 Well, I was waiting because technically I haven't spoken to this group yet. I thought maybe Mark Thort or somebody would show up, but apparently I don't need any introduction My reputation precedes me. Let me so I'm Robert Murphy for those of you who don't know me and I Was a student at Mises U for a few years and then went went back And now I'm teaching here obviously so if this is something you're interested in I just want to encourage you To continue with this path because several of the faculty were themselves Attendees at Mises University also be just a preliminary remark. Let me apologize. I know some of you were disappointed I had told people that I would go to the ale house last night. We do a non-core karaoke presentation I just want to explain what happened. So it was last night You know we had the debate between Walter Block and Gary North fresh in my mind I left the hotel and I spent three hours trying to get to the ale house without using government roads And I just I couldn't do it All right, so why don't we go ahead and get started here? I'm gonna I'll try to leave time at the end for your questions, but there's a lot of material I packed in here So we'll see how it goes I'm gonna actually zip through this stuff to make sure I cover everything also again last disclaimer this I'm not gonna get too technical in this stuff So for those of you who are like grad students in economics some of this might seem you know Too superficial for you, but there's a wide audience here We don't want to leave some people behind so obviously if you have questions about these things I want to get more deeply into it. Just talk to me afterward Okay, so first of all the bad teachers account and what I mean here is The account of the Great Depression you would get from your teacher who's bad and of course it's a pun Basically anytime you can put Cameron Diaz in a PowerPoint you do it right so that's All right, so so again what I mean though here is like this is the version of the Great Depression that I heard growing up Not from anyone that looked like Cameron Diaz in my classes, but here is sorts of things So they say okay the 29 stock market crash was caused by unregulated margin trading, right? That we had pure laissez-faire capitalism the 1920s. We didn't have the SEC. We didn't have all of these wise Regulatory safeguards that were put in place during the New Deal, and that's why you just had this crazy Wildcat free market system people could even do stuff like borrow money to then go speculate in the stock markets They said that's what pushed up the stock market and there was the crash Then they say now why did the stock market crash of 29 turn into the Great Depression? Oh, it's because we had this guy in office Herbert Hoover who was the dogmatic laissez-faire guy And he just sat back and let the economy implode because he had these odd philosophical views About the role of the federal government and thank goodness You know we don't have a guy like that in the White House anymore that we've you know since progressed But that's this is the standard view you would get and then when they say okay Well, then how did we get out of the Great Depression? There's two theories that are somewhat related. They'll say oh, it's well because FDR came in and thank goodness You know the public demanded that somebody in the White House do something they threw out that do nothing reactionary Herbert Hoover brought an FDR Franklin D. Roosevelt and he you know instituted the New Deal and Also then later on it was World War two that got us out so some people say both of those things now And also I should mention this issue of World War two if if you're talking to someone who's like a right-wing conservative and Conservative in the terms of the current American popular landscape, so you know people like Rush Limbaugh that that's what I mean by conservative They might say no no it wasn't the New Deal that got us out of their oppression. It was World War two All right, and so those will try to deny the accolades to FDR because that's clearly in their mind big government interventionism But then they'll say it wasn't big government spending it was big government spending that did it, right? Okay, what about Paul Krugman's account He said and by the way there were plenty of Google image searches that I could have done Like a real hit job on with the picture, but I decided to be a nice guy and just put up a standard picture Okay So he says when Krugman talks about it He'll do things like Complain about the current governors who are cutting their budgets and will say like have a column's called 50 Herbert Hoover's Meaning if you cut spending in the midst of an economic downturn You're just like Herbert Hoover because that's what Hoover did in the 1932 Calendar year like he tried to push through austerity measures back then and and that's true and in so far as it goes But we'll see a little bit later that that's very misleading Okay, and then he also points out that FDR did the same thing in 37 his advisors were very concerned about the budget deficit the federal budget deficit And so they tried to reduce spending and raise tax revenue, and then you had a you know the a Sharp downturn in the economy even though there had been a sort of a recovery in between All right So the so Krugman's point is a good Keynesian is look at the numbers don't lie folks the reason The economy was so awful in the 1930s is that you had these people get the crazy idea that you want to have You know a balanced budget during a downturn when we all know Macro 101 says if you have a downturn, that's when the government ought to run deficits He also says the convent conventional monetary policy was hindered by what's called the liquidity trap and the gold standard So that and again, I got to be real you know dumb this down because I don't know the background of people So what does he mean when he says these things what he's talking about is in standard? Keynesian in the standard Keynesian framework You actually don't have to just run big budget deficits every time there's a recession All right That's what some people think but the modern Keynesians at least in principle Don't believe that that they say no normally all that has to happen is the Fed cuts interest rates And then that will stimulate investment spending and that should feel like and consumers will borrow and spend more at lower interest rates And that's how you make sure that aggregate demand is big enough to ensure full employment But he says that doesn't work if you butt up against the zero percent lower bound on interest rates Right that you can't the Fed can't no matter how much money it creates how many assets it buys The Fed can't push nominal interest rates nominal meaning the actual market rate. You can't push that below zero percent Because people would just sit on cash. Why would you lend money at a negative? Nominal interest rate if you know why would I lend a hundred dollars to get 99 back next year? That's crazy. I would just sit on the hundred and do better. So the point is if if the market clearing rate if the economy is so depressed that the market clearing rate that would would ensure full employment is Like negative 2% just because the way you draw the curves It could happen to be negative 2% Then monetary policy at least conventional monetary policy doesn't work because the Fed can't push lower And that's when you have the role for the government to come in and run big deficits All right, so that's what he thinks was true in the early 1930s and what he thinks is true right now Okay, and