If low taxes/regulations are economic nirvana why was the 1930's so bad?

Great Debates
#1

Payroll taxes didn’t exist then. Income taxes were low. Regulations were scant.

Yet this time period was smack in the middle of the electronics, power, auto, and flight innovative change periods. This is NOT another “What caused the Great Depression” topic but rather why didn’t low taxes and almost non-existent regulations produce an economic boom then?

Is the business boom/bust cycle completely unaffected by fiscal policy? Could it be that farming was dying in the 30’s just as manufacturing is now? (as employers)

#2

Because we were in the middle of a depression. There is no way around that fact. And in 1937, when it appeared we were coming out of the Depression, conservatives prevailed on FDR to cut spending to reduce the deficit. Guess what happened?

The economy doesn’t happen in a vacuum, so you can’t isolate tax and regulatory policy and say “Why wasn’t there a boom?”.

#3

You’re asking for evidence of a faith-based proposition. This is unlikely to end with anyone being satisfied.

#4

This is just my opinion and is only marginally related but I love the 1930’s at least from a distance. The Great Depression sucked but the 1930’s still had it all when it came to style and innovation and certainly not everyone suffered during the decade. Some of the most beautiful things in existence were created during the 1930’s including airplanes that are still in service to this day (DC-3), the Empire State building and movies like Gone With the Wind and The Wizard of Oz just to give a few examples of hundreds.

The 1930’s were hardly a wasteland of innovation. I am not sure if the direction the OP wants to take it are applicable just based on the enduring evidence of that. Technological progress was the greatest asset of the decade. The 1930’s only sucked because we were in a Great Depression and Europe was melting into WWII. I think a better topic would be what lessons we could use from that to prevent an oddly similar thing from happening today because the parallels are getting a little spooky for me.

#5

In relation to the OP, that should apply to the right wing mantra, too. When they claim that lower taxes and less regulation boost the economy, it’s fair to ask them, “Why wasn’t there a boom in the Thirties?”

And to the OP, farming certainly wasn’t dying in the Thirties. The Dust Bowl just made it tougher to make a living from it.

#6

It’s also not as if taxes and regulations were removed during the Great Depression-- the economy was already operating under those conditions before, and so I don’t see why you think lack of regulation would “create a boom” when those same conditions existed prior to the depression as well. The usual conservative line on the Great Depression is that sure we had a rough patch in '29, but we had a great decade before that and had the low-tax low-regulation conditions been allowed to persist, we could have come out of the Depression faster than we did with FDR’s meddling.

Farming as the predominant American way of life was absolutely dying during the 30’s. Mechanization made the previous situation where the majority of Americans lived on small farms untenable since crop prices plunged and farming became less labor but more capital intensive. It’s been argued that for most Americans (i.e. farmers), the Great Depression really started around 1920, since that’s when crop prices crashed and never really recovered. Some good weather years and very liberal distribution of credit (thanks to the booming stock market) kept things going during the 20’s, but by '29 the US’s agrarian economy was already in shambles.

All of which is, incidentally, one of the major flaws of the conservative account of the Great Depression. The supposed “good years” of the 20’s were great for Wall Street, but the actual health of the real economy was very poor during that period. The stock market itself might indeed have recovered faster had we retained pre-New Deal fiscal policy, but the underlying problems would have still been there and would likely show themselves the next down period. The human cost as society rearranged itself to reflect the demise of the small-scale agrarian economy also would have almost certainly been much more severe.

#7

Looking at history and the entire world, it does appear that fiscal policy has little to do with economic growth. Regulatory policy is different, but rather than being a more/less issue it seems more of a smart/dumb issue. If the regulations are transparent and easy to understand, they are smart. If they are byzantine and no one knows how to comply with them without having a legal department, then they are dumb.

#8

Yes, and arguing about a point higher or lower taxes is folly due to the big waves in the world economy. Service jobs were supposed to take over for lost manufacturing jobs by now. They may have but the internet has distributed those jobs across the world.

In my view the world is destined for 20% unemployment for many years and politicians can’t do a damn thing about it.

#9

Maybe. I think that’s very hard to predict. In theory, automation and IT should increase unemployment but so far it’s actually helped pull a billion people out of poverty all over the world.

#10

In comparing the 1930s to today you cited the difference in taxes. And rightfully so. However, I believe that is only half the equation. We need to look at what those tax dollars were being spent on because ultimately that’s the key element. The whole argument against excessive taxes - whether they be sales, income, property, etc - is that the private sector can allocate those dollars in a better way than government. Okay, then what were the dollars being spent on then and where’s the money going now.

