I really wanna debate balling4life now, because he's missing the fundamental point that the issue that can cause our economy to go spiraling out of control is DEFLATION not inflation, and the measures in place are preventing runaway deflation (which would in a normal economy result in runaway inflation).
The great depression was a depression btw, not a recession, the mechanics are quite different economically.
But I don't have time, must concentrate on studying.
I'm not sure what definitions you are using, but for me a recession is just a reduction in output. A depression I suppose is a severe type of recession then. But what's your definition of depression?
Anyway, deflation, in the sense of falling prices, is a good thing. We generally had deflation in this country from the late 1700s until the early 1900s. and that period saw sustained growth. Deflation makes things easier for people to buy, raising their standard of living. It also gives incentives to save and invest, which grow the economy.
The main argument for deflation being a bad thing is the old "deflationary spiral", which states that falling prices will lead to fewer people buying things (as they know if they wait a while the price will fall further), and then this lowered demand will lead to even lower prices.
The first problem with this argument is that it is inconsistent with the actual behavior of consumers. For example, computers and electronics have steadily falling prices (as technology improves), and yet people still purchase them. Sure, there are some people that say "No, I'll buy a computer next year when they are cheaper", but not enough to completely crash the market (people have time preference, meaning that they would rather have the computer now than later). This brings me to the second point, which is that current savings are future spending. That person who decides to buy a computer next year just INCREASED FUTURE DEMAND, so the money gets spent eventually (and even before that, saved money is used for investment, which is the true driver of growth in the economy). Lastly, a deflationary spiral cannot drive prices to 0. There will be a point where prices cannot go down any further (the marginal cost of production), and the deflationary spiral ends.
We tend to associate deflation with recessions, but this is a symptom, not a cause. Prices fall during recessions because the economy is realigning itself. A recession indicates that firms have misusing resources and been producing goods that people do not desire. The prices of those goods have to fall to clear the market, and there is a slowdown in production as resources are reshuffled into uses that people will desire. But deflation is necessary to clear the market and move those resources to a productive sector of the economy.
Lastly, there have been far more economic collapses due to inflation than deflation. Look at the Weimar Republic, Zimbabwe, Argentina, even the US during the Revolutionary War.
Yeah calling the New Deal harmful to the Economy? Any first year Economics student would rip that apart.
I take it you aren't a first year economics student then?
Might want to take that year again, you're missing some pretty basic Fundamentals.
I'd say that I understand your side better than you do.
See the problem is Deflation is far worse than inflation. In flation isn't necessarily bad but when it happens quickly it's a problem. Usually when inflation occurs The Fed increases interest rates and the gov raises taxes. What's wrong with that? Inflation usually occurs when the economy is booming. (However like most social sciences it isn't the "law") During economic booms it's good to raise taxes and cut spending.
A booming economy is correlated with price inflation, as I said before. However, it is not the case that the economy HAS to be growing for there to be inflation. See the 1970s in the US, or the inflationary economic collapses I listed above.
It's not a good idea to raise taxes ever, but whatever (although according to basic Keynesian theory a 100% tax on everything will actually grow the economy). Definitely better to raise taxes during a boom than during a bust though.
I never said it helped the Economy I said World War 2 did.
If World War II helped the economy, then why don't we just pretend that there is a war going on and start making more planes, bombs, tanks, etc? It would be just like a war but without the whole "people dying" thing. Wouldn't this help the economy?
Simple answer to a simple question. The Government would spend money then it and we would get growth in the Economy, then the deficit worriers would scream, and then they would cut spending. That's why when you look at the data growth was sporadic back then no one had a very firm grasp on Macro theory so they would get worried and screw it up. Cutting spending during a recession only prolongs it. It took a large public works program called World War 2 to get us out.
You're comparing Recessions which in comparison to the great depression at tiny blips. You had devastating effects because the world economy crashed. A banking collapse Tariffs, ect.. all lead to that terrible time. It's not that the new deal wasn't big enough it's the fact that they cut spending which lead to recessions. I'm not Saying Keysian Theory is infallible either, but it's the best solution to large scale world wide recessions.
The Great Depression would have been a "tiny blip" (by the way, those other recessions weren't tiny blips, they were just much much shorter) without the massive intervention by the government and Federal Reserve of the time. There would have been a short period (1-2 years) of hardship, and then the economy would have recovered, just like in the other severe recessions (see Panic of 1907, Depression of 1920).
It's a myth by the way that Hoover took a hands off approach to the recession - he (and the Fed) actually made huge interventions in the market, which deepened the problems. Of course, Roosevelt took that to a whole new level.
Well most economists and people who subscribe to sanity would disagree with you there.
Except that there are plenty of economists that agree with me.
And many of the ones that don't are on the government's payroll, so they might be just a bit biased in their analysis.
adumbrodeus-
I'm saying most people don't understand what the Judicial branch does. Courts do make "laws" though they can't make up a completely new law, they're only confined to the constitution, which I think we can all agree is a pretty broad document.
Heh. The constitution is actually pretty specific with the powers that it gives to the federal government. It is the EXTREMELY loose interpretations of the commerce clause and the necessary and proper clause that allow the federal government to do so much (see the case where growing plants in your own home for sale to people within your state counts as interstate commerce).
