Economics and statistics

[Mark Heide]

I was watching a show on PBS about a professor from Cambridge who had advised the US president during the early '30s concern why the economy was getting after the stock market had crashed. His basic theory was based on employment and how it affects spending. When there was 25% unemployment consumer spending slowed which in turn resulted in a decrease in business spending and expansion which is directly related to GDP. His solution was for the government to spend more money. Of course the government spent more money, but it was not enough basically because the government was worried about deficits. This was the governments mistake and the economy suffered substancially until we became involved in WWII. The government overspend beyond what this Cambridge economist recommmended and ended up lowering unemployment. This in turn encouraged business development and expansion. Then with all the new tax revenue created the government was able to reduce the deficit.

Does this situation from the 1930s sound similar to today? I think it is. But, I believe for todays economy, the federal government needs to spend more money. I say this because we need to make up for the global economy which depends now more on foriegn imports and labor.

All comments welcome.

Mark

[GeorgeF]

1) Unempolyement is not 25% at the current time

2)"the government was worried about deficits"
FDR spent plenty of money on things like the Hoover dam. The thing to note is that govenment spending tends to be transfer payments. People generally do not like seeing other people getting money from the government, except if there is a war. For example when Enron turned the lights out in California the US government did next to nothing, notice how little debate there is about Iraq spending. Try getting money spent on migrant farm workers, it will be as hard as getting money for the "Okies" of the depression.

Homework: Try to convince anyone you know that the US government should spending $10 billion a year improving the lives of migrant farm workers?

I would also point out that at some point foreigners will stop funding US deficits (as they did in the late 60's early 70's). I do not know what that point is but if the dollar collapses it will be impossible to fund anything (see Argentina). Currently the US dollar is back to where it was when the euro was introduced so this is not really a problem now.

Finally I can't help but notice that it is asia (really China) that is funding the Iraq war by loaning money to the US. Similar to US funding of Britain during WWI.

[adios]

We touched on this the other day in the other topics forum regarding Kenesian stimulus and Monetary stimulus. IMO the situation you describe in the 30's is an example of Keynesian stimulus i.e. demand is created by increased government spending usually by running a defecit. Even though the US is running a deficit and to a degree the improvement in the economy is due to increased government spending, I don't think that the Keynesian approach is intended. Monetary stimulus in the form of lower interest rates and taxes is the approach being taken to stimulate demand. Some say both approaches are futile. Consummer spending has been relatively strong for quite some time. My sense is that the US economic recovery is gaining momentum.

[scalf]

/images/graemlins/smile.gifwe are all keysians now...lol..

but, with all the massive stimulus, where is the recovery,,,(where's the beef??)...p.e. on s+p 500/dow stocks outta site..

globalization of workforce is already happening...chest x-rays are read in australia..(digitalization, internet)...most programmers in india, no need to migrate any more....key point..usa does not have control, which it's overpaid, lazy, self-deluded entitled crybaby citizens demand,,,

more than 100 college professors sstudy cycles..remember atronomy and physics are often the same academic dept...


gl all..it is happening...brave ostriches..lol /images/graemlins/crazy.gif /images/graemlins/diamond.gif

[Mark Heide]

Tom,

I guess Kaysian economics works if you think of it as a balance of three major groups. With the first group being the worker/consumer. What influences this group is a combination of employment rate and income. The business group depends on the spending from this group for expansion. If businesses can significantly profit, they will usually expand and this expansion will increase job growth. Then both the worker/consumer and business will pay more tax to government which will reduce the deficit from an increase of revenue. I think we saw this happen during the '90s. The similarity I see between now and the '30s is unemployment continued to grow after the stock market crash in 1929. An interesting point is pricing power was lost by businesses in the 1930s due to less consumers working. I guess I see some similarity to the current economy except that we need to analyze what effect the global market has in this situation. Futhermore, what future actions could stimulate job growth?

Good Luck

Mark

[Mark Heide]

GeorgeF,

I don't want to start discussing politics. But, unemployment is the 1930s rose to 25%. In 2002 unemployment was below 6% and in 2003 it is above it. The rising trend is the only similarity. Futhermore, due to the vast difference of how unemployment affects economics in the 1930s and 2000s is probably going to be quite different. It was only a few months ago that the Federal Reserve was worried about disinflation. This is what actually had happened in the 1930s. I think it can only help the economy if more people can work or/and make more income. This will intern help business grow from more consumer spending. If it grows significantly, the revenue paid to the government will reduce the federal deficit.

Good Luck

Mark

[Wildbill]

Don't forget the ability of banks to issue credit and the openess of foreign trade markets Mark and then you will be pretty damn close to complete. The lack of trade opportunities and the insolvency or plain fear of lending by banks in the 30s led to a lot of the problems back then. I don't see either being much of a factor now, but surely if things got really bad for some time it might re-emerge as a problem.

[adios]

I think the US economy supports consummer non durable spending very, very well. The basic necessities are affordable by nearly all. I don't see demand weakening for these products any time soon.