Yesterday, we played a great depression game. Each person got assigned to a family, with information on how the great depression negetavely impacted each person's income. I was put in a family of farmers. What everyone did was decrease their expedientures, try to increase their income, and increase their savings (declining to use the services of the bank), because they needed to hold on to their wealth. This was an eye opener, as it showed me why people tend to decrease their spending and save during a recession: to wait it out and balance their budget.
I think my teacher drew a false conclusion. He then said that the decreased spending that our families did was really hurting the economy. Then, he had us draw a ripple graph, showing us how not spending hurt other businesses, to further hurt the country's economy. Really, the only thing I would say is that decreased spending is one of the indications that a recession is in progress, as people will tend to spend less during one. What is wrong about the "ripple effect"? On a basic level, it seems plausable, but is there something that is forgotten?
Also, I want to share what my teacher said were the causes of The Great Depression. I even have the powerpoint, so if you want to ask a specific question about this lesson, go ahead. What is wrong about each of these causes? What really caused the great depression?
-Farmer's Crisis, due to dropping crop prices (Curious about this one.)
-Stock Market Crash (I think there is a reason why this occured)
-Tariffs (My teacher correctly admitted that these were bad and hurt the economy)
-Inequal distribution of wealth. (How?)
-War Debt (Agreed, too, since war hurts the economy)
-1928 Presidential Election(???)
-Overproduction (???)
-Federal Reserve Monetary Policy (also agreed)
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Interesting that your teacher would use a game to demonstrate how people act in their own interests during a recession. Persumebly he wants government intervention that prevent these selfish people from hurting the "economy." But all that means is forcing individuals to act contrary to their own interests in order to shelter others, namely business, from the sharing in the burden of the recession. Wealth redistribution pure and simple.
Peace
Well, what do people do with savings? They would either use the services of a bank or they would invest it. People just do not simply sit on cash.
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
I am impressed that your teacher has some economic knowledge and did note two of the most significant causes of the Depression: 1 Most Significant Cause: Federal Reserve Monetary Policy and 2. Tariffs. I am sorry that the teacher did not note the others in order: Pro-Union Regulation, Higher Taxes, Government Spending and Minimum Price Fixing of Labor(Minimum Wage) (40 hour work week) and Goods (Farm price supports) etc.
You correctly point out that the two causes in most Government Educated Minds: Stock Market Crash and Unequal Wealth Distribution are not causes of anything but the results of causes.
I am equally unimpressed that your teacher considers saving/investing or in Facist/Socialist Circles Hoarding to be a bad thing. Saving is a rational reaction to an extremely uncertain future. IBM and Toyota are excellent examples. They have billions in cash and are just sitting by waiting for a more certain future. Why put money in to a new technology now or buy a factory or whatever when your investment may be worth 20% less next month?
But the biggest pro-saving/investing message is the one not said. Consumers can only consume what has been previousy invented and produced. It can not consume what does not exist. So the Federal Reserver and the rest of Government are giving consumers incentive to consume when they should be giving the incentive to save.
Spideynw:Well, what do people do with savings? They would either use the services of a bank or they would invest it. People just do not simply sit on cash.
Actually, many people do simply sit on cash. All money that exists in physical form must be held by someone. But, this is a net good for society. Money not spent frees up valuable resources for other consumers or other producers to use. Your increased demand for money increases the wealth of the rest of society (interest free) by whatever you had to produce to buy that money.
Foreign central banks, for example, have compelled their own subjects to subsidize the standard of living of U.S.Americans in exactly this way.
billott1:So the Federal Reserver and the rest of Government are giving consumers incentive to consume when they should be giving the incentive to save.
I stand corrected. No government should attempt to modify the behavior of citizens acting in their own interest without force or fraud.
just read what friedman wrote on the subject...he had it completley right.
Even better - read both Friedman and Rothbard...
purplemage:-Farmer's Crisis, due to dropping crop prices (Curious about this one.)
purplemage:-Inequal distribution of wealth. (How?)
Apparently everyone should look to the poor to bail them out of recessions...?
purplemage: -1928 Presidential Election(???)
purplemage: -Overproduction (???)
The Origins of Capitalism
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Tuneman:just read what friedman wrote on the subject...he had it completley right.
Actually, he had it totally wrong.
Niccolò: Tuneman: just read what friedman wrote on the subject...he had it completley right. Actually, he had it totally wrong.
Tuneman: just read what friedman wrote on the subject...he had it completley right.
Lionel Robbins actually had it right. Just read The Great Depression, which can be found on mises.org.
I believe it was mise's "Economic Policy" i was reading where he suggested that the reason the farmers prices went down was because of increased production and better technology. The supply went up, so the price went down. thats how a free market works, there is a generall tendency for prices to actually drop overtime. I guess you can mistake that for overproduction. This is the problem with the whole stable price discipline. Just trying to bring a stable price actually creates inflation. If anything was leading to overproduction, it was the line of thought "oh, man those farm prices sure are low, how can the farmers actually live, we must subsadize them." thats asking for overproduction since the reason the price is low is because of increased production.
billott1:I am impressed that your teacher has some economic knowledge and did note two of the most significant causes of the Depression: 1 Most Significant Cause: Federal Reserve Monetary Policy
I will have to ask for confirmation from the OP, but I can't imagine the teacher used an ABCT-style critique of the Fed's monetary policies during the time. Most people who criticize the Fed for the Great Depression say that it failed to inject enough money, not that the initial injections were what caused the problem in the first place. Especially considering the teacher's thoughts on savings, I highly doubt there was anything good or impressive about the critique of Fed policy.
