We conducted this interview (mp3) last Wednesday. It was a full hour, with (I believe) only one commercial break at the bottom of the hour, so lots of ground covered here. Also, their show wasn’t the standard right-wing shock jock stuff, so it was a different type of interview. The official topic was my book on capitalism, but we actually didn’t spend much time tied directly to it.
Rather than publish another essay, though there have been some fine ones lately, about just what really happened during America’s last episode of so-called socialism, we’ve opted to go to the visual record. As Marshall Auerback noted, in the process of modernizing the rural South and upgrading the infrastructure of America’s largest cities, President Roosevelt’s New Deal left behind a durable, physical and very visible legacy of schools and hospitals — even aircraft carriers. (We’ll leave discussion of Social Security and unemployment insurance for another time.) The following slide show gives a small sampling of the bricks-and-mortar achievements of red, white and blue “socialism.”
Oh my apologies! It’s a TIME article from 1933, not today. Obama will wait at least 6 months, easy, before he pulls something like this (HT2 Tim Swanson):
On March 9 Congress passed the Emergency Banking Act which empowered the President to call all gold into the Treasury, with heavy penalties for those who disobeyed his orders. At that time $1,400,000,000 in gold was in circulation, most of it hoarded. In the next 30 days more than one-third of this was turned in to the Treasury.
On April 5 President Roosevelt issued an executive order requiring holders of gold to turn it into the Treasury in exchange for paper currency under penalty of ten years imprisonment and $10,000 fine. Department of Justice agents began visiting known hoarders who, to date, have surrendered $38,901,009 in gold. During the same period unknown hoarders have given up more than $300,000,000. Attorney General Cummings issued threat of prosecution against recalcitrants who still held $560,201,000.
On Aug. 28 President Roosevelt issued another order requiring every possessor of gold to register his holdings with the Treasury before Sept. 18. Those who failed to do so were also to be punished by ten years imprisonment, $10,000 fine.
Somebody should really write a book on this stuff…
Well employers cut 598,000 jobs in January, “the deepest cut in payrolls in 34 years” though that is misleading because the population is bigger now. I need to start thinking of where Wenzel is buying me dinner.
On the other hand, I am beginning to worry about my price inflation forecast. Now that CNBC is running front-page stories on how the US could have 200% inflation, I’m thinking we will probably get deflation.
We all know that the market system is an amazing decentralized social planning and allocation mechanism if externalities are small, if returns to scale are in general diminishing, if we are happy with the distribution of wealth and the concommitant distribution of economic power it gives rise to, and if Say’s Law holds–if supply does indeed create its own demand, and we don’t have to worry about large-scale unemployment and deep depressions.
Hazlitt doesn’t recognize any of these ifs. And that is what makes his book very dangerous indeed to a beginner in economics, because the ifs are, all of them, important qualifications and caveats….
I find it astonishing that [Hazlitt] doesn’t recognize any of these ifs. I find it especially astonishing that he doesn’t recognize the last of them. The 1930s were the era of the Great Depression–the time when Say’s Law was most irrelevant. Hazlitt lived through them. Yet the Great Depression years seem to have had no impact on Hazlitt whatsoever.
Hmm that’s interesting. You know what I find astonishing, Professor DeLong? That you don’t acknowledge that Hazlitt wrote a several hundred page, almost line by line critique of the General Theory. So, did you not realize that, or just think it wasn’t worth mentioning to your readers?
Also, at the end DeLong accuses Hazlitt of misrepresenting Keynes with the “in the long run we’re all dead” line. DeLong gives the original context, and…I don’t get it. Keynes is saying the short-run commands the attention of policymakers, because in the long-run we’re all dead. So where’s the misrepresentation? That’s exactly what Hazlitt said was an awful perspective, to tell policymakers to focus just on the crisis and ignore the long-run consequences of the interventions.
For those newcomers who never read Hazlitt, I strongly recommend his slender volume. It is truly the single best introduction to economics ever written–superior even to the Politically Incorrect Guide to Capitalism. Here it is free (pdf).
