Where are the Warrens, Pearsons and Cassels of today?
Consider this:
The present depression is not an act of God for the purification of men’s souls. It is not a business cycle. It is not due to extravagant living. It is not due to unsound business practices. It is not due to too great efficiency. It is not due to lack of confidence, but is the cause of lack of confidence. It is due to high demand for gold following a period of low demand for gold. It teaches the devastating effects of deflation, but teaches no other lesson that is good for society. (Warren and Paerson, 1933, p. 125)
I think that’s the first time I ever used both italics and bold font in the same passage. I would have preferred to have used a megaphone—in an FOMC meeting, but my computer doesn’t have that option. Here is Gustav Cassel:
“the way in which the Gold Delegation presents the causes of the breakdown of the gold standard seems to me entirely unacceptable. What we have to explain is essentially a monetary phenomenon, and the explanation must therefore essentially be of a monetary character. An enumeration of a series of economic disturbances and maladjustments which existed before 1929 is no explanation of the breakdown of the gold standard. In fact, in spite of existing economic difficulties, the world enjoyed up to 1929 remarkable progress. What has to be cleared up is why the progress was suddenly interrupted.” (1932, League of Nations, Memorandum of Dissent.)
HT: Douglas Irwin
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26. July 2010 at 13:21
“I would have preferred to have used a megaphone””in an FOMC meeting, but my computer doesn’t have that option”
It would be like yelling at a wall. Although, I do wonder what the recent equity rally has been about. Not to make too much of a one week rally, but I see no reason for it except for the fact that maybe there is some expectation that the Fed will do something. And with Obama’s Fed nominees possibly headed for confirmation, could I possibly be given a reason not to be a constant cynic?
27. July 2010 at 04:27
Liberal Roman, I have had the same thought. I hope you are right.
27. July 2010 at 12:36
Interpreting short movements in the markets is difficult. Sometimes I get the feeling that the markets is creating its own reality. Sooner or later the markets turn (up or down) and that changes the way people feel about the economy. Although I think the Fed should do more I still think the economy will recover. After a while people get tired of all bad news and starts buying things and/or stocks (those that can afford it).
If that would happen, wouldn’t the monetary policy become more accomodative by itself? Maybe that’s what bernanke is expecting to happen.
28. July 2010 at 08:22
Mattias: You said;
“Interpreting short movements in the markets is difficult. Sometimes I get the feeling that the markets is creating its own reality. Sooner or later the markets turn (up or down) and that changes the way people feel about the economy. Although I think the Fed should do more I still think the economy will recover. After a while people get tired of all bad news and starts buying things and/or stocks (those that can afford it).
If that would happen, wouldn’t the monetary policy become more accomodative by itself? Maybe that’s what bernanke is expecting to happen.”
1. It’s not so much that the markets change the way people feel about the economy, rather the way people feel about the economy changes markets
2. Bernanke is a student of the Great Depression. I doubt his plan is simply to let the economy recover on its own. He knows better than that.