- Paperback: 272 pages
- Publisher: Regnery Publishing Inc (7 May 2009)
- Language: English
- ISBN-10: 1596980966
- ISBN-13: 978-1596980969
- Product Dimensions: 1.3 x 18.4 x 22.9 cm
- Average Customer Review: 5.0 out of 5 stars See all reviews (1 customer review)
- Amazon Bestsellers Rank: 1,078,493 in Books (See Top 100 in Books)
The Politically Incorrect Guide to the Great Depression and the New Deal (The Politically Incorrect Guides) Paperback – 7 May 2009
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Top Customer Reviews
As an author, Murphy has a lot in common with Henry Hazlitt, in that he is able to tackle subjects thoroughly without the sacrifice of humour. The book is laid out neatly, and it even relates its lessons to the present crisis in its closing chapter.
I (anonymous internet stranger) wholeheartedly recommend that you buy this book.
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After briefly discussing the three main schools of thought about this crisis in American history, Murphy is quick to dismiss with the Keynesians. The argument that government spending was what saved us from the Great Depression, and that a lack of spending by Hoover caused the problem is fairly easy to disprove. Historians have long known that Hoover was a staunch interventionist in the economy and he rejected the advice of his own Secretary of the Treasury to simply let the bad investments liquidate themselves, a policy that had worked wonders in the earlier contraction of 1921. (Indeed, some historians of a left wing bent have chosen to praise Hoover for his intervention, most notably Joan Hoff Wilson in her classic study Herbert Hoover: Forgotten Progressive.) Of course, we cannot know if the economy absolutely would have recovered in the absence of Hoover's many interventions into the market. All we can say for certain is that he was not a laissez-faire president who did nothing while the economy contracted around him. Those who make this claim, most notably Paul Krugman, are either astoundingly ignorant or fundamentally dishonest. I tend to lean (charitably) towards the former position. As an ironic aside, Hoover was anti-interventionist only in foreign policy. Yet the institute that still bears his name is now a hot bed of neo conservatives who favor intervention everywhere in the world. But as a politican he did remarkable work at trying to set a floor for wages and prices, created the Reconstruction Finance Corporation and ran budget deficits that make those of today under Bush and Obama seem modest by comparison. Hoover rightly claimed he was the first President to not let the economy go its own way and four years later we were in the midst of the worst economic downturn in the nation's history.
Of course, there was some initial recovery during the early Roosevelt administration, but nowhere near to the extent seen in any previous downturn, even on a percentage basis. Indeed, one of the strong points of this book is that, unlike most economic histories of the period, Murphy examines several of America's large downturns, including the dramatic economic collapse of the 1870s in order to give some sense of comparison. Eventually of course, the early gains of the New Deal collapsed in 1937 and the economy right back to where it was under Hoover. Indeed, Treasury Secretary Henry Morgenthau rightly recognized that all the New Deal policies had failed, though they had left the US with an enormous debt. He was far more honest than many of today's leftists who share similar political positions.
So on the whole, the thesis that government spending mitigated against the Great Depression, and ultimately helped end it is simply not supported by the evidence. We cannot say for certain that even more government spending would not have solved the problem, and that is precisely what many today are advocating. But we can say that this was the first time the government responded to a downturn using these policies and not coincidentally, this was the first time (and hopefully the last) that instead of quickly realigning resources, the market fell into a quagmire. But easy as it is to dismiss with the Keynesians, one of the strengths of this book is that it also takes to task the Monetarists who many naively believe are the opposite of the Keynesians.
