In Fear Itself, Ira Katznelson shows how many intellectuals yearned for a planned economy, but without the ugly police-state repression of Fascist Italy or Communist Russia. As you know, I sense that Katznelson himself seems to still yearn for government oversight of the economy. In fact, Katznelson quote explicitly expresses disappointment that planning was superceded by what he called the “fiscal policy” approach (meaning Keynesian economics). Of course, I think that central planning is not the answer.
Katznelson disparages the Keynesians (and the monetarists) who came up with the aggregate-demand theory of the Depression. He clearly prefers the pre-Keynesian theory that the Depression was a breakdown of the capitalist system.
Here’s the thing. I agree with Katznelson.
The PSST story would look at the Depression as a coordination failure. The market price system, which is supposed to serve as a decentralized planning apparatus, screwed up. Old patterns of specialization and trade became unsustainable, and for a long time the market could not figure out new, sustainable ones.
The modern macroeconomic view is that the Depression was caused by a shortfall in aggregate demand, as opposed to a breakdown of the capitalist system. Instead, I prefer the pre-Keynesian diagnosis, although I do not believe that government officials could have done better by taking over more of the planning. To the extent that they attempted central planning through the NRA and various other New Deal initiatives, the results were certainly not good.
Even as a coordination failure… You reject bad monetsry policy as the source of disruption ?
Isn’t it Krugman’s critique, which I agree with to one extent, but not in the way he intends it, that the monetary failures were what didn’t fix the depression, but not necessarily what caused the depression.
Because it is arguable true, I am willing to agree that the Great Depression and the Great recession where cause by people not in Government that does not mean that more Government is the solution. I do not see good evidence that more Government as a solution. Maybe we should try to love more boom and bust. If you look at government people and voters they seem to be even more messed up and with worse incentives than people not in Government.
“Maybe we should try to love more boom and bust”
We have a book title!
Or maybe “How I learned to stop worrying and love the boom (and bust)”
The problem with this is it assumes sunspots, ignoring economies feed on themselves and trends become self reinforcing and self sustaining. Markets are never be able to figure out new patterns under those conditions.
The WPA was good.
I think not ignoring what you describe is what PSST does.
The sustainable part doesn’t imply that they get it right the first try or that everything grows to the sky.
I feel like the progressive conceit is that this process can be steered, thus you get, for example, “housing is a great investment,” which it is, until everyone believes it, then it isn’t.
How much of this kind of discourse arises from the misconception that there is a “Capitalist System,” when what we are really observing is a resulting condition?
What we observe are the results of relationships (free and impeded) producing conditions. In the various social orders the relationships are constantly (even if imperceptibly) changing, re-forming driven at the nucleus by individual motivations. “Breakdowns” or disruptions in relations (such as “confidence failures”) cause changes in the resulting conditions. Those can be exacerbated by attempts to “control” or shape the nature and functions of relationships (and worse) to supplant them with vicarious actions (via governments) which further distort the resulting conditions in the social order.
To gain some better insights into what was causing the “cycles”
from say 1904 through 1928 we should examine the factors that were affecting relationships in our social orders. We have begun to examine the attempts to “manage” relationships and the impacts of installing vicarious substitutes through governmental actions.
We might follow Charles Murray to at least look at our structures of relationships currently.
I would like to put forth Nick Rowe’s point here. Doing nothing needs to be clarified as doing nothing in the context of what monetary policy? I personally think that an AD stabilizing monetary policy is good for entrepreneurs as it reduces costs of hedging a downturn.
Yes. 1929 was preceded by fifty years of technological progress and the incorporation of large populations into a world market. Millions of agricultural and artesanal workers became superflous and unemployable. It took a long depression to readjust. Today we face a similar situation, an a long depression will be required to re-assimilate unemployable workers and new systems of production.
What will be the new jobs? Seriously, I have a kid. Medical/robotics and entertainment is my current plan.
Why is a depression required? Is it because profitability is undermined faster than new patterns of specialization are developed while old debts must still be serviced?
“Why is a depression required?”
Good times provide cash (whether as debt or equity) to keep lots of businesses running that aren’t actually profitable (or profitable enough). This is happening in a big way in the software/tech sector right now as you have far more money seeking Whatsapp-level returns than there are ideas or management teams likely to generate them. It’s great fun competing for resources (employee salaries, advertising costs) against companies that aren’t trying to make money.
Without denigrating AK’s idea of PSST, what would one look for as evidence? I fear that debates like this go round and round, because the factors and results are so complicated that it is impossible to identify them and their contributions in any comprehensive way.