Yesterday’s blog entry, “Global Warming: The Pretense of Knowledge” was inspired by Nobel Laureate Friedrich August von Hayek and his 1974 Prize Lecture in Computational Economics titled “The Pretense of Knowledge”

Hayek’s lecture pointed out that …

“The theory which has been guiding monetary and financial policy during the last thirty years, and which I contend is largely the product of such a mistaken conception of the proper scientific procedure, consists in the assertion that there exists a simple positive correlation between total employment and the size of the aggregate demand for goods and services; it leads to the belief that we can permanently assure full employment by maintaining total money expenditure at an appropriate level. Among the various theories advanced to account for extensive unemployment, this is probably the only one in support of which strong quantitative evidence can be adduced. I nevertheless regard it as fundamentally false, and to act upon it, as we now experience, as very harmful.”

Which brings us to the assertion …

The Assertion …

Those who believe the democratic economic stimulus plan  are putting forth the assertion that there exists a simple, positive correlation between the amount of taxpayer money that can be spent by the government, both federal and state, and the nation’s level of unemployment.

And by extension …

And by extension, if we can spend the taxpayer’s money on infrastructure projects, we can exert a positive control over the recovery as well as to produce sorely needed employment.

Supported by nothing …

This assertion is seemingly supported primarily by pointing to historical anecdotal evidence relating to Franklin Delano Roosevelt’s handling of the Great Depression. And what we “popularly” now know is wrong.

According to UCLA economics researchers …

“Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.”

Policies signed into law prolonged the recovery by 7 years …

“After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.”

"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."

“In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.”

"’President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,’ said Cole, also a UCLA professor of economics. ‘So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.’"

In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

Research acclaimed by other economists …

"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"

And did I mention that this seminal work wasn’t published yesterday with foreknowledge of the current economic crisis, it was published in 2004 when we were still experiencing the effects of the real estate boom and our economy appeared to be chugging along at acceptable levels.

Policies unconstitutional …

“NIRA's [National Industrial Recovery Act] role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.”

The deleterious affects of the unions …

“NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.

“Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.”

Sound familiar?

"’The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,’ Cole said. ‘Ironically, our work shows that the recovery would have been very rapid had the government not intervened.’"

The conclusion that the recovery was delayed by government intervention is not what the government wants to hear – especially as they attempt to capitalize on the current crisis to enlarge the size of government, raise taxes, chip away at our personal freedoms – and reward all of their fellow travelers who help elect them to office.

Why can’t the democrats understand history …

American Philosopher George Santayana claimed “Those who do not learn from history are doomed to repeat it.” So why do all of the smart people assisting Barack Obama not know more about historical precedent as they quote historical guidelines as a precedent for their current actions? 

Two thoughts come to mind. One, they apparently ignore history because they are busy rewriting it to their advantage, it has become the party line. And the second one, and more malevolently, they care little about the long-term consequences of their actions as they go about gaining and maintaining their leftist power base.

The triumph of perception over reality …

For some of you, it might be hard to accept that you have been deceived. You have been fooled by the media into believing what was being portrayed as substantive fact by a credible source although it was nothing more than a political platitude and far from the truth. There are those who have allowed their minds to be manipulated by the media; which itself was manipulated by political forces driven more by their hatred of the Bush Administration and the Republican failure to curtail military and financial excesses than they were motivated by the innate character of the candidates being presented by both parties. This provided the tipping point to elected what is beginning to appear as a corrupt and inept Administration. Something that was readily apparent to those who considered the toxic associations with anti-American rogues, crooks and unrepentant Marxist terrorists who surrounded the candidate. And those who anointed this telegenic, well-spoken man offering nothing more substantive than the words change and hope as the nation’s savior – even though the observed facts belied the conclusion.