Monetarists tend to be somewhat more sympathetic to a free market, though not as much as many people suspect. Friedman, for example, was not opposed to a welfare state as such. He rightly argued that a negative income tax was a more "efficient" way to obtain the goal of an income floor for people than our current hodgepodge of programs, but his argument was pragmatic, not principled. Similarly, he supported government funding of schools and his still controversial voucher system would have made this program even more universal than it is today. He did not consider the fact that with government funding comes government regulations governing the use of that funding, a policy that would have effectively killed the innovations found in many private schools. But it is only when one looks at Friedman's big claim to fame, his monetarist theory of the Great Depression, that one realizes just how similar his perspective is to the Keynesian one. Friedman argued the Fed sat and did nothing (similar to the Keynesian claim about Hoover) while the economy contracted. Had they been more actively interventionist, he argues, we could have avoided the depression altogether. But, like the Keynesian argument, Friedman's claim simply does not stand up to historical scrutiny. The Fed dramatically lowered interest rates immediately following Black Monday, and they continued to do so throughout Hoover's reign. By contrast, in the 1920-21 contraction, the Fed had actually increased rates! And in the final analysis, both the Keynesian and monetarist claims essentially state the same proposition: government inaction caused the depression. And the historical evidence suggest both are wrong: government inaction simply did not happen during the Great Depression.
On the other hand, the Austrian claim that government intervention in the market caused the depression, is far more substantiated. Beginning in 1927, the Fed decided to inflate US currency in order, of all things, to assist the bank of England in preventing devaluation of the pound sterling. But this inflation, which went through the banks, had the effect of making many investments that were not profitable appear so, and a stock market boom followed. When the bust inevitably came, rather than allowing these bad investments to liquidate, as had happened in all previous busts, the government boldly tried to keep inflating the currency, with disastrous results. And, as Murphy points out in the close of his book, the same could easily happen today. Many are calling upon President Obama to become the new FDR and based on the early days of his reign, he seems quite happy in this role. Already, bailouts of businesses (a bad policy that began under the Bush administration) is proceeding apace, and the administration has even made tenative steps towards nationalizing the largest banks. Promises of tax cuts for the middle class and pay as you go spending, so widely trumpeted during the campaign, now appear to be temporary, in terms of the former, or completely forgotten in terms of the latter.
There are, however, some signs of (real) hope. Several Senate Democrats have refused to sign on to the proposed cap and trade carbon tax, a boondoggle for the economy if there ever was one, and it seems unlikely a tax hike will occur until the 2010 Bush tax cuts expire. And more citizens are becoming increasingly skeptical of the whole bailout agenda. That is a good sign, and books like these are a good place to start if you want to understand why a new "New Deal" is the last thing this country needs.
But alas, nothing is perfect. Murphy's book is troubling in two respects: 1. the reader wants/needs more - I literally could not put the book down... I wanted to keep going - his style makes for such easy and interesting reading! 2. his analysis of the current US state of affairs vis a vis 70-80 years ago is downright scary! He certainly does not exude confidence in our current "leaders."
Released in an exceptionally timely manner and well styled, the reader will have trouble telling the book from a newspaper. Similar to his earlier The Politically Incorrect Guide(tm) to Capitalism (Politically Incorrect Guides) (Paperback), the author covers a large amount of history and theory together, never losing the reader's attention or confusing us with tedious theoretical minutia. Instead you'll find the simplest of graphs that make the most profound of conclusions by themselves. Quick reviews of familiar topics are followed by shocking details few have heard before. Always radical, but never dry or confusing, the subjects fall into each other smoothly. The history itself is right-on, with some of the latest research seamless with the more conventional subject matters.
The book starts with the Hoover administration, covers the crash, Hoover's response, and then details the whole Roosevelt administration, providing important points on earlier and later history throughout. Coverage is quick but exhaustive--every major political and economic development is mentioned.
Some of the PIG series tend to be trite with their arguments, but not this entry. Discussion of the classical gold metal standards' value and the working mechanisms of floating currency exchange under it were new, even to a well-read history hobbyist. The analysis of the sudden end of the New Deal is fresh and leads one to want to look further into this profound yet neglected development of our history.