then when he gets more specific about what was it about the 1930s and what is it today? That is causing this huge shortfall and aggregate demand and why is it taking so long for the economy to heal itself? Because the policymakers and his view were doing the wrong thing in the early 30s Just like they're doing the wrong thing now, but you know, we're a little bit more enlightened now We had a decent stimulus package, but it should have been twice as big back then, you know They didn't do anything nearly correct until World War two came along so he's saying but what was it? Why did the economy why did we need such a massive government intervention back then and now? Why was the economy left to its own devices so weak and he says oh, it's because there was a private debt overhang so the private sector households and Banks and so forth took on a lot of debt in the late 1920s during that boom And then when the bottom fell out their balance sheets were destroyed right that they were all heavily indebted And so they all tried to pay down their debt And so that so how do you pay down debt? Well, you consume less out of your income, right? Whatever your income is you consume less you save more and that's the way you you pay down your debt if you're an individual and So the problem is everybody or lots of people are doing that Well at the same time the the people who the creditors the people who's who the debts that are being paid off They're not borrowing more right because that's what you would need in order or they're not spending more I should say so total spending total aggregate demand Is going down from the private sector's perspective because again some people are heavily indebted They're trying to fix that situation by saving more to paying down their debts Whereas the people now who are holding that debt are being paid off They're not going out and spending it more. There's still they're also being cautious So that that's the problem That's where you get this idea that right now Krugman thinks that there's too much savings going on relative to the private sector's intention to invest so and this ties in with with this this issue about the liquidity trap that the If you just think about what would it mean to say there's there's too much savings relative to investment opportunities Well, normally the way we would think about it say oh well then that means you know if there's a glut of savings That means the interest rates too high right the the higher the interest rate people save more and they want to borrow and invest less So if the interest rate drops that should equate the two and that's what Krugman's point is that no the interest rate even at zero There's a glut of savings that there are more people trying to save than want to invest And so that's why you know if only we could push the interest rate negative, but we can't also this issue I just forgot about the gold standard the issue there is the Fed had its hands tied in the early 1930s Because they couldn't even do unconventional monetary policy. They couldn't You know just do what we now call quantitative easing and try to do things like that Because of the gold standard that tied their hands They couldn't inflate too much because then people would just start turning in dollars for gold and and that was that's true That is one thing that Herbert Hoover was pretty staunch about is he said we're not going off gold and it took you know FDR to do that Okay, and then Krugman also though has explicitly said several times that the Great Depression ended because of the World War two deficit spending Right and he has gone so far as to say things along the lines of you know It's that that Hitler got us out of the depression You know because of the threat of Hitler and you know, it's we don't have something like that now or you know Let's hope it doesn't take something like that now to get us to do the right policy now. All right Okay Milton Friedman and Anna Schwartz they have a famous account of the Great Depression So again, this is the Milton Friedman the Chicago school free market guy But when when people ask how are the Austrian school in the Chicago school is different This is one huge area of disagreement as to what the cause was of the Great Depression So there's a whole backstory behind this but what Friedman and Schwartz say is that The Federal Reserve used to have this guy Benjamin Strong who was the the governor of the the Federal Reserve Bank of New York Which at the time was like the de facto head of the whole Federal Reserve. It was a lot more decentralized back then And so he was the one calling the shots basically and he was very good at Doing the right thing. He was in Friedman's view was a very good modern central banker But unfortunately just the quirks of history he passed away Before this and then and then his successors were just one up to the task And so in the early 1930s after this stock market crash the Fed did not inflate enough and specifically what happened Sort of a complicated story. I'll try to give you the basics. It's not It's not that the Federal Reserve Engaged in intentionally Contractionary policy. Okay, so you might hear things like like the way you can hear and this is the way I first picked it up when I was younger and of course is a free market person You want to be able to point to something that the government did to screw up things during the Great Depression, right? And let's just be honest You want to be able to say no, no, I wasn't the free market It was you know this government policy and so when I first heard Friedman's account I latched on to that because oh, yeah, this is great This is just what we need rhetorically because Friedman was saying the quantity of money fell by one-third from 1929 to 1933 and So that's why you saw had all this massive price deflation and that's what screwed everything up and that Superficially that makes a lot of sense, right? Oh my gosh the Federal Reserve sucked one-third of the dollars out of the economy That's crazy. Why would they do that and of course that's gonna cause things to get screwed up? Well, we'll see later on that's not and I no longer think that's a good explanation and I just want to clarify for you guys It's not that the people running the Fed intentionally destroy dollars what happened is the public Got panicked there were bank failures going on in the early 30s right people's banks were failing and this was before FDIC So if your bank went down You you as a depositor were like a creditor for a business that went bankrupt And so you might get some of your money back, but you wouldn't get paid a hundred cents on the dollar It would depend on how many assets the bank had and you know when they went through liquidation So when that starts happening people panic and they started they get a sense that their own bank might be in trouble They go to take their money out because they want to be the first one so you had a classic bank runs and So if you understand how our Monetary and banking system work. It's a fraction reserve system. So that means if there's making up numbers Let's say there's a million dollars in cash and green pieces of paper in the vault of a bank Well because the fraction reserve system Maybe there's ten million dollars out there in terms of the community what they think they have in the bank Right when people look at their checking account balance or Nowadays what we'd say in terms of you put your ATM card and you see your balance You know the community all the banks customers might think they have ten million dollars and the way we compute