US Politics Mega-thread - Page 113

On February 18 2013 08:42 TerribleNoobling wrote:
aksfjh the broken window fallacy demonstrates how WWII could not have ended the depression. The theory, incidentally, was that the great depression was brought upon by a failure of aggregate demand. Consumers were not spending enough money, the economy went down the shitter, but the government stepped up to the plate employing everyone in arms manufacturing sopping up this falling demand with lots of gov'ment money and everything was great and we all rode off into the sunshine together singing kumbaya.

The broken window fallacy is this. Imagine that a kid is playing and throws his ball and it breaks a shopkeeper's window. Superficially this seems like it is good for the economy. You see the store owner must pay the glass man to fix his window, the glass man can now buy milk, the milk man can buy some other shit, etc. etc. But the crucial point is this : if the store keeper's window had not been broken he would have then been able to buy something else, say a new suit from a tailor. the tailor could then purchase some rare coins, the coin salesman could buy some comic books etc. etc.

The resources which were employed during WWII could have been employed instead on civilian uses. Creating new factories or other forms of capital to make the labour force more productive (and thus raise wages). Or it could have been spent on improved living conditions, more time off, more consumer goods etc. all depending on the demands of consumers.

War is massively destructive. Even when your cities are not being bombed or looted, there are very little peace time uses for tanks, bombs etc and even if there were a lot of this equipment gets destroyed and hundreds of thousands of (it's sort of weak to think of them this way, since of course every human is so much more than simply what he does for work) able bodied workers died (and ergo could not produce anything). None of this is a recipe for economic prosperity. War is not good for the economy.

Another aspect to this depression was Hoover's (yes, Hoover's) New Deal. I say Hoover's because FDR did not really create the New Deal it was in fact an extension of Hoover's policies. FDR himself was a callow and unimaginative man. Hoover undertook a great expansion of government intervention into the market place... things like price controls, paying farmers to kill pigs, massive public spending programs... all of these things hurt the economy and delayed the healing process wherein malinvestment is liquidated and resources are shifted from capital goods industries (where they are misallocated on account of artificially low interest rates fooling entrepreneurs about consumer time preference) to consumer goods industries.

Another feature was regime uncertainty. Hoover and FDR specifically established broad powers of wealth confiscation. FDR, for example, stole everyone's gold (believe it or not). This lead to regime uncertainty. People are not very likely to go about creating wealth if they think the government is just going to take it from them. There were a lot of factors for why the great depression was so 'great'.

It was only after the war was over, and after taxes were cut massively, that the economy really started to recover.