Don’t do as I do, do as I say …

One of my friends, upon reading one of my blog entries, sent me an e-mail containing the following lines …

“Perhaps you've forgotten what the word ‘liberal’ means:  ‘generous; open-minded; of a political party, favoring changes making towards democracy.’ [Webster's New Dictionary -- no doubt very subversive]”

“Now that sure smacks of the ‘un-Americanism’ that you so easily and foolishly tout about anyone who doesn't believe that Capitalism is the be-all/end-all answer to all of human needs ... “

Even though her missive was signed by “xxx,” I responded with …

“That is the textbook definition. In practice it is synonymous with Marxism, corruption, waste, fraud and securing lifelong political advantage so you come out as the ruling elite rather than the mass of victims you have created.”

And that seems to be the basis of the argument. That what the democrats cite as the political answer to our economic woes is far different from what they are putting into practice. One need go no further than the new head of the Department of Justice, Eric Holder, who will take an oath to uphold and defend the Constitution of the United States from its enemies, both foreign and domestic – and who famously argued against the Second Amendment, asserting it was not an individual right, but a collective one. An attempt to impose unconstitutional gun control on those who were guaranteed access to weapons solely for the purpose of preventing government tyranny. Not hunting, no target shooting, not even to uphold the God-given right of self-defense; but as a means of preventing our government from ever enslaving the population.

Which points out why the rich and the powerful allow this political folderol to exist …

Because by wealth, power, privilege or position they are exempt from the consequences of the legislative actions which will affect us lesser mortals.

Not to mention that self-interest demands that they support those who will continue to confer special treatment to the very people who consider themselves “special.”

Look closely at the so-called “stimulus” package …

I defy you to tell me that this package is not simply democrat pork and earmarks writ large. While I could cite, line by line, spending which will not create jobs, spending which will allow the fat cats to get fatter and provisions that will allow the unions to gain an inordinate degree of control over the government and private industry, it is not necessary. One need only consider that the great majority of legislators who are voting on this complex document written in legislative gibberish have not even read the full document, let alone understand what it contains. Written by the democrats, famous for being the party of lawyers and loopholes, this singular piece of legislation is characteristic of democrat ideals: reward our special interest friends and secure our position by buying the votes of a rather naive population which can be persuaded to come along with ever increasing entitlements and freebies. Entitlements and freebies which demand a larger bureaucracy for administration and which portend complex machinations which allow significant chunks of money to fall into select private pockets.

They must scream CRISIS!

“Rule one: Never allow a crisis to go to waste,” Mr. Emanuel said in an interview on Sunday. “They are opportunities to do big things.” <Source: New York Times>

The entire purpose of capitalizing on a crisis is to persuade the American taxpayer/citizen to overlook common sense, prudent and sound financial management – and their native patriotism – to allow legislation which stinks of the possibility of waste, fraud and continued corruption to be passed without significant political consequences by those who are selling out their constituents – if not their country.

Dare I say TREASON …

In my humble opinion, there are those who do not wish America well. A fifth column of Marxists, Communists, Anarchists and others who have infiltrated our educational and government institutions. Hell bent at promoting policies which weaken the United States both militarily and economically. To reduce the power of the United States towards those who are militarily and economically weaker than ourselves. All conditioned on some false belief that the United States  is a bad actor on the world stage and that we need to pursue a more “civilized” approach when it comes to dealing with other nations and their people of  different color, races and ethnicities. A country with a higher regard for the leftist United Nations with a preponderance of corrupt despots in attendance all pretending to respect human rights as they enslave and oppress their people. I believe that there are those who are actively working against America’s interests – and they will be emboldened by the passage of this “stimulus” legislation. Funded by its provisions which allow them to grow stronger and further metastasize, like a spreading cancer, into the body politic of the American people.

What can YOU do?

Tell your elected officials that they are going to be held responsible for their actions. For the first time, the American people will not let the issue die and the malefactors escape with their ill-gotten gains.

Discuss this issue with your relatives, friends, co-workers and consider what this legislation might contribute to the end of the United States as we know it.