monetary aggregates like M1 and M2 That counts. It's what you think of as your checking account balance so now if that whole could of all the people who can be rushed to that bank to take their money out and The bank gives out a million dollars to the first people that show up and then it runs out of my sari We're out and the bank goes under in a sense nine million dollars just disappeared Right because people thought they had yesterday ten million dollars in that bank They withdrew it. It's one of smoke clears. There's now an extra million dollars in green cash and people's wallets But now the the rest of those ten million dollars in checkable deposits is just gone because that bank's bankrupt and no one's bailing it out So that's it. Okay, so in a sense so in that experiment there that that scenario M1 and M2 and M3 would have gone. It would have fallen by nine million dollars Okay, so that's so what happened is that sort of thing was going on in the Fed didn't create enough new green dollar bills To offset that okay So that's so it is true that the money supply if you measure it in terms of things like M1 or M2 that include Total checking account balances that did fall by a third in the first few years of the depression So he's not making that up, but I just want to clarify. It's it's not that the Fed consciously chose to To do that. It's just that the public Their demand to hold currency Went up and the Fed didn't create enough new money out of thin air to offset that So Friedman thinks that it was basically the feds in action that made the the stock market crash turn into the Great Depression and he also thinks that the reason the stock market crashed was that the Fed tightened in like late late or mid 1928 and then That's what caused the actual crash in the first place. So he's blaming it on ironically tight money Another thing just just so you know because this is a big issue among modern Friedman nights and What's now called the quasi-monitorist again? This is getting a little bit geeky But if you want to know these things so there's this group now called the quasi-monitorist and they point to Milton Friedman as their hero in their view is Right now the reason we're in such trouble is that Ben Bernanke has been stingy with monetary policy They explained the crisis in the fall of 2008 by Ben Bernanke's unwillingness to create money All right now I don't have the graph to show you but you've seen those you know the graphs like this and then shoots way up And so they're explaining yet the problem is it didn't shoot up, you know through the roof literally, okay, so And what they do is they and they point to Friedman as an authority on this and they say in this this part It's true. I mean Friedman isn't alive now to tell us what he thinks about Bernanke Incidentally Anna Schwartz is alive to tell us now and she has been critical of the rounds of quantitative easing But in any event the quasi-monitorist they say they quote Friedman explaining this distinction that Normally people think that oh when when there's easy monetary policy when that when the central bank is being loose and Expansionary they print a bunch of money and that pushes down interest rates And so people tend to think that low interest rates mean there's easy money Whereas high interest rates are when they tighten up And so the people nowadays say it's wrong to look at zero percent interest rates and say aha the Federal Reserve is being very loose Say no, it's actually being or that's consistent with tight monetary policy Because think about if it's really tight monetary policy in the midst of an awful economy Well then people who have money and want to do something with it They're willing to lend it out at basically zero because they don't have attractive investment opportunities because the economy is awful And since money is so tight. They're not worried about price inflation So they're willing to lend it out at virtually zero percent short-term or you know very low yields even over five and ten years Okay, so they are the modern quasi-monitors are right Friedman does say stuff like that about the Great Depression and about Japan during its lost decade just saying that don't be fooled just because there's Tip you know low interest rates compared to normal times Don't think that the Fed in the early 30s was engaging in easy money or that Japan was during the it's so-called lost decade Okay, what about Murray Rothbard's account Okay, he says that the Fed Created artificial stock market boom in the 20s through you know the standard Austrian business cycle theory and that's what caused the 29 crash So it wasn't the free market. Obviously. It was the fact that you had the Fed pumping in money and As far as you know because you say well, okay, but why do we have the Great Depression then? That there were plenty of panics and depressions with a small D before 1929 and it didn't turn into a decade long slump So what was special about this one? He said well, what's special is Herbert Hoover contrary to popular belief Engaged in unprecedented interventions And so the necessary depression with the small D became what we now refer to as the Great Depression Precisely because of that. All right, so I'm gonna in a little bit. I'm gonna come back and give you some more specifics, but Rothbard does a great job and this is coming from his book America's Great Depression He does a great job just digging up speeches and things from Hoover Showing I mean this idea that that Hoover is a small government laissez-faire Ideologue is just it's crazy There's all kinds of stuff Just to give you an example. I should have dug up the quote, but FDR in the 32 campaign Runs on the platform of a balanced budget as opposed to the wild spend thrift Hoover where he gives speeches to the electorate saying Elect me Franklin Roosevelt don't reelect this crazy guy Hoover because he's reckless with the public's money You know, I'll have a balanced budget. I mean so that's just shows you how the Keynesian Explanation of what happened is crazy now, of course politicians always lie when they're running for election and FDR ran bigger deficits than Hoover, but the point is It you know just to be for him to be out there was plausible for him to accuse Hoover of big spending because he was a big spender Okay, what about my account? The So the monitor so the thing that I I Mean, I don't know that I was the first person to discover this stuff But that the the angle that I take on this just to give you some the background here So Rothbard's book America's Great Depression is wonderful in detailing What it during the Hoover like the boom and then the Hoover administration's response, but he stops there He doesn't talk about the new deal in that book and And he doesn't get into this stuff as far as I can remember So I like I said, I'm not saying I'm the first person to invent to discover this but as far as I know I was the one who tied this into the Great Depression Analysis, okay, so my point here is and if you want afterward, I can tell you guys where to go dig this stuff up if you want to see the more specifics but the if the the Monitorist it's like Milton Friedman if he's right about why the 1930s were so bad Well then the 1920s should have been twice as bad Because in the depression of 1920 and 21 which many of you may not even have heard of but yeah, there was a sharp downturn It was called a depression in 1921 in the United States There what did the Federal Reserve do they jack interest rates up to record highs in the monetary base itself? Shrank so in the Great Depression the