented in US History. The statistics for manufacturing, and the iron and steel industry in particular, are both striking and instructive if the monthly production figures are examined instead of annual aggregates, a fact that will become increasingly clear. Continue reading The Great Depression and the real facts behind Roosevelt’s 1937-38 Depression
A few days ago I had an exchange with another brilliant product of one of Australia’s economics departments. This rather conceited young man argued that a little bit of inflation is necessary to maintain economic growth. I tried to get it across to him that inflation is as about as healthy as leprosy. Nevertheless, this young man’s dangerous belief is shared by most of our economic commentariat and this is why one still hears it.
One of those commentators is the renown Terry McCann, no less. This brought to mind his statement of belief that “inflation is not only desirable in its own right. It’s the absolute foundation of sustained growth in the economy and of living standards” (Herald Sun, The prices are right, 9 March 2007). As I recall, McCrann seemed to be coming from one of two positions. The first one was the nonsensical belief that a ‘modest’ rate of inflation is necessary to promote spending and investment. Therefore, without inflation prices would fall which would then curb spending and investment and so depress economic activity. But the idea that any rate of inflation can fuel genuine economic growth is utterly absurd, unless one believes in the ‘beneficial effects’ of “forced saving”.
Jeremy Bentham was, I believe, the first economist to outline the forced saving doctrine (the process of using inflation to restrict consumption in order to raise the rate of capital accumulation) which he called “Forced Frugality”. (A Manual of Political Economy, written in 1795 but not published until 1843, p. 44). Thomas Malthus, his contemporary, pointed out the dangers and injustice of “forced savings”. (Edinburgh Review, February 1811, pp. 363-372.) John Stuart Mill described the process as one of “forced accumulation” and condemned it with the statement that accumulating capital by this means “is no palliation of its iniquity”. (John Stuart Mill, Essays on Economics and Society, University of Toronto Press 1967, p. 307). Continue reading Prices, inflation and growth: our economic commentariat get it wrong again