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« Remember hydroelectric power? | Main | President Bush: Iraq is free, but war isn’t over »

November 25, 2008


jj mollo

One of FDRs big mistakes was refusal to talk with Hoover, who really could have explained some things to him. Hoover was a smart man with a pretty good understanding of the economy. Obama is apparently not repeating that mistake. He's taking advice from the best minds he can find, Republican or Democrat.

There is no guarantee that Hoover could have done any better, though, because no one understood the economy very well. Everyone believed in balanced budgets and maintaining a good stock of gold. When times got tough, they would return to these policies, which was the exact wrong thing to do in the situation. Winston Churchill nearly killed off the British economy by these ideas when he was Chancellor of the Exchequer. The concept of money supply existed, but was not very well understood. People had a difficult time understanding how you could have money without specie. They still do.

What FDR had in spades, however, was leadership ability. He didn't know what he was doing, but he acted like it. He united the country and took symbolic actions designed to give people confidence. Maybe those actions were counter-productive from an economic point of view, but they gave the country hope and time to adapt. I wonder sometimes whether Americans would have been tough enough to win WWII without the privations of the Great Depression.

jj mollo

I think you're taking the wrong lesson about government stimulus, however. Price controls and limitation of competition are certainly harmful, but government spending in a slow economy is generally a good thing. Propping up doomed businesses can be a mistake, but well thought out infrastructure investments are a net plus. Sometimes the cost-benefit of government projects can be hugely beneficial. And spending on bank bailouts is not a question of cost-benefit. It's a response to crisis. It may be a panic reaction, but it's necessary. No matter who is to blame, you just can't allow the national money supply to bleed out.

One of the things we have to remember, however, is to curtail government spending when the crisis is over. That part is politically much more difficult, but equally necessary.


A real hero of the depression was Jesse Jones. He managed the federal government’s $10B “bailout”. Fact was he ran it like a business and made $500M on the loans. Roosevelt and his VP Wallace hated him.

jj mollo

Here's a nice graph highlighting the mortgage bubble.

jj mollo


PBS article about Jesse Jones
Time Magazine article about Jesse Jones


I have to point out that if you take that bubble graph at face value, it's awfully hard to blame Bush for this mess. The bubble was inflating before he took office, and I guess it was just a matter of time until it burst.

jj mollo

I wouldn't blame Bush for the bubble either. I'd more likely blame Greenspan for keeping interest rates so low early in the decade. I would however blame Bush for making no efforts to balance the budget. He could easily have called for sacrifices after 911. He could have asked people to use less gas. He could have done a lot of things to make the country fiscally healthy. He just didn't think the WOT was going to be that tough.

The big blame, though, belongs to the American people for not demanding better oversight of the financial shenanigans on Wall Street. Read Liar's Poker and tell me that we didn't know how crazy Wall Street was ... decades ago. The government usually gives the people what they want. We should start wanting more economic wisdom and less corporate greed.

Frank Warner

There's that G-word again. Don't forget the "altruism" -- the unselfishness with taxpayers' money -- that led to the $1 trillion in high-risk mortgage loans from Fannie Mae and Freddie Mac.

Most Americans weren't calling for mortgages they couldn't possibly repay. But certain congressmen like Barney Frank thought a roll of the dice would win him just enough popularity among needy voters to keep his seat safe forever.

Frank has his $1 trillion safe seat now. And we're paying the bill.

jj mollo

FYI, here's a graph from wikipedia of the history of the effective federal funds rate.

One comment on your update, Frank. It made me think of the possibility that some cabal on Wall Street is just scamming us, taking the federal government the same way that Enron scammed California. The way that the automakers tried to get in on the goodies made me similarly suspicious. They basically had nothing to offer. No plan, no sacrifices, no ideas. Like the man said, they deplaned from their luxury jets, immaculately dressed and coifed, rattling their tin cups in the direction of Congress. I suspect they'll fare better than the execs at Enron did.

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