monetary base generally grew It's just it didn't grow enough to offset those bank panics Whereas in this depression the Fed literally intentionally contracted the monetary base and like I said jacked interest rates up to what were then record highs Whereas in the Great Depression they pushed them down to what were at that point record lows interest rates and And also price deflation like how much the CPI fell was far stronger in 1920 and 21 than in any 12 month period in the Great Depression so if you if you if your explanation is Friedman's is is that all other sticky wages and stuff like That and so that's why the massive Price deflation that was not that was made necessary because of the feds refusal to inflate enough Well that screwed everything up And then you had all kinds of you know non market clearing prices going on because they Prices and wages needed to fall but there were institutional rigidities. All right, so that's Friedman's basic story And I'm saying well then how come that didn't happen in 1920 and 21 so there's something else going on besides just oh there was deflation happening in the 30s because the deflation was far worse in this period and yet was we all know the 1920s were called the Rory 20s. All right as far as the Keynesians similar story They're saying the problem was that Hoover Didn't run big enough deficits and if they if they know the numbers They have to say yeah, he ran deficits, but they weren't big enough right so it's kind of like the story now with the stimulus Yeah, Obama did you know the stimulus, but it wasn't big enough. It's the same thing. They're gonna say Hoover was too stingy He should have run even bigger deficits. Well the problem with that is again 19, 20, 21. It's not that the government Spent more but insufficiently more they cut the budget something like 60 percent in one year Again, so I don't mean like to slow the rate of growth I mean the absolute number of dollars the federal government spent dropped by 60 percent in one year and they kept cutting Because this was at the end of World War one. All right, so the government was vastly scaling back its expenditures come back from the war so again, you would think if if the reason we had the Great Depression is Because the Fed wasn't willing to inflate enough and the Treasury wasn't willing to run big enough deficits Well then how come the 1920s weren't just Catastrophically worse because they did the exact opposite thing according to Friedman and the Keynesians Okay, the other rhetorical point I like to make about this idea that FDR got us out of the Depression is to say What would history have to look like for people to conclude that FDR prolonged the depression? I because we'll see in a minute. I mean this hands down the Great Depression was the longest most sluggish recovery From any downturn in US history So to say FDR got us out of the Depression. I mean all those people can possibly mean is He was in office during the depression and then depending on how you time it He was in office when we got out of the depression. So therefore he was responsible, but again, that's not you know, that's not really You could you could argue that Adolf Hitler got us out of World War two, you know or something like that All right, what about Bob Higgs account? Wait for it All right, some to some of you foreigners don't know what people are chuckling about it's because that's not Bob Higgs That's Larry David All right, and some of you Americans would have gotten the joke what you were on observant. All right Incidentally, if you guys have the curb your enthusiasm, I think it's season two But I might be off by a season or and you know how you put the DVD and it just runs on loop in the beginning If you're not playing it there's one scene where Larry Davis do he looks and sounds just like Bob Higgs It's he has like a plumber over his house. He's going plumb the depths got a plum Plumb the depths of hell and he sounds just like they're just trust me It'll it'll freak you out. All right Okay regime uncertainty. So this is and with this so when I say these accounts, I don't mean of course That Bob Higgs or I don't go along with the stuff Rothbard said I'm just trying to break it up to show you the various things that these different people stress Okay, obviously I agree with all the stuff Bob Higgs said and Rothbard said regime uncertainty is his his baby and he The point here is he's there's a you know, there's an empirical puzzle that during the 1930s Private investment spending is just awful that in terms of what you would need to spend to maintain the capital stock in its existing form It was too low. All right, so that there was You look not even enough reinvestment just to maintain the capital structure the way it should have been so there was in a sense Capital consumption going on for a long stretch in the 30s So that's a puzzle. Why is that so somebody like Paul Krugman says well Duh because demand wasn't there if you're a business person and people aren't buying your products and you're laying off workers And you're having trouble just you know getting rid of your inventory. You're not going to go out and spend more To expand your factory. Why would you do that? All right, so that Krugman's mind. That's the explanation What Higgs talks about is this idea of regime uncertainty and he says that it's because The rules kept changing because this is after yars new deal and Right now I don't have time to get into all the things he did but some of the stuff was it was shocking So it's not like oh, they raised taxes even though they did do that That's not the big thing. They just did all sorts of things like putting in whole codes for individual industries Setting prices. They literally had Guys in trench coats going around at night kicking indoors and or in pulling people out of their offices for working outside of the code Like like you were only supposed to work certain hours And if they caught somebody like let's say a tailor Sowing a pair of pants at night when he wasn't supposed to be People could bust down his door with an axe and pull him out and arrest him Okay, I mean this is stuff that people don't you know think of all that must happen in a fascist country Well, this was happening in the United States and that's not what the you know standard school teacher is gonna tell you They're gonna make it sound like oh, and then we had the new deal and it was a government-business partnership and we People finally decided to take the bull by horns and get us out of the depression But this is the kind of stuff that was going on so the point is what Higgs is talking about is that the If you're a business person and the rules keep changing of course You're not gonna invest because for all you know the government's gonna seize your factory the next year And that's not that wasn't an idle concern or an idle threat that Higgs points to surveys that were done at the time of business people and There were I don't remember the numbers off the top of my head I have it in my book But there were plenty of people who thought that FDR was trying to become a dictator Then he's just so you know like how now people were some people are really worried about Obama and was he a socialist and all that stuff Well the time that's what people were saying about FDR and it wasn't you know now in retrospect We know oh he wasn't but remember the kind of stuff he was doing it wasn't simply that he was doing things like threatening to pack the Supreme Court When they weren't going along with the new deal and it wasn't just that he was overturning