Appropriately frightened CEOs are hampering the recovery:
The yield curve predicts growth. Check. Consumer sentiment is ticking up. Check. But CEO confidence is lousy, and CEOs are (not) spending accordingly. Whoops. This begs the question: Why are CEOs in such a low mood?
Answer: If you are a CEO in financial services, manufacturing, energy production and health care, you are going to be more regulated. Period, end of story. Your response to forthcoming regulation of yet-to-be-determined complexity will be to hunker down. Keep your name out of the news, improve the balance sheet and hold tight.
This is why the U.S. economy, which wants to turn the corner, is still stuck in the intersection as it decides which way to go.
In her book The Forgotten Man, Amity Shlaes (now a Forbes columnist) wrote that the 1937-38 “depression within a depression” occurred when “capital went on strike.” President Roosevelt’s willingness to “try anything”–including retroactive taxation, laws against discount pricing and an attempted Supreme Court packing–had businesses and their backers so confused about Roosevelt’s rules that they simply withdrew.
This is the risk of Obama’s willingness to “do what it takes.” The words sound positive and action-oriented. But in practice, “do what it takes” really means “anything can happen.” Tearing up of legal contracts … that can happen. Limits to salary and travel … that can happen. Bullying by the Environmental Protection Agency … that can happen. Nationalization of General Motors and Citigroup … that can happen. Nobody knows for sure. Government is sorting it out, day by day.
I’d be happy to triple Congressional salaries, if they wouldn’t come in to “work.”
“capital went on strike”
Hmmm…who is John Galt?
wrote that the 1937-38 “depression within a depression” occurred when “capital went on strike.”
Except every other history I’ve read says that the 37-38 downtick was because FDR backed off on stimulus spending. (See 4th bullet point here).
Well Chris, he’d been at the stimulus spending spending for five years already and the Depression was still going on.
Any analysis that claims the economy got worse because a tactic that wasn’t working, was scaled back, might not be worth trusting.
Any analysis that claims the economy got worse because a tactic that wasn’t working
Except of course the reason it was called “a recession in a depression” is because the economic indicators were going up from 1933 to 1937. So, the stimulus was working, then FDR got off the gas and things slowed down. See the graph here
Except of course the reason it was called “a recession in a depression” is because the economic indicators were going up from 1933 to 1937.
Going up so slowly that unemployment never got below ten percent in those five years. If that’s “working” I’d hate to see what failing looks like.
Going up so slowly that unemployment never got below ten percent in those five years.
Considering it started at 25%, that’s a significant gain.
Actually, I take it back. It only got down to fourteen percent, in 1937. It was the worst “recovery” in American history. Going from 25% to 14% in five years is hardly an success. It happened because FDR continue to poison the patient with New Deal nostrums and market interference. The economy managed to grow somewhat despite them, but he slowed the growth considerably.
Remember the Great Depression of 1921? You don’t, because there was a more laissez faire president in charge.
Remember the Panic of 1873 from your textbooks?
That one went on 30 years, despite a total free hand
in the markets.
as for citicorp being nationalized? It’s the end result of bankruptcy. CITI is insolvent, and the FDIC/Treasury are seeking to unwind them. As for the honor of contracts? bankrupt entities can’t honor contracts. GM is being forced to breach all it’s labor agreements, Same deal with Wall Street. Take Treasury dollars and you lose control of the business.
It’s just capitalism.
You wouldn’t know what capitalism is if it came up and kicked you in the nads.
I was not aware of the Recession of 1921. Some research on Google seems to indicate that:
1) It was caused by industrial demand drops related to the end of WWI and the re-opening of German factories and exports.
2) We got out of it by a lot of deflation.
3) It was never as bad in terms of unemployment, banking collapse or other measures as the Great Depression.
4) Hoover, then Commerce Secretary, tried to stimulate out of it by increasing public works.
jack lee Says:
April 22nd, 2009 at 1:03 pm
“Remember the Panic of 1873 from your textbooks?
That one went on 30 years, despite a total free hand
in the markets. ”
I don’t suppose a the little ole Reconstruction had anything to do with that.
Chris, the point is that we got out of it quickly. There was a panic in 1920 that could have resulted in a depression with bad government policies. It would have been much worse had Roosevelt (either one, actually) been in charge instead of Warren Harding.
Panic of 1920-1921? C’mon guys, don’t you remember the account of Meyer Wolfsheim giving an expensive meal to a hungry James Gatz/Jay Gatsby right after the Great War? Of course it is in the fiction by F Scott Fitzgerald, but the economic panic is historical.
The Long “Depression” was a pretty weird one, given that GNP tripled over the period.
The Long “Depression” was a pretty weird one, given that GNP tripled over the period.
How much of that was due to pre-prepping for war when the US became the “Arsenal of Democracy” between mid-1939 and late 1941?
None of it. The Long “Depression” referenced by jack lee started in 1873, and, depending on what definition of “depression” you use, lasted from 0 (rapid economic growth means no depression) to 30 years (price depression means depression).
jack lee, why do you think there was a 30 year depression starting in 1873?