26 of 34 people found the following review helpful
Sometimes compelling, often sloppy,
This review is from: Currency Wars (Portfolio) (Hardcover)
Let's start with the positive: war currency themselves are clearly explained, mainstream economics is dismissed as it should be, and the flaws/excesses of the financial sector are exposed.
The case for the flexible gold standard is rather nuanced and convincing, a rare quality among gold partisans (who are often fundamentalists, see Schlichter's awful 'Money paper Collapse' for example).
Unfortulately, a good deal of Rickard's arguments are clearly biased.
Rickards argues that FDR did not manage the crisis as he should have. He trashed the dollar, resorting to 'beggar-thy-neighbor' policies, and confiscated the citizens' gold in a less-than-democratic fashion. That's may be right, but what else could he do? It's bad to beggar-thy-neighbor, but everyone was doing so anyway, with or without the US. That's not an excuse, but what to do? All in all, FDR's policies gave rather good results.
According to Rickards, it's better for the governemet to step out and let the market purify itself and go back to to growth `naturally': 'The result may be the discovery that short-term government austerity brightens long-run economic prospects by increasing confidence and the propensity to spend.' Strangely enough, Rickards could have found suitable examples of austerity, but doesn't even mention them.
Hoover was president of the US when the Great Depression broke loose; FDR succeeded him only in 1933. The name 'Hoover' appears only twice in the whole book, and Rickards doesn't say a word about his policies during those years. That's remarkable. The fact is that Hoover, and Treasury secretary Mellon, started with the view that the budget should remain balanced and that the market was to be left to its own device. The result was dreadful, and the debt/GDP soared. Only afterwards did he try a limited stimulus.
In Germany, Brüning was appointed chancellor on 29 march 1930. He resorted to austerity to fight the crisis. Unemployment soared and misery spread, which benefited greatly the communists and the nazis. Rickards talks at great length about Weimar's hyperinflation (and rightly so), but Brüning apparently doesn't deserve a single word.
Today, Europe is trying Rickard's austerity, mainly in Greece, Ireland, Spain, and Portugal. The results are dismal. Unemployment has peaked, as well as and Debt/GDP ratio. There's no sign of recovery ahead.
So Rickards claims that FDR's policies were wrong, altough GDP started growing again at a good pace from 1933 (slumpin in 1937, when austerity was briefly implemented), and overlooks completely the awful consequences of the austerity he advocates.
The government spending multiplier is another example of sloppy argument. Rickards asserts that Barro, Woodford and many others have clearly demonstrated that the multiplier is < 1. In fact, Barro looked mainly at government spending during WWII, when private consumption and investment were subjected to restrictions, so of course private spending went down. In a 2010 paper, Woodford actually writes that `A multiplier well in excess of 1 is possible when monetary policy is constrained by the zero lower bound, and in this case welfare increases if government purchases expand to partially fill the output gap that arises from the inability to lower interest rates.' So what is Rickards talking about?
Rickards goes on and dismisses Obama's fiscal stimulus and the Romer and Bernstein's study. The study was wrong: the expected results didn't materialize. That's right, because the federal stimulus barely offset the cutbacks at the State and local level. So there was no big stimulus after all, something many keynesians already claimed in 2009. Still, this minor effort did create jobs, even Rickards aknowledges it, but `The problem was that the recovery was artificial and not self-sustaining, because it had been induced by government spending and easy money rather than by private sector consumption and investment.' God only knows what `artificial' means. You see, when the government hire people to mend old infrastructure, it's 'artificial', it can do no good. Yes, those people get a job -and a useful one-, yes they earn money, yes they spend a good deal of it, but hey, it's'artificial'.
It appears now that the US modest stimulus gives better results than the EU textbook austerity, but let's not look at contrary evidence.
Rickards explains that Chaisson showed that civilizations collapse because of increasing complexity, which requires more and more input for always diminishing returns. I haven't read Chaisson, but Rickards' account of it is so synthetic and simplistic that you hardly understand why the US should fall like the civilizations described by Chaisson. Rickards writes `Have Washington and other sovereigns gone so far down the road of higher taxes, more regulation, more bureaucracy and self-interested behavior that social inputs produce negative returns?' That's foolish: taxes haven't gone up at all in the US. Once again, what is he talking about? Besides, total tax revenue as a percentage of GDP are much, much lower than in countries like Norway, the Netherlands or Austria, which economies are much, much sounder that the American one.
Stimulus could work, maybe, if the country wasn't so indebted, says Rickards. But you know, `keynesianism' has indebted us : `For Washington, Keynesianism is an excuse to expand spending'. Instead of keynesianism, here's something better: `Although the Fed was independent of the White House, Reagan and Volcker together constructed a strong dollar, implemented a low-tax policy that proved to be a tonic for the U.S. economy and launched the United States on one of its strongest periods of growth in history.'
There is just a tiny drawback, so tiny that Rickards doesn't even mention it: public debt started to get out of hand at the beginning of the 80'. When Obama spends, it's terrible; when Reagan spends... let's drop it and talk about the wonderful growth he created. Actually, it was not `one of its strongest periods of growth in history', but nevermind. And Vockler created the crisis with super-high interest rates to break inflation, so of course the economy (housing mainly) sprang back when rates where lowered. Well okay, but at least Reagan `implemented a low-tax policy', right? Not even. Reagan cut taxes for the very rich, but increased them for others (TEFRA).
`Twenty-five hedge fund managers were reported to have made over $22 billion for themselves in 2010 while forty-four million Americans were on food stamps. CEO pay increased 27 percent in 2010 versus 2009 while over twenty million Americans either were unemployed or had dropped out of the labor force but wanted a job.' This, of course, has nothing to do with Reagan and Bush huge tax cuts for the rich, deregulation, and union busting. No, the culprit is the Big State! A lot of European countries have bigger States and much smaller inequalities than the US, but whatever. It's always the State's fault, everyone knows that.
I give the book 2 stars: it provides many valuable insights, but you cannot simply omit a lot of data and twist facts to push an agenda forward.
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Initial post: 20 Sep 2012 11:00:37 BDT
A. Nicholaou says:
Nice comprehensive review. Thanks
Britain was at its best under "big state" - concorde, first jet liner comet, first auto pilot landing technology, intercity 125, hovercraft, radar, first electronic computer, NHS, etc etc.
USA small state - burgers, Elvis. Just kidding!
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