the existing ideas of what the federal government's role in the economy was but he also Was running for a third term and he kept running for office, right? So that was the first time in US history that you had had a president who was in office more than two terms So yeah, it certainly did look like this guy was trying to take over and you know whether what his ultimate aims were so you Can see that this was a very plausible concern so that's what what Higgs is ideal of regime uncertainty is that you're not gonna Invest a lot and put yourself on the line if for all you know the United States is literally gonna Turn into outright fascist country in the next few years Okay, and his other big thing is he did a lot of work Explaining why World War II military spending did not end the depression and I'm gonna go over some of that in a little bit here Okay, let me so now that I've given you the broad overview of the competing views. Let me just supplement that with some more Information and then I'll leave the rest of the time for your questions at the end So Herbert Hoover versus FDR again The the standard view is that these guys were polar opposites that Herbert Hoover was this dogmatic laissez faire reactionary and FDR was this compassionate guy who thought that the the federal government had a role in helping the little guy Let me before I get into the the difference is let me just pause for a minute and just point out This is something that I like to stress The standard story doesn't make any sense on the face of it Right the standard story that you would get from a US history book if you you know, you're taking US history in sixth grade or something says Again just to repeat it that The reason we had the Great Depression is you had us wild unregulated free market there was a big stock market crash in 29 and then Herbert Hoover just sat back and did nothing and that's why it just Festered and you know snowballed downward things just kept getting worse and worse workers got laid off So then they didn't have money to spend but then that meant business revenue was down So they had to lay off more workers and it was this vicious downward spiral So and then finally FDR comes in and turns things around right that's the story So my point is it doesn't make any sense because what even if it were true that Herbert Hoover was a do-nothing guy So are all of his predecessors right this the standard story doesn't say we had big interventionist guys Who had the New Deal in place and then Herbert Hoover dismantled it and then that's why we had the Great Depression No people's Herbert Hoover was just you know if it were true that Herbert Hoover did nothing. Well, so did all his predecessors Relatively speaking compared to you know FDR and subsequent presidents So that doesn't really explain why we had the Great Depression in 1930s We should have had the Great Depression whenever the first big financial panic hit And so it wasn't that the 1929 stock market crash was the first time you had a big crisis No, you had plenty of crises and depressions with a small d throughout US history up to that point So again, it this the story on its face doesn't even make sense But what does make sense is if your explanation is as Rothbard's is and say no what was different why we had things Happened differently in the Great Depression compared to previous ones is that Herbert Hoover did try to do something He acted differently from all of his predecessors and there's tons of quotes from Hoover himself and in his memoirs and his public speeches Admitting that saying we charted a new course, you know, we had it We were doing things from the White House that had never been attempted before so we kind of had to wing it I mean I'm paraphrasing but you get the idea that he was talking like that Okay, so propped up wages and farm prices That's exactly what FDR did as far as propping up wages in particular Hoover and I have a slide. I think the next slide is gonna talk about this Hoover calls in All the big business leaders right after the stock market crash happens So this is in late 1929 and he tells them look don't cut wages. That's the worst thing you can do, right? If we're right now people are panicked I know you guys are panicked and I know your natural inclination now because the market just crashed It's for you to clam up to cut expenditures to start laying off, you know Some of your superfluous workers basically just think about it guys If you all do that, which is what had normally happens during a downturn Then all those workers now aren't gonna have any money and so they're gonna stop spending So you're all just slitting your own throats if you act in your narrow self-interest You got to think you know think in terms of the collective and so I'm urging you if you do have to cut back Cut back on your dividend payments cut back on your profits, but don't lay off workers Or if you do have to cut back on your you know wages don't lay people off Just cut back their hours, you know across the workforce because then that you know that won't really knock out any household They'll still spend right so that was the sort of thing he did now whether it was because of that or something else Clearly objectively the data show that wages fell a lot more slowly in The 1930s in the early 1930s than they had during the 1920 and 21 depression Okay, so as far as an economist trying to explain why did unemployment go up so high in the 1930s That's that's what I would say that you have Prices falling but wages were stuck and so labor every year kept getting more and more expensive And so if something's getting more expensive you buy less of it So that that's the explanation again whether the wages were stuck because of Hoover or because of unions or some combination That's more up in the air, but what's not debatable is that wages Were a lot stickier as economists say in the early 1930s and they had been earlier So that's one of the reasons why unemployment went went up so much is that the the labor market was less adaptable Okay tax hikes and deficits For this particular presentation, I'm not going to get into these details But they're in my book that the tax hikes were shocking of Herbert Hoover and the 1932 legislation in Rothbard does a good job expanding all this but I mean it's It's really amazing and just how big of a jump in the various tax brackets. There was it wasn't like a little two percentage point increase and there was huge increases so when Krugman says oh The mistake of 1932 that Herbert Hoover did was to try to reduce the deficit that's misleading on two accounts because for one thing The deficit went down by just a tiny little bit The but the real thing is that the lesson isn't all you want to maintain deficits I think the lesson is don't jack tax rates way up in the middle of a depression because that makes things worse And they both engaged in public works projects okay, so my point is FDR was not qualitatively different from Hoover and in fact one of FDR's lieutenants in the late 30s Admitted he said something like you know, we never would have admitted at the time But actually everything we did in the new deal was just an extension of the things that Herbert Hoover had done in his administration Okay, let me just give you a few examples of what I mean. So this is this top one federal spending by fiscal year and so you can see It really this is like the first one that Hoover has control over You can see so that's rising right throughout the The depression year so this idea that Hoover Hoover, you know He didn't cut spending it best as a