CB: > Until the 30's and 40's isn't it true that the government didn't > solve recessions , rather they were resolved by the businesses > themselves ?
True, except that military spending rose during wars, encouraging economic booms (e.g., WWI). The Fed didn't really have the power to do anything until the 1920s (it didn't exist until 1913) and then it took it some time to get the hang of it. When the open market committee wanted to lower interest rates in the 1930s, for example, not only did this plan come up against conflict with the need to stay on the gold standard and against the Mellon view that recessions solve themselves naturally, but many of the member banks didn't like it. So it made the recession worse. Later, after WW2, the Bretton Woods fixed-exchange rate meant that the Fed spent most of its time and effort steering the US dollar in foreign exchange markets rather than managing the domestic economy. This situation lasted until the early 1970s. In the 1950s and 1960s, government's active component was mostly a matter of fiscal policy (tax cuts and hikes). Then fiscal policy faded as monetary policy rose to power in the 1970s. > Doesn't it seem likely that [the lack of] depressions (in the US) since the > 30's > is due to government application of economic science ? A little. But mostly it was a passive matter: it was the balance wheel on the economy that the large government budget (warfare/welfare state) creates. In addition, financial reforms such as the creation of bank deposit insurance (along with strict banking regulations) in the 1930s helped stabilize the economy. For fiscal policy, economic science (Keynesianism) was applied in the early 1960s to justify tax cuts (mostly for the rich) to stimulate the economy -- and then for a temporary tax hike in 1968 to (unsuccessfully fight inflation). For monetary policy, economic science was applied in the early 1980s to fight inflation (and to break the back of the labor movement). Then, Greenspan applied "economic science" (and gigantic dollops of intuition) to steer the economy until last year. He helped create two speculative bubbles. All of this helped avoid a depression, but there was severe stagflation in the 1970s and increasing economic inequality in the 1980s and after. > Even Japan has > sort of extended slowdown , but not depression in the 90's. it's a matter of one's definition of "depression." (I think of an economic depression as a "I've fallen and I can't get up" situation.) > Does the delaying [of recessions] that Greenspan did amount to blunting the > sharpness of the > downturns and avoiding depression level downturn ? yes. This is especially true for the 2001 downturn. > Some of it may be > passing the worst effects over to other countries like Southeast Asia, > Brazil, Russia ? Did "swallowing" the former socialist countries and > non-aligned countries give some resources to blunting downturns in the > imperialist countries, especially the US. ? This process has been beneficial to the US rulers, yes. But a lot of the "free market triumphalism" of the last 29 years or so has produced financial crises (including in SE Asia and Russia), which encourage bail-outs. > Also, the recovery aspect > for the working class, employment, seems to recover less in the recent > recoveries. I think that's right. > Or is there really a lot of forest fire fuel piling up somewhere so > that there will be a really big one ? it's mostly in the form of excessive and shaky consumer debt and bank assets that turn out (or will turn out) to be bad. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
