The More Things Change

What could tear one’s attention away from the high comedy on the interwebs surrounding #filibernie and the wait-what-year-is-it-again? Clinton press conference? The always-wonderful Division of Labour, showing us that exactly 100 years changes very little:

In a recent editorial article you state: “Just now the Government at Washington, in seeking to direct too many affairs in widely scattered portions of the confederation of States, has permitted its own affairs to be managed extravagantly. It is to-day in as bad a condition as any of the States – in worse condition, even.”

I agree with you that the Federal Government is seeking to direct too many affairs in all sections of the country, but cannot understand how, in the face of this fact, you favor the enactment of legislation creating a new Cabinet department, to be called the Department of Public Health, which, according to its advocates, would involve the employment of thousands of officials and the expenditure of millions of dollars.

If the Health Departments of the various States are inefficient, the remedy would seem to be to make them efficient, and not to make conditions more complicated by dividing authority between them and a National Department of Health.

Does THE TIMES believe that the remedy for too much Federal interference with State affairs is more paternalism on the part of the National Government?

That’s a letter to the editor from the December 9, 1910 edition of The New York Times, showing that expansion of government was offending the sensibilities of Americans before their income was even taxed.

In that same vein, remember this post? Check out Bob Higgs, taking it further (and doing it better):

Foolhardy procedures which are divorced from economic realities, or whose economic implications are not understood by their promoters, do not perforce become sanctified and wise merely by designating them as “action”; tilting at windmills does not draw water.

[W]hen a recovery program, which, while it may appear effective, depends for its efficacy upon much the same kind of “cheap money” inflation which . . . was the main cause of the recession from 2007 to 2009, then the present recovery must ultimately prove as illusory as the boom from 2001 to 2007, and it is the duty of economists to pierce the veil of illusion.

Certainly the recovery movement to the date of this writing [December 2010] is a peculiar one: it is shot through with anomalies. With [more than 15 million estimated to be] unemployed . . . with governmental relief rolls still at high levels, . . . there very obviously is something wrong, somewhere.

The fact would seem to be that the authorities who are undertaking the “management” of the current recovery, and congratulating themselves that prosperity is returning because they “planned it so,” are utterly oblivious of the fact that recovery is being engineered largely by the same means which produced the last boom – and recession. With this difference: whereas the banking system during the recent boom was producing an investment credit inflation by extending credit to business men and corporations, Government is now assuming the role of inducing new deposit currency in the banking system and thereby producing a consumption credit inflation. The Federal Government, instead of private corporations, is issuing the bonds which the banks are now purchasing, thereby inflating the deposit currency structure all over again. These “created” funds are in this instance being used principally to finance consumption expenditures through relief disbursements, make-work projects, and the like. . . . [T]he current inflation tends to conceal and to preserve the fundamental disequilibria which so prolonged the recession after 2007 and which we are now carrying over therefrom without having once squarely faced the problem of correcting them.

Notice, however, that the foregoing commentary, except for the terms in bold font, was written not yesterday, but, in its final form, in 1937.

What does it mean? <Raises hand>

When policy makers repeat in the early twenty-first century the same mistakes they made in the 1920s and 1930s, and when mainstream economists fail to understand that these policies are misguided now, just as they were then, one can scarcely argue that the mainstream understanding of business fluctuations has advanced at all during the past eighty years.


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