Keynesian you could argue that he Didn't raise spending enough and then here too you can see the deficit did get big and part of it was because the Attax revenues were down But I was also because spending went up and in part of it You know as a share of GDP the reason it was magnified. It's because the economy was shrinking but again the point here is Hoover was not a Balanced budget kind of guy. It was the deficit got huge his advisors started getting panicked and then they passed a bunch of tax increases in 1932 that actually didn't bring in much more revenue because they would destroy the economy so much that even though that It was getting taxed at a higher rate. They shrunk the base so much that not that much more revenue came in Okay, is anyone know what what that is? Hoover Dan right so again just this is trying to get you to see wait a minute Is it really true that Herbert Hoover sat in the White House and did nothing? Okay, labor unions love Herbert Hoover the president's conference has given industrial leaders a new sense of their Responsibilities never before have they been called upon to act together So who is that from is that from the president's press secretary? No That was an editorial in the American Federationist a labor union publication in Early January of 1930 just remember the stock market crash happened in late 1929 Hoover calls and all the big business leaders and tells them Don't act in your narrow self-interest. Don't act the way businesses have acted all previous times in US history I want you to behave differently don't cut wage rates and the labor unions are saying finally we got a you know dare I say a progressive in the White House. All right, so again. This is the point here is after the fact To explain why did things get so bad? We had to come up with this idea of The you know cold-blooded Herbert Hoover who hated poor people at the time They were praising him for doing things differently was only it blew up in their faces and it was the worst Depression ever that they said oh wait, maybe he was a laissez-faire reactionary. All right, so but if you think Wait a minute, maybe it's because he did everything different and that's why the results were so much different that makes perfect sense Okay, as far as this idea about FDR getting us out of the Great Depression. This is what I meant when you say What would it look like if he prolonged the recovery? What would it look like if the New Deal was awful? Wouldn't it look like this that you had so This was the so it's true. This was bad and then this one right here. You could you could fairly blame that on Hoover because FDR the election was in 32 and then he gets in those days the inauguration wasn't in January It was in March, so you could fairly say okay FDR really you know shouldn't be held responsible for that fair fine But still when they say he's did a great job I mean to come down with 1.6 percentage points when it was starting that I mean that's that's not really a great recovery And that was coming down and say oh no things are doing pretty good about you know four years after he was in there We had the unemployment down to 14.3 percent. That's pretty good And then boom it went back up to 19 and then oh so look at it was not until Eight years after he's in there that it finally gets below 10 percent So this just in terms of normal recoveries You had a business cycle Maybe it would take three years if it was a really sluggish one before you were back in you know full recovery and things Were getting back to normal. Maybe it was that long So the point is here. This was just agonizingly slow So again, what would history have to look like if we thought the new deal actually made things worse? I submit it would look just like that Because let me just drive the point home because a lot of people say well No, look at he came in and the unemployment rate was going down So clearly he was helping and then again they explained this blip upward by saying oh, it's because FDR tried to Balance the budget right here. So that's why the unemployment rate went up But the point is in all previous us presidents After there was a big downturn and the unemployment rate was really high It would fall and it would fall a lot more quickly than that And so the the relative in comparison isn't to say oh if it hadn't been for FDR coming in the office We would have stayed at 25% unemployment forever. No the economy in all previous times had eventually Recovered within a few years and so the fact that it took much longer and then again Jump back up to 19% that is very consistent with the claim that the new deal was hurting things The other thing that I do in my book is I compare the evolution of the US unemployment rate with the Canadian one And you can see that the gap between them got bigger under FDR All right because because what FDR's apologists say is yeah, that took a long time to recover But look what FDR had to deal with he came into office with the worst depression in the world history To deal with so yeah, it was going to take longer to dig out of that than a previous thing But my point is okay But the same is true of Canada and yet if you track the unemployment rate between the US and Canada During the Hoover administration then during the FDR administrations You can see the gap gets bigger that the US performance relative to Canada becomes worse under FDR So whether you compare it to the US and earlier depressions or to Canada in the same depression Things were worse under FDR. All right, let me spend a few minutes now Talking about this claim that okay. It wasn't FDR Well, it wasn't the new deal. It was World War two that got us out of the depression So this is drawing heavily on the work that Bob Higgs has done So there's two main components that the first thing is you look at the unemployment rate And then you can look at the GDP figure. So let's look at the unemployment rate first So yeah on the face of it it sure does look like they got us the World War two got us out of there because here's 1929 the unemployment rate zooms up Very high by 33 Then FDR comes in it does come down up, but then it bumps up again. You see that we don't really get out of the slump until the 1940s and if you look at the time and when did it really start falling it was Right when those the Japanese thank goodness bombed us, right? Finally got policymakers to get the gumption to spend enough money to get us out of this depression All right, so Bob Higgs is just pointed out. This is a pretty basic point that well If the way you get the unemployment rate to go down is to take millions of able-bodied men and put them on a ship and Send them across the ocean to get shot at Yeah, you can fix the economy, but there that's the case where maybe the unemployment rates not really measuring any more What you think it is? All right, so it's not really that they found all sorts of great job opportunities for these people They just took them literally against their will and shipped them across the ocean right by the same token right now I mean if Obama's gee we got this nine point four or whatever it is percent unemployment all these millions of people without a job What do we do if they just took them and and shipped them off to some island somewhere and they were gone Well the unemployment rate will go down, right? But you would say that probably isn't curing the unemployment problem That's not what we mean when we say the fix the economy and the other thing too is it's even worse That I'm leading you to believe you might think that there was a one-for-one drop that for