Just because he got filthy rich inventing the vacuum cleaner doesn’t mean he knew macro.
Yes, they were on the gold standard, but the forces at work took us off it about a year and a half later.
Statement by President Herbert Hoover on March 8, 1932.
“Nothing is more important than balancing the budget with the least increase in taxes. The Federal Government should be in such position that it will need issue no securities which increase the public debt after the beginning of the next fiscal year, July 1. That is vital to the still further promotion of employment and agriculture. It gives positive assurance to business and industry that the Government will keep out of the money market and allow industry and agriculture to borrow the monies required for the conduct of business. I cannot overemphasize the importance of the able nonpartisan effort being made by the Ways and Means Committee and the Economy Committee of the House whose work are complementary to each other.
This statement is wrought with ignorance.
“Gives positive assurance to business and industry”… is this code for the “Confidence Fairy”?
“Government will keep out of the money market and allow industry and agriculture to borrow the monies required for the conduct of business” ?? … so the plan is to perpetuate private borrowing into perpetuity with no new Net Financial Assets to back it up.
That’s like playing a game of musical chairs where the number of chairs is fixed, yet there’s the expectation that the number of players should always increase. The game works well when the players outnumber the chairs by 1 or 2, but by the time you get to 10 or 20 extra players you have a disaster in the making.
Another way of looking at it is a group of guys playing poker, all with a fixed amount of money to use for betting. They each buy an imported beer during the game and order in some Chinese food and expect that each of them will be “up” for the night with their winnings. Played out long enough, 1 player will win all the other’s money, leaving them broke. Game over, wasn’t that fun? Unless, of course, your old Uncle Sam come in and sneaks you a few dollars as you go. The game keeps going, everyone is still playing, the best player keeps winning and everyone can still order Chinese next time they get hungry.
I see the point you’re making and it’s a good point, but Herbert Hoover, the former U.S. president, is not the same as Herbert Hoover, the former president of the Hoover vacuum company. 🙂
actually, it was Archimedes who invented the vacuum cleaner…
@Sherwood, Missed. Point. Entirely.
@Broll The American,
ran out of the tub yelling Eureka and invented the vacuum cleaner…
“While taking a bath, he noticed that the level of the water in the tub rose as he got in, and realized that this effect could be used to determine the volume of the crown. For practical purposes water is incompressible,[15] so the submerged crown would displace an amount of water equal to its own volume. By dividing the mass of the crown by the volume of water displaced, the density of the crown could be obtained. This density would be lower than that of gold if cheaper and less dense metals had been added. Archimedes then took to the streets naked, so excited by his discovery that he had forgotten to dress, crying “Eureka!” (Greek: “εὕρηκα!,” meaning “I have found it!”). The test was conducted successfully, proving that silver had indeed been mixed in.[16]”
@WARREN MOSLER, neither has anything on James Dyson (in my opinion).
@Broll The American,
I get the point, it’s clear from Mr Mosler’s comments (past and present, I’m a regular reader): good business man does not equal good macro economist, and Hoover’s statement is a prime example of bad macro. If there is another point I’m missing, please enlighten me rather than simply saying that I “Missed. Point. Entirely.” If anything I’ve “Missed. Point. Partially.” and you’re being rather unhelpful. 🙂
The “inventing the vacuum cleaner” statement threw me off. Perhaps it’s a joke that went over my head. If that’s the case, apologies for my poor sense of humor and the minor vacuum derail! 😀
@Sherwood, my apologizes if I came across snarky. From my reading of the initial post, I don’t think Warren intended to suggest that the president and the founder of the vacuum company were one in the same. His mash-up of the two people were for comic effect.
Vacuums – Hoover
Vacuums. A dependable vacuum is your most essential cleaning tool, and
Hoover® designs a wide variety of machines to suit every user’s unique cleaning …
hoover.com/products/category/vacuums/ – 71k – Similar pages
Word! http://www.youtube.com/watch?v=VptOUWC-Itc
Has any one read Lords of Finance? If so, worth the time?
@Inoculated, Just finished it. Excellent book. Goes a long way towards describing what caused the Great Depression and the inefficiencies of the gold standard.
Statement by Congressman Paul Ryan on March 8, 2012.
“Nothing is more important than balancing the budget with no increase in taxes. It gives positive assurance to business that the Government will keep out of the money market and allow industry to borrow the monies required for the conduct of business. I cannot overemphasize the importance of my budget that obviously is not intended to balance the budget, but instead shrink government to the size of a tadpole. Go perform a biological improbability, America.”
“Yes, they were on the gold standard, but the forces at work took us off it about a year and a half later.”
I think Mundell was right in his Nobel speech that the forces taking the world off gold were errors arising from fundamental misunderstandings of how and why gold (sometimes) worked. If gold parity had been set at an appropriate level – in line with its actual real or ‘relative’ value, rather than forcing the global economy back to a size concurrent with 1914 parity (much like the eurozone is currently doing) – the Great Depression probably wouldn’t have happened.
Of course, there’s still plenty to debate re fixed vs floating exchange rates, opportunity costs, cultural and social devastation associated w/ precious metal standards, etc.
You can read many statements from the early 30’s, that could be printed today verbatim. I guess collective memory for humans is ~ 80 years.
@SteveK9,
“I guess collective memory for humans is ~ 80 years.”
About an average human life span? Makes sense.
@Art Patten,
That’s Minsky’s message in a nutshell. As Henry V said, “Old men forget: yet all shall be forgot”
@SteveK9, Instinct-driven people (my current moniker for conservatives) are creatures of habit and the habits they develop are typically the same because they spring from the same instinct-linked deficiencies. Mainly, I suspect, it’s a matter of instinct being responsive (able to respond = responsible) to prompts. Which means that instinctive behavior follows; it is not initiative. Even when there’s no obvious external prompt (command, directive, threat), the gonads’ prompts are still reactive to some perceived input, which may or may not be accurate.
@Monica Smith, Also, people don’t learn from other people’s mistakes. Many don’t even learn from their own.
@SteveK9,
That’s the conclusion of Strauss & Howe’s theory of generational change. Each generation is influenced by the environment that prevails as it is coming of age and continues to respond to that influence. By the time that the memories of the grandparent generation that youngsters here are no longer inclusive of a momentous event like a great war or depression, that memory passes from contemporary culture, and a new long cycle begins.