Tuesday, April 19, 2011
The 1920–1921 Depression and Coolidge - Harding vs. The Great Depression and FDR economics
Uncharted economic waters
One must remember we are in uncharted economic waters. One must further remember that much empirical study of past depressions/recessions, and there has been many deep recessions aka depressions in the U.S. economy, are based on the study of U.S. recessions/depressions when household and government debt was small and/or non existent. That is, we are in uncharted economic waters within an environment of hyper-debt. Hence past empirical studies have a component in common of studying many recessions/depressions in which low debt was the norm.
However, take a special look at 10:08 until the end of the video. Especially 10:08 until 10:48. What is eluded to is that Great Depression economics of the FDR administration did not work in this current economic environment of uncharted waters.. Larry Kudlow may well be contrasting the FDR economics with the 1920–1921 depression and Coolidge - Harding economics.
Note: if you have never heard of the 1920–1921 depression and Coolidge - Harding economics you are not alone. Its glossed over in history books. However, well known in the field of economics.
Friedman and Schwartz
One might trace back QE1 and QE 2 to Milton Friedman and Anna Schwartz. That the Fed’s tight, tighter, tightest money policy deepened and prolonged the Great Depression. Hence the money supply clearly needs expanded when cataclysmic financial shocks occur. Hence Bernanke is following Friedman-Schwartz.
Coolidge - Harding or FDR
On the other side of economics, aside from monetary policy, we have fiscal policy. If you deploy Schwartz-Friedman do you deploy Coolidge - Harding or FDR? The strategy chosen was FDR economics.
The FDR strategy has failed for a second time. Friedman and Schwartz appears to be working. However Friedman and Schwartz is temporary and meant to find a soft economic landing zone. Coolidge - Harding?