Naomi Wolf Interview with Lew Rockwell Part 2 of 6

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The question we have to ask ourselves is, how much pain will we have to go through this time before we have our Hoover 1932 moment and come out with a new deal?

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Results of the New Deal.

The Great Depression literally bottomed and started going up within 6 months after passing the tax increase.

The increase from 1932 to 1934 in GDP growth is the biggest delta of the last century by far, from double-digit-down real growth to double digit up.

The growth from 1933 - 1943 was the fastest sustained growth rate in the last century, with 4x the *annual* GDP growth rate of the roaring 20s, even though the latter is pumped up by the asset bubbles.

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asset bubble becomes increasingly irrelevant in the face of decreasing margins, workers lose employment, more shortage of dollars, and so on.

That is the true vicious cycle in deflationary spirals.

Some libertarians like to apply inflationary remedies when deflation is the problem, and these should remember that that is what caused the big drop from 1930-1932.

In 1932, Hoover went against every principle he had held and passed massive progressive reform. 25% -> 65% top tax rate.

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Deflationary: Shortage of dollars. Plenty of efficiency. "Fully efficient, but no-one has money to buy". Labor glut. No motive to pay according to value of production because there is always a cheaper bid. Likely to result from excess of pure, unrestrained capitalism.

The death spiral comes when dollars get more expensive, debt goes underwater, deleveraging occurs, debt goes underwater, severe cash shortage among the buying class, profits go down, ....

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Deflationary death spirals and hyperinflationary death spirals are opposite effects with opposite causes.

Inflationary: Shortage of efficiency. Plenty of dollars. "Full employment, but nothing to eat." No motive to work hard and produce. Sometimes comes from excess of communism. ....

Deflationary: Shortage of dollars. Plenty of efficiency.

Economic histories sometimes say the deflationary death spiral in GD I was from delay of purchases. Wrong!!!

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.... and into hands that will save it (the upper class).

The result? These two periods of rich-friendly politics (1920-1932 and 1980-2010) produced record concentration of wealth in 1928, right before the crash that ended the 20s and in 2010, right before ???

The key thing to know about the concentration of wealth is this is a specific economic signature with predictable outcomes.

Economic histories sometimes say the deflationary death spiral in GD I was from delay of purchases. Wrong!!!

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..... over the Reagan-Bush-Bush period.

This is not at all surprising when you realize that Reaganomics is specifically designed to "stimulate" the "economy" by creating policies that will increase the National Savings rate (a statistic about as useful as the national pregnancy rate). The way you do that, of course, is to redirect money, whether through tax adjustment, union weakening, ceo strengthening, or whatever, away from hands that will spend it (the middle class and upper middle class)

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For example, according to Inflation-Adjusted per capita GDP numbers that you can find on John Mauldin's site somewhere, we grew about 40% in GDP from 1980 to 2010. That breaks down to about 40% in the combined Clinton-Obama 10 years and just over 0% in the Reagan-Bush-Bush 20 years.

GDP actually includes both spending and investment, so that means it is massively inflated during bubble years. The true GDP growth if you take out the Stock and Real Estate Bubbles is strongly negative .....

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If you are on a gold standard, then you are unable to shrink or grow the money supply to handle gross distortions like 40% of your nation's monetary wealth winding up in the hands of the top 1%, so when you have a run on the bank, it hits you hard, it hits you fast, and there is nothing you can do about it.

We saw massive asset bubbles in the US during the 2 periods of the last century when Reaganomics held the biggest sway. Meanwhile the real economy shrank fastest these 2 periods.

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..... Step 6: Entire industries become unprofitable as the middle market disappears. People either accept transition to third world country status or create a New Deal. Step 7: If the economy recovers, then people learn their lesson and remember for 40-70 years.

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..... The current problems were created when Reagan Bush and Bush did virtually the same thing. However unlike the 20's, we are not on the gold standard now. Step 1: wealth accumulates with the rich. Step 2: power accumulates with the rich. Step 3: The middle class replaces earnings-based expenditures with borrowing expenditures. Standard of living lowers, but viscious cycle is postponed by the loans. Step 5: Financial calamity hits. Delayed money shortages turn into deflationary spiral.

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Here is the problem with the Federal Reserve discussion

1) the bubbles come from laissez faire, or supply side economics and not from the federal reserve printing money. Just like the seed of the Great Depression was created in 1920 when Warren Harding killed the unions, made it easier for ceo's and holding companies to collect economic power without restraints, and passed the lowest tax rates on the rich and corporations of the last century with the possible exception of Reagan Bush Jr. .....