On Saturday I was researching a new article for Money Morning (it’s coming out tomorrow) about the effects of stimulus (or lack thereof) on the job market.
That’s when I Googled “list government jobs programs in the past five years.”
And there, on the very top of the page that had only 943,000,000 results, was the link to a page called “Government is Good – The Forgotten Achievements of Government.”
OMG (text-talk for “Oh My God!”), I thought to myself when I found the site, this is going to be funny!
Government is Good is “A web project of Douglas J. Amy, Professor of Politics at Mount Holyoke College.”
The professor cites 18 government “programs” that we are all better off because of. Some you can agree with; others can be opened and bled with an objective-edged scalpel, or a dull butter knife.
But it’s the first and most encompassing “program” he cites – that in fact isn’t a program at all but more of a pogrom – that deserves a swift slicing and dicing into reality.
The Professor should stick to politics, which is the art of doubletalk. When he’s talking about economics, markets, and business cycles, he’s in my house. And there ain’t no B.S. allowed in my house.
Let’s set him straight
Direct quote from Professor Amy here:
Regulation of the Business Cycle. Until the financial crisis that began in 2008, most of us had forgotten how dependent we are on the federal government to prevent economic depressions. Since the 1930s, the government has used a variety of monetary and fiscal policies to limit the natural boom and bust cycles of the economy. Before government took on this responsibility, severe depressions were a routine and recurring problem in this country – occurring in 1819, 1837, 1857, 1873, 1893, 1907, and 1929. Thanks to government intervention, we have been able to avoid the enormous amount of human suffering caused by these massive economic meltdowns – the widespread joblessness, the destitution, the rampant hunger, the disease, the riots, the hopelessness and the despair. By any measure, eliminating these depressions and this misery has been one of the greatest – and often unheralded – achievements of our federal government.
Before I tear this blathering rubbish into shreds with an objective dose of iodine, let me present the real, sharp facts about what caused and worsened the “panics” and “crashes” of the past 200 years (I’ve cut and pasted liberally from Wikipedia):
- The Panic of 1819 was compounded by excessive speculation in public lands, fueled by the unrestrained issue of paper money from banks and business concerns.
- The Panic of 1837 was a financial crisis that touched off a recession. From mid-1834 to mid-1836, prices of land, cotton, and slaves rose sharply. Speculative lending practices in western states, a sharp decline in cotton prices, and a collapsing land bubble wiped out profiteering banks and led to restrictive lending policies that deepened the recession.
- The Panic of 1857 was a financial panic caused by the declining international economy and over-expansion of the domestic economy. The years immediately preceding this were prosperous. Many banks, merchants, and farmers had seized the opportunity to take risks with their investments and as soon as market prices began to fall, they quickly began to experience the effects of financial panic.
- The Panic of 1873 was triggered when Jay Cooke & Co., a major component of the United States banking establishment, was unable to sell million of dollars in Northern Pacific Railway bonds. The failure of the Cooke bank set off a chain reaction of bank failures and temporarily closed the New York stock market. Factories began to lay off workers as the United States slipped into depression. The effects of the panic were quickly felt in New York, and more slowly in the rest of the country.
- The Panic of 1893 started with the bankruptcy of the Philadelphia and Reading Railroad, which had greatly overextended itself. It was marked by the collapse of overbuilt railroads proliferating on shaky financing and resulted in a series of bank failures. Compounding market overbuilding and the railroad bubble was a run on the gold supply.
- The Panic of 1907 was triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Co. When the corner failed, banks that had lent money to the cornering schemers suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Co. – New York City’s third-largest trust. The collapse of the Knickerbocker spread fear throughout the city’s trusts as regional banks withdrew reserves from New York City banks. Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks.
- The Crash of 1929 resulted from a crescendo of stock-exchange speculation that had led hundreds of thousands of Americans to invest heavily in the market. A significant number of them were borrowing money to buy more stocks. By August 1929, brokers were routinely lending small investors more than two-thirds of the face value of the stocks they were buying. Over $8.5 billion was out on loan – more than the entire amount of currency circulating in the U.S. at the time. When stocks started to slip, margin calls forced panic selling and stock prices crashed.
So, what’s the common denominator?
Excessive lending by banks and lending institutions, like trusts, brokerages, and businesses, getting into the financing game, and stuff like “easy money” and credit led to speculation in schemes and the shares of companies that presumably would reap the benefits of flushed-out growth.
Recessions and depressions did not lead to market sell-offs. Panicked stock plunger sell-offs led to recessions and depressions when overextended banks and lenders failed and general monetary and fiscal tightening followed.
That’s how recessions reach the whole country.
But wait! Professor Amy says, “Since the 1930s, the government has used a variety of monetary and fiscal policies to limit the natural boom and bust cycles of the economy.”
As if government programs can or should dictate free-market business cycles! We are supposed to have free market capitalism, aren’t we?
The so-called programs since the 1930s that yielded a calm series of decades, which abruptly ended in 2008, had NOTHING to do with governments [using] a variety of monetary and fiscal policies to limit the natural boom and bust cycles of the economy.
It had to do with the realization in the 1930s that the 1929 crash and all the previous market panics had led to recessions and that banks running wild (someone needs to make a video) were the problem, not free market business cycles ebbing and flowing gently, as they will do without stimulus fertilizer being pumped into our vast economic waterways.
It was Glass-Steagall that bridled the out-of-control banks and saddled up commercial banks and investment banks with different riders going in different directions so they wouldn’t crash into each other and crash the economy. And that “program” worked.
Well, it did until 1999, anyway, when the last vestiges of the warm flame of prudence were snuffed out. Banks became monsters and spewed their steroid-laced wastewater everywhere. Then the rapid extension of credit fostered speculation on speculation, or, as they might call it in the derivatives world, synthetic speculation squared.
What resulted? A pogrom that forced people from their homes, out of their livelihoods, onto the streets across the country and across the world, like sheep shorn bare by the greedy handlers who raise them only for their prosperous fleecing.
If by good government programs, that’s what we have to thank government for, I’ll take the old free market business cycle any day.
It’s the same old story. Banks are the problem, not the solution. If banks can be relegated to benign “utilities” status and not allowed to commandeer business cycles for their own profit purposes, the free market will foster gently flowing business cycles and steady economic growth.
We don’t need more government programs. We need short, no-nonsense, no loophole-laden laws enforced by the public, upon whom the branding irons of greedy banks always fall.
What do you think? Are you with me? Or do you think Professor Douglas Amy got it right?
P.S. As far as the other programs Professor Amy cites, I agree with you, sir, on the GI Bill. You can see his full website right here.