A Free Advice reader wrote and told me he was planning on downsizing by selling his current house, moving into an apartment, and then buying a smaller house once he found a good bargain. He wanted to know if there were any snags with this plan, given my economic outlook. Here is what I said:
I definitely agree that downsizing your basic monthly expenses is a
great thing to do, and so in that respect getting into (first) a lower
rental payment and then (second) a lower mortgage payment, is a great idea.
I think it’s also true that buying and selling a house might be more difficult as time goes on, because of all the interventions in the bank sector. Just to give you an example, if the government forces banks to take a haircut (what a cute term) on their mortgages for people who make less than blah-blah per year, well heck if I’m a bank I don’t think I’m going to want to give out mortgages to poor people in the future. The government might just come in a knock off 20% of the principal again.
So because of that stuff, it’s true that if you are going to sell at some point, you might want to hurry up and get out of Dodge while the rules are still being obeyed.
My only concern is that there could be serious price inflation over the next few years. In that scenario, you wouldn’t want the major inflation to hit while you were in between houses with your money sitting in bank CDs or something.
I don’t mean to patronize you but let me just make sure you get what I’m saying: Using big scary numbers, let’s say that over the next 3 years, all prices and wages roughly double. In that case, you actually would do well to have a big fat mortgage on a nice house, because your monthly mortgage payments (assuming you have a fixed-rate mortgage) are going to stay the same, while your income will rise. It’s not so much that you welcome the inflation, but it is a big hedge for you to have a secured, fixed-rate loan denominated in dollars, if the dollar tanks.
Now if you were able to sell your current house, and then buy the smaller house, before any of the poop hits the fan, you would be fine, because you’d have that cushion with your second mortgage. But if the major inflation hit while you were in between houses–and you had your equity from your first house tied up in things that didn’t respond well to the rising prices, like bonds–then you could really take a hit.
So what is the result of all this hand-wringing? I would mention the possibility of renting out your current house while you live in an apartment. So long as you can rent it for more than you have to pay in rent in your apartment, you are still reducing your monthly expenses, even if you can’t rent it out for enough to cover the mortgage payment. This way, if serious inflation hits while you are still in your apartment, you will still have a big mortgage that becomes relatively lighter when the dollar takes a beating.
It’s a huge decision, obviously, and it would be bad if you got stuck with your first house and couldn’t find a buyer when you wanted to buy your second one. If you can sell it now and are happy with the price you get, maybe that’s the overall wisest thing.
But if you list it and find that only vultures are making you low-ball offers, you should seriously consider hanging on to it and renting it out while you move into the apartment.
OK no one has said that just yet, but it’s surely coming. We’ve got Frederic Mishkin assuring us that the Fed has plenty of “ammunition,” and we’ve got Martin Wolf calling for governments to use “overwhelming force” because the time for “shock and awe” in policymaking is now.
Even when somebody comes out against some of the madness and opposes a bank bailout, one of the reasons is that it “Consumes considerable resources, thus competing with other, in many cases better, uses of fiscal firepower.”
Here’s an idea! Rather than write op eds and blog posts about where the Treasury and Fed should shoot the economy, maybe these experts ought to advise the government to lay down its weapons and leave market prices alone.
Why is the war metaphor so popular? Did “shock and awe” achieve the long-term objectives the last time it was used? Wolf might as well say, “It’s time to go Waco on the unemployment rate.”
In Madagascar, of all places! Apparently everyone is ignoring the new president’s orders. No violence necessary, just people saying, “How bout, no?”
ANTANANARIVO, Madagascar — Mayor Andry Rajoelina, who over the weekend claimed he was now running this island nation, had a disappointing first Monday in “power”: the ministries he ordered closed remained open; the civil servants he told to stay home went to work; even the children he allowed to skip school studied at their desks.
Now the guy who tipped me off to this, Charles Featherstone, clarifies that there is actually a lot more to it than a Rothbardian Great Awakening. But in that case, I don’t want to read the rest of the story.
Incidentally, Rajoelina should realize the way to cement your rule over the inhabitants of Madagascar is to get some swagger and put on a show.