Another poster cited that the 1930s included such wonders as the building of the Empire State building. Beyond that there was a major push to create jobs via the infrastructure of the country. I believe the Pulaski skyway in NJ was built at this same time. In fact roadways, bridges, etc across this nation were all erected with the tax dollars of this time. This created jobs and put money into the pockets of workers displaced by the depression. That’s wealth redistribution that works. Not spending, but investment.

Today? 40% and that’s a conservative estimate, goes to Medicaid and Social Security. I’m not heartless, but that’s a segment of the population that is not going to contribute. Spending not investment. Throw in the multitude of entitlement programs and its fair to say at least half of all tax revenue is spending not investing.

So, ultimately taxation isn’t the problem. It’s how the taxes are misappropriated. But of course that’s a double edged sword. What’s the alternative? Let the elderly starve in the streets? No, we have too much compassion in our hearts for that…so what?

And this is why Marx and Ingels got it right. They never advocated for any particular social system, they predicted the inevitable. Capitalism will fall to Socialism and in turn Communism. Now, I don’t mean the European examples of pseudo socialism and communism we’ve seen. They jumped the gun. But ultimately Capitalism falls because it lacks the courage of its convictions. In a winner/loser economy eventually the losers pile up. Are you a pure capitalist willing to watch them die in the streets or do you cripple you economy by caring for them?

#11

And yet, when the opposite occurred after Dec 7th, 1941 we flew out of the depression.

#12

Spending was cut a lot more after WWII and we prospered. The comparatively minor spending cuts of 1938 could not have caused a recession. The more likely culprit was the poor deflationary monetary policy of the time.

#13

Spending cuts are appropriate in a growing economy that has recovered from recession. When the economy is still struggling, it is the last thing you want to do.

Can you provide a cite for a recession that improved when spending was cut?

#14

The 1991-1992 recession. There were two rounds of spending cuts, the Bush/Congress deal and then the Clinton spending cuts of 1993.

#15

I don’t think anyone really understands how the world economy works, but one of the keys is confidence. The economy doesn’t simply work off money; it works off the circulation of money. If people aren’t spending, perhaps because they’re hoarding in case they lose their jobs, there’s less money in the economy. Too many people hoarding too much starts to have an effect.

#16

Most of the New Deal make-work programs weren’t that useful though. For every job making a vitally-needed road, there was another knocking snow off bushes and the like. Most were somewhere in the middle, doing things like building trails and upgrading facilities at National Parks, or of course the WPA artists programs. It’s awesome that they did those things and we’re still reaping the intrinsic benefits, but the only real benefit to the economy at the time was that it put money in people’s pockets.

Of course, it’s generally accepted that World War Two was what brought the Depression to an end once and for all, and war is the ultimate boondoggle. The economic impact would have been the same had the US mobilized the military to dig ditches in the desert instead of fighting Nazis. There were some fringe benefits in terms of technological research, but for the most part there was no economic benefit from the actual results of the war.

#17

Good post-yes, the “make work” WPA programs didn’t do much. The end of the Depression was WWII- induced-demand was restored (all the weapons purchased), and unemployment vanished (most of the male workforce was drafted into the armed services). No inflation either-because there was nothing to buy. In a way, that is what Reagan did-only there was no war.
The reason why Obama’s “stimulus” isn’t working is that none of the money spent stimulated demand-instead, it went to preserve UAW dominance at GM, and bogus “green energy” firms (most of which produced little or nothing).
The next round of CE (craziness) will involve massive transportation projects (“high speed rail”) for which there is no demand-the trains will run mostly empty, and the investment will be wasted.

#18

But weapons are even less “real” than an unwanted high-speed rail. Weapons used in war are of no economic benefit (see “broken window fallacy”). High speed rail is of limited economic benefit in most places, but that’s higher than zero. Both will of course stimulate the economy by sending cash through the economy.

#19

Wrong…in WWII, the weapons were made in American factories, owned by American firms. The wages paid out went to Americans, who spent the money in America.
In the case of HSS, most of the money will go to foreign firms (China, Korea, Germany), The money will be spent in those countries, and not in the USA.
Take the AMTRAK “Acela” trains-they were mode by a French firm, in connection with a Canadian firm (Bombardier). The stimulus went to France and Canada.

#20

Acela pre-dates the stimulus. My son took it to NYC in July 2000. Was stimulus $ used to get more trains or upgrade tracks or something?