every person that they drafted and sent over seas The unemployment rolls dropped by one, but it wasn't it wasn't as good as that, you know In other words, they drafted and shipped overseas more men than Then the drop the unemployment so what I mean is other people who had been working Lost their jobs later so that the ranks of the unemployed, you know filled So they didn't fall as much as you would have thought from the just literal removal of people from the economy Okay, this one is as nice too. Okay, so war is a good for GDP Well, it sure looks like it or so these are the official GDP figures and these are this is real Right, so this is in theory inflation adjusted So you can see I don't know if it's hard for you maybe to read these numbers But this is 29 30 31 32 33 so you can see the economy is falling in real terms You know just crashing In the beginning then finally FDR comes in Things seem to start turning around up, but then there's that downturn in 38 like we know about But even so still here. It's just barely what year is that that's 38 It's just there. It's barely above where it was in 29. So I mean in terms of Historically compared to other business labels, that's just awful that you could be nine years ahead of the previous peak And you're still just barely getting ahead of that. That's awful. You see it doesn't really just zoo zoom up until 45 Well 44 45, okay So this of course these are the main war years when there's all the high spending and then Up after the war you have another pretty big crash in terms of real output. All right, so that is The Keynesians think come on you guys are crazy You you Austerians you people who who preach fiscal austerity Clearly what got us out of the Great Depression was the big spending of World War two So what sort of things does Higgs point out about this? Well one thing is what if we disaggregate this? So as you know the GDP figures the way they compute those is They just measure total spending so it's the same whether a household spends money on a Radio or a business spends money investing a new factory or if the military spends money buying a tank So what's interesting if you disaggregate this into government expenditures in private? Look what happens? So you see So just to make sure you know come so look at that compared to that So the the total is the same as the previous slide But here what I'm showing you is disaggregating those totals The the proportion of government spending versus private sector spending so what you see is just look at the blue stuff Yeah, it went down and then it looked like it was going up, but then This is right here. What is that? That's 1941 Then when we really get into the depths of World War two in the major spending private sector output Drop here. It's lower than it was even at the depths of the Great Depression in terms of how much Consumption investment is the private sector getting and you see the reason the total was so big is that government spending is a share of the economy It's just enormous. That's that year right there. I think that's got to be the biggest Share of government spending of the to the economy in US history, right? So that right there should give you a little warning. Wait a minute something's not right here so in particular what it is of course is that when the government spends a million dollars and They call that output that's not the same thing is that the private sector spends it right that that's not really a measure of output In the same way even if you think that the war is a worthy effort and they should have been doing that The point is you don't have a competitive system the politicians in the mill You know giving money to military contractors They're not as careful with that money because they don't get to keep it if they economize on it So they're you know, that's why the Pentagon the Taurus the overpays for things and the government in general spends a lot more getting Items than what a private business would spend to get items of the same quality All right, so that's that's that's one huge explanation for why those figures are misleading. So as you can see His Higgs points out He says he doesn't date the end of the Great Depression until 1946 because there is a look at the difference between the private sectors share of consumption and investment Over to 1946. He said that's the biggest increase in the actual production for the private sector in US history That happened in that one year and yet officially that was a crash right because look at up total GDP went way down What an awful year that was but no everyone Could get nylon stockings and radios and stuff again that they couldn't have during the war years because of rationing and so forth all right another Component to all this so it's even it's even worse than this Leads you to believe Because What was happening during the war years was the Fed was printing money like crazy? So this just gives you know, this is the monetary base so you can see Okay, it's it goes up and the third is up comes down and then look at it just explodes During these war years and it levels off. Okay, so what was happening is during the war years The government was taking a lot of money through taxation. It was taking a lot of money by borrowing, but also you had You know through that channel as the Federal Reserve was massively expanding the monetary base and buying up government debt So basically you through inflation That's partly how the huge expenses of World War two are financed so normally The way that would normally the way you would see that in these figures These things should be lower because what would normally happen is If the if the Fed prints up a bunch of money and that's how the government buys stuff that would push up the price level And so yeah, the nominal GDP figures that in terms of total expenditures would be going up But then you would deflate that because prices were going up and so like just give you an idea Let's say the Fed doubles the money supply and so total spending doubles Well, you wouldn't so GDP nominal GDP doubles up But if all the prices double to real GDP would be the same. Okay, that's the idea So the formula isn't completely crazy. They try to correct for inflation And this but these figures are supposed to be real. These are adjusted for inflation So the Keynes and you say no, no, we took that into account But Bob Higgs points that know you didn't because during the war years here. There were price controls So that it was illegal for prices to go up the way they should have The government just literally suppressed the price level increase and so I when I was doing the book I called Bob Higgs to double check this and I said wait a minute. Are you saying? They corrected for the fact that there were price controls, you know, in other words like the CPI They figured out what would it be if there weren't price controls and you just think that they didn't do a good enough job Or are you saying they made no adjustment whatsoever and he said they made no adjustment whatsoever All right, so when they call these the real GDP figures during the war years That's that's completely bogus. That's like looking at Soviet Union output statistics that that's It would be seriously, I mean it the number like I say it's not just that Oh, it's a little bit off because they didn't adjust the way we they should have they didn't adjust it at all They're just plugging in the prices that the government announced. These are the official prices for eggs and nylon stockings and blah blah blah gasoline Okay for further reading This is my book