Morty:I will have to ask for confirmation from the OP, but I can't imagine the teacher used an ABCT-style critique of the Fed's monetary policies during the time. Most people who criticize the Fed for the Great Depression say that it failed to inject enough money, not that the initial injections were what caused the problem in the first place. Especially considering the teacher's thoughts on savings, I highly doubt there was anything good or impressive about the critique of Fed policy.
OK... I am back!
Yes, you are correct. My teacher criticized the Fed for that reason. I remember him saying that the Fed did the wrong thing in the Great Depression by not doing enough.
purple, what about pointing your teacher to this thread? ;) Maybe he'd be interested in discussing this...
Equality before the law and material equality are not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time. -- F. A. Hayek in The Constitution of Liberty
Humbug. With one exception, lowering crop prices are better for the economy. Lower crop prices also indicate the efficiency of farms, and don't "hurt farmers" as a general whole. What lowering crop prices will do is it will tend to force marginal farmers to either be more competitive - purchase more modern tools, install new irrigation systems, et cetera - or to sell their land to people who have the available capital to produce efficiently on their land.
Now, I mentioned an exception. The exception is this: if government has artificially lowered crop prices to "make food less expensive," then that will not only displace the marginal farmers, but will also remove the potential profit that might otherwise have been inherent in farming. Like any other maximum price, it has the same effect...less supply of the goods.
Regardless, what caused the "Farmer's Crisis" and made the depression worse had nothing to do with dropping crop prices, and everything to do with the dust bowl. It was a series of dust storms caused by drought, which basically destroyed farmland in the US and Canadian prarie lands between the Rockies and the Appalacians.
purplemage:-Stock Market Crash (I think there is a reason why this occured)
I'm iffy about this one. Yes, the stock market crash had a major effect, but - as with the "dot com bubble" - a lot of it was in sunk investments. Not to mention, just because the stock market goes under does not mean that the economy is going under. The stock market may - like most things - be linked to the economy, but it doesn't work visa versa. The stock market can go under - again, the dot com bubble when literally billions of dollars in stock options just dried up and blew away - without causing a depression, or even a recession. Most of the United States - in spite of investment losses - just kind of kept on trucking. I would say the Stock Market Crash may have been an indicator of the economic collapse.
Now, on the other hand, this is just what I've been able to gather together out of bits and pieces of information. I'd strongly recommend talking to someone who knows more about stocks than I do, since I largely got this from talking to my brother who worked as a stock broker for a few months.
purplemage:-Tariffs (My teacher correctly admitted that these were bad and hurt the economy)
Yes and no. Tariffs are definitely harmful to the economy. However, unless they are excessive, I don't see them causing a major depression like that one.
Because it makes great opportunity for socialist and communist indoctrination. Impossibility of equal distribution of wealth aside, if there is equal distribution of wealth, then there is no incentive for anyone to better themselves. The motivation for bettering oneself is usually the accumulation of wealth (or the capital to increase wealth), but if that is just going to be given to you anyway, then there's no purpose to striving for it. Uneven distribution of wealth exists because of one of two situations:1) In a libertarian society some people have striven for more wealth with blood, sweat, and tears, and happened to have come out on top. They worked hard, they accumulated their capital, they started their business, and they ran it intelligently. They reaped then proceeded to reap the benefits of their labor, as have the many people that they have hired, the people that believed and invested in them, et cetera. In a libertarian society it is effort that gets people ahead, effort and the ability to accumulate capital and use it intelligently. As a secondary result the people, that is society, as a whole have profited as well. They have new goods to purchase and more options to select from. There is more competition, driving down prices, making more wealth available to the populous as a whole, and also leaving more capital available to the populous as a whole to invest in more and/or different businesses.2) In a totalitarian society some few people have, largely through government control have accomplished both large accumulation of wealth, and the protection of said wealth. Usually, they will find ways to covertly render themselves immune to taxation, whilst blocking new entries into that immunity - "Trust Funds" in the US during the 1990s, for example, or forcing King John to sign the Magna Carta (long story) - and will use military or police force to enforce or maintain their immunity.The trick is to have uneven distribution of wealth by maintaining a libertarian society. That is what will tend to produce a good strong economy.
purplemage:-War Debt (Agreed, too, since war hurts the economy)
Yes and no. It was war debt, but not so much on the US part. The fact is, the British Empire (it wasn't cut down to just Great Britain until the 1970s when it finally dropped Australia and Canada, and I would personally say it remains Imperialistic to this day) and France owed massive debts to the United States as a result of World War I. We had been shipping weapons, ammunition, and supplies to both nations' armies between 1914 and 1917 when we entered the War on - frankly put - false pretenses. The big problem was that the United States Government had gone into debt to pay for the stuff they were shipping overseas. The French and British governments, however, defaulted on their loans in the 1920s as their economies began to fail. That's the short gist of it.
purplemage:-1928 Presidential Election(???)
This makes no sense whatsoever.
purplemage:-Overproduction (???)
How can something that doesn't exist do economic damage? Producers produce what will make them a profit. They, therefore, supply what is in demand. This is just another pitiful excuse for Statist indoctrination. I'd halfway be willing to bet the teacher would have loved to insert in there that the Federal Government should have been monitoring and controlling production to prevent overproduction. This, my friend, is a load of grade-A horse hockey. No, companies produce what is selling. Even if they were to "overproduce", that would simply lower prices on the economy, thereby increasing the damand for the good(s) being "overproduced." This would require first that they increase the efficiency of their production of the good. No sane manufacturer produces at a loss.
purplemage:-Federal Reserve Monetary Policy (also agreed)
Nevermind, question was answered..."yeah, what they said."
Spideynw: Niccolò: Tuneman: just read what friedman wrote on the subject...he had it completley right. Actually, he had it totally wrong. Lionel Robbins actually had it right. Just read The Great Depression, which can be found on mises.org.
(sarcasm) You're all wrong, I have it totally right. (/sarcasm)
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