Any short work has its drawbacks, however. Major discussion points are left open and wanting for more detail. The author's redundant quoting of Coolidge reminds the reader of a kitten discovering a new toy. Worse, the critically needed demonstration of how this history may be repeating itself today--the cause célèbre of the work--is given only short attention.
Anyone familiar with the contemporary research on the Great Depression knows that the history we were all taught in middle-school is almost complete myth. Anyone also familiar with the news today knows that few understand this. Educated laymen would do well to dispel these myths and grant themselves a chance to look at contemporary events without a false view of the past blurring their vision. As Einstein wrote, "No problem can be solved from the same consciousness that created it. We must learn to see the world anew." For anyone interested, this book would be an excellent opportunity to do so.
Robert Murphy makes use of sound economic analysis from an Austrian perspective (meaning the Austrian School of economics) to show and demonstrate how the depression was not caused by laissez faire policies but by the money supply manipulations of the Federal reserve, which was legislated into existence to purportedly reduce the number of recessions or runs of the banks that created the previous recessions. In fact the Federal Reserve merely helped to hasten the big recession that started in 1929.
What happened in 1929 is not that different to what happened in 1919-1921 (when the US suffered the OTHER Great Depression nobody hears about today). But instead of having the government reduce spending and lower taxes, to help people recover faster, the Hoover administration tried to bail out farmers, laborers and manufacturers by propping up food prices, wages and imposing a tariff that started a trade war between the US and everybody else.
Dr. Murphy debunks many other myths highly touted by historians, leftists and even many so-called conservatives:
+ That Herbert Hoover let the problem grow by a "do-nothing" approach, regardless of the clamors made by many. In fact, Hoover was a Progressive that believed it was the role of the government to command and control the economy, and like many today, did not let a good crisis go to waste, to impose many of the plans that later became part of the New Deal.
+ That Roosevelt's New Deal programs were created to kick start the economy after the failed policies of Hoover. In fact the New Deal had its origin in programs already implemented by the Hoover administration. The only difference was in their name and scope.
+ That the spending of WWII got us out of the Depression (a myth that contradicts the much touted effectiveness of the New Deal.)
+ That the depression became great because of a tightwad Federal Reserve (Milton Friedman's contention). In fact, the Fed increased the money supply right after the stock market crash to keep credit flowing.
Dr Murphy shows how the New Deal was more about protecting special interest groups than about helping every day Americans; how FDR created a quasi-Fascist state, by getting Big Businesses and labor unions into bed with the Government; how the World War did NOT pull the US out of the Great Depression, making the privations for many much WORSE than during the previous years before the war; how the economy recovered astoundingly fast after the war, when the US Government stopped or reduced many of its expenditures, canceled many of its New Deal programs and cut some taxes - something the Keynesian economists said could not happen: A recovery after a reduction in government spending.
Apart from debunking many myths regarding that era and the origins of the crisis, it also gives a good education in sound economics, making the book not only a good reference to debate New Deal advocates, but also to expand one's knowledge of economics. As a companion to this book, I also recommend you seek Thomas Wood's "Meltdown."
Sure high tariffs and high taxes were devastating to the economy of the 1930s or any time thereafter, but the faulty theory of consumption exposed in this book is beyond common sense.
As wages were held high (by unions or "cooperation" with Hoover and Roosevelt) while prices of goods and production inputs fell, then profits collapsed and investment declined. Based on supply and demand unemployment rose. If the price of something (real wages of labor) rises then people will demand less of it. If you had a job during the depression, you were in good straits since your wages stayed high while what you bought dropped in price. The cost was borne by the millions of unemployed. Why does a politician support minimum wage laws? Why not advocate wages at $million dollars a day? We will all be rich!
Think of it: consumption doesn't drive the economy; production does. One only produces something to ultimately consume it or trade it for something else to consume. To increase production then you need to increase capital investment and to do that you need people to postpone consumption enough to save.
Hoover, Roosevelt, Bush and Obama AND Bernake have it ass backwards. At least after reading this book, you will know better.
God Help us.