that's available down there and Bob Higgs did say in the blurb on it that you know This is the this is the best introductions, right? So and that is what I try to do in this one if you're you know You want to get an overview of the various things and see some of the quick statistics? That's what that's good for Ross Bard Focuses like I say on the if you want to really see in terms of applying Austrian business cycle theory to the 1920s to see Well, how did the you know the Fed increase the money supply and so forth and then the specific things that Hoover Hoover did That's a great one This one is interesting is Lionel Robbins This is as good all of the four of them. This one is probably the one, you know the least Austerian but it's still very Austrian in the sense that he does blame it on central banks and what's interesting is Robbins points out that the central banks during the 30s were acting differently from all previous crises that there They were intervening like crazy They are providing easy credit and he was saying why are you doing that you're propping up losers You're bailing out bankrupt firms that should go under right? So it's it's kind of eerie how similar the debates were back then to what they are now It's so that why that's interesting is because that's the opposite of what we hear we hear now It's a good thing that Bernanke bailed everybody out and we had tarp because in the 30s They sat back and did nothing and that's why it collapsed and no it's the opposite Robbins and others at the time were saying in the 30s Why are you guys bailing out all these bankrupt firms let them go under and then we can you know Reallocate resources and get out of this thing and then of course Robert Higgs book Summarizing some of his so this is a collection of his essays summarizing some of his work So when I talk about Higgs's work here I mean he had actual you know period journal articles overturning some of these myths of wartime prosperity alright, so this is really Good stuff that you know you could hold up to other academics and say no this got into a means This wasn't just like in the QJ or something. I mean this was in a real journal, so Don't tell Joe. I said that all right, so let me We got about seven minutes left when I turn over to your guys questions. Yeah Okay, so the question was that money that they printed up during the Warriors what happened to it I mean, I don't know off the top of my head there. What if you look at the official CPI? There was a huge jump in 46 and 47 so you can see it like once they left the price controls things zoomed up So that mean that's that's part of it But I mean they didn't they didn't suck out the monetary base. I mean you can see they just kept it steady for a long time there So I'm not sure I'll stop my head. I don't know exactly where that went, but yeah, I'm sure you could look and see the military Contractors did very well in those years Yep. Okay, so the question is with the 1920 and 21 depression You know where's I'm saying look at they did the exact wrong pop wrong policies according to Keynesians and things were fine And she's wants to know how the Keynesians respond and then what do I say to that? Thank you, so the Keynesians. I know what they say they'll say these are different first of all There wasn't a bank crisis. There wasn't a banking panic in the early 20s. And so that's one big difference. So the economy It wasn't as Vulnerable right so the normal things where all if spending in one sector falls Well somewhere else it can rise because prices fall. I said that that mechanism of just being able to bounce back Was healthier in the economy back then than during the early 30s or now And then they also say The reason you had that depression was because of the policies that were talking about it was the end of the war The reason the Fed jacked up interest rates is because price inflation was really high It was running at like 20% annually CPI increases at the end of World War one So it so the Fed raised interest rates to tamp down on price inflation They're gonna say that's what caused the crash and then supplemented by the government Cutting spending so they're so they would say it's not that oh we had this Financial crisis that hit us out of nowhere and then the government and Fed in response did anti Keynesian things and it turned out okay They're gonna say no Because they wanted to get inflation under control and they want to cut spending because the war was over that did cause that crisis but Once you know they got inflation under control or they started letting interest rates fall and things went back to normal So that's that's what they would say As far as you know, how do we respond to that? Well? Yeah, I mean there's You're never gonna have a controlled experiment So the only way we would know for sure is if we could go back to 1930 and have them Do Austrian stuff and then see what would have happened. There's always gonna be differences But it depends which particular account you're looking at some accounts of why what the Fed did was bad in the 30s Just talks about well know because prices fell and that just sets in motion You know, I'm sure you guys have heard this like why is deflation bad? And they say oh because if you think prices are gonna come down you're gonna wait You're not gonna spend so I mean if that's your explanation as to why deflation is harmful. Well, that was true in the 20s Also, so I mean it's at the very least. I mean, it's not wages fell something like 15% or no 20% in one year and 1920-21 I think that's partly hot to show prices were falling and wages fell faster So you know it can happen. So the story that oh well, we have sticky wages I mean that I think whatever the reasons that was shown to be false So so it is true that not every little thing is the same, but I think a lot of it is the same Yeah To be the last one Okay, so the question is about the smooth holly tariff which is made famous of course in Ferris Bueller's day off We're always talking about that When a lot of you kids look like the kids in that scene That is in a typical Sort especially like a from a free market perspective when they're trying to explain the Great Depression They'll point to that and it is true that in the early 30s, you know, the US passed the smooth holly tariff jacked up tariff I mean it was a very huge increase in Protectionism and then other countries around the world followed suit and so you had a trade war and if you look at the statistics International trade plummeted so a lot of people point to that in fact Jude Winniski who was like a Supply sider he basically blames the great the stock market crash of 29 on the smooth holly tariff When you might say well, how does that possible because it was in the future But he's saying when they were debating it You could see the stock market going and when it looked like it was going to pass the market would tank And then when it looked like somebody was going to hold it up the market would recover So he was saying that the stock market crash was forward-looking they anticipated those policy changes And that's what I mean that may all be true, but I I personally I think that was more just like kicking the economy when it was down I mean I think to me that'd be like saying Obamacare was the reason that we had the 2008 crisis and so yeah It doesn't help that they did that kicking the economy was done, but I don't think that was the explanation for what happened I just think that's partly why it's so sluggish now. Okay. I don't want to get yelled at so I'm gonna stop here. Thanks everybody