Do not trust the mainstream media without applying both common sense and the “smell” test to what they are saying. Considering their overwhelming support for the democrats, Obama in particular, they, with very few exceptions, have lost all pretense at journalistic integrity in favor of political pandering and fawning.

Do what is necessary to protect yourself from the ravages of an out-of-control Administration. Remember: they want you to incur debt as you spend, spend, spend our service-oriented economy to health. If you are already in debt, common sense tell you that you are already in trouble and about to make it worse – whether you are a real person or a government entity. Again, do what is necessary to protect yourself. We are a strong nation based on strong individuals – not a collection of weaklings that require the government to manage every facet of our daily lives.

Be well and be safe.

-- steve

Quote of the Day: “History repeats itself because no one was listening the first time.” --Anonymous

A reminder from OneCitizenSpeaking.com: a large improvement can result from a small change…

The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. -- Marcus Aurelius

Reference Links:

Global Warming: The Pretense of Knowledge |One Citizen Speaking...

The Pretense of Knowledge | Nobel Laureate Friedrich August von Hayek (1974 Prize Lecture in Economics)

New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis; Harold L. Cole and Lee E. Ohanian (doi: 10.1086/421169); Journal of Political Economy August 2004, Vol. 112, No. 4: pp. 779-816

Abstract:  “ There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak, and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We evaluate the contribution to the persistence of the Depression of New Deal cartelization policies designed to limit competition and increase labor bargaining power. We develop a model of the bargaining process between labor and firms that occurred with these policies and embed that model within a multisector dynamic general equilibrium model. We find that New Deal cartelization policies are an important factor in accounting for the failure of the economy to recover back to trend.”

Cited by:

Gauti B. Eggertsson. (2008) Great Expectations and the End of the Depression. American Economic Review 98:4, 1476-1516 Online publication date: 1-Oct-2008. CrossRef

Tom Nicholas. (2008) Does Innovation Cause Stock Market Runups? Evidence from the Great Crash. American Economic Review 98:4, 1370-1396 Online publication date: 1-Oct-2008. CrossRef

D.W. MacKenzie. (2008) Supercapitalism – By Robert Reich. American Journal of Economics and Sociology 67:2, 381-389 Online publication date: 1-May-2008.
CrossRef

V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan. (2007) Business Cycle Accounting. Econometrica 75:3, 781-836
Online publication date: 1-Jun-2007. CrossRef

Luca Pensieroso. (2007) REAL BUSINESS CYCLE MODELS OF THE GREAT DEPRESSION: A CRITICAL SURVEY. Journal of Economic Surveys 21:1, 110-142 Online publication date: 1-Mar-2007. CrossRef

Gregor W. Smith. (2006) The spectre of deflation: a review of empirical evidence. Canadian Journal of Economics/Revue canadienne d'economique 39:4, 1041-1072 Online publication date: 1-Dec-2006. CrossRef

Edward C. Prescott. (2006) Nobel Lecture: The Transformation of Macroeconomic Policy and Research. Journal of Political Economy 114:2, 203-235 Online publication date: 1-Apr-2006. Citation-Full Text-PDF Version (530 kB)

ALEXANDER J. FIELD. (2006) Technological Change and U.S. Productivity Growth in the Interwar Years. The Journal of Economic History 66:01, Online publication date: 1-Apr-2006. CrossRef

Sergio Rebelo. (2005) Real Business Cycle Models: Past, Present and Future. Scandinavian Journal of Economics 107:2, 217-238 Online publication date: 1-Jul-2005. CrossRef

PRICE V. FISHBACK, WILLIAM C. HORRACE, SHAWN KANTOR. (2005) Did New Deal Grant Programs Stimulate Local Economies? A Study of Federal Grants and Retail Sales During the Great Depression. The Journal of  Economic History 65:01, Online publication date: 1-Apr-2005. CrossRef