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Economic History, Part VII: A Lesson in Inflation and Monetary Policy



The above chart tracks the United States’ inflation rate since January of 2000 through February of 2011 taking monthly averages. The deflation experienced between 2009 and January of 2010 is believed by many to be explained by the Phillips Curve, which “represents the relationship between the rate of inflation and the unemployment rate” (Source A).

But what exactly is inflation?

According to Investopedia, inflation is the rate at which general level of prices for goods and services is rising and purchasing power is falling. Central banks attempt to stop severe inflation as well as severe deflation in an attempt to keep the excessive growth of prices to a minimum (Source B).

So, as you can tell by the chart, it looks like the inflation rate is relatively low with respect to 2006-2008 levels. With rising prices and an increasing need for consumers to cut back at home or search for substitutes, many are clamoring for lower prices. There are several different economic policies a government can enact to reduce inflation:

  1. Monetary Policy – Increase interest rates.
    1. Raises the costs of borrowing which leads to reduced spending.
    2. Increased interest rates makes saving a more appealing prospect.
  2. Supply Side Policies – Privatization and deregulation.
    1. Make firms more competitive and more productive to keep costs low.
    2. Works in the long run and won’t necessarily bring prices down today.
  3. Fiscal Policy – Tax policies.
    1. Increasing taxes and reducing government spending will reduce aggregate demand.

Naturally, there are many other policy options to be considered as everything seems almost inextricably linked in economics, but these will do for our purposes.

But what if the U.S. government decided to simply reduce the value of our money by 20% overnight? To put this in perspective, imagine that your $1 bills were now worth 80¢, your $5s worth $4, your $20s a mere $16 and so on and so forth. Well, this is essentially what happened in 18th century France.

Granted, the monetary regime in place at the time is not the same as ours today. In 1726 France, when these events took place, the government was using a variety of gold and silver coins which didn’t indicate a specific value, like our alternate fiat money. The intent behind the French government’s actions was to lower general price levels, which they thought were too high.

What the government didn’t anticipate, however, were the adverse effects it would have due to expectations. Once the value of their specie dropped, the people lost faith in the coins and held their wares as collateral against the expectation of further diminution. Goods were worth more than the money if there were further decreases in the value of the coins. Business owners had stocked up their inventory based off of yesterday’s prices, so selling them without increasing prices would, in fact, be counterproductive and harmful to their own well-beings.

A local official in Marseille described the situation from a more personal perspective, “the diminution has suspended all business and increased the prices of foodstuffs and merchandise. We never doubted that the first diminution would have this effect…all sensible people are convinced that the third diminution will begin to have some effect and progressively things will return into balance with specie, as long as all are convinced of the King’s firm and serious intention not to increase after the diminutions, It is up to the Court to see how it can persuade foreigners and the King’s subjects that this intent is serious, firm, and unwavering.”

This graph essentially describes what took place in France. First, the government reduced the value of the money. Output and commerce suffered significant setbacks and the aggregate demand curve shifted to the left to reach point B for a significantly longer period of time than was expected by the government. This was due to a combination of expectations that the value of the money was going to continue to fall and because of the contracts which hadn’t yet been renegotiated.

To support his proposition that a law be passed reducing all leases passed since January 1720, the mayor of Nantes said, “In vain would one ask merchants to cut the prices of their wares by a third if one does not reduce by a third the leases on their shops.”

Only after the government finally came out and set an official price did France undergo market clearing and the economy reach point C on the long run aggregate supply curve, as indicated by the arrows.

So inflation, it turns out, has a great deal to do with expectations. Business owners might, for example, anticipate that transportation costs are going to increase due to rising oil prices and bring up their prices. Before you know it, all costs and prices might go on the rise, all due to expectations. Something to be careful of, however, is that history shows that prices are much easier to increase than they are to bring down.

Sources:

Source A: http://www.econlib.org/library/Enc/PhillipsCurve.html

Source B: http://www.investopedia.com/terms/i/inflation.asp

Source C: http://www.econtalk.org/archives/2009/02/meltzer_on_infl.html (podcast)

Source D: Chart Source http://www.tradingeconomics.com/economics/inflation-cpi.aspx?Symbol=USD

Source E: http://www.frbsf.org/publications/economics/letter/2009/el2009-12.html – philips curve

Source F: Policy http://www.economicshelp.org/blog/inflation/economic-policies-to-reduce-inflation/

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Posted by on April 12, 2011 in Economic History

 

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Economic History Part VI: Oil Prices and the Economy, OPEC and Stagflation

Source A

There’s no denying that gas prices are on the rise and many are attributing it to the unrest in the Middle East and North Africa in countries such as Libya and Iran. These high prices are certainly disconcerting for most all as 90% of Americans say they usually drive to get to their destinations (Source B).

But are there broader implications for this phenomenon? What effect do oil prices and supply have on the U.S. economy?

In the early 1970s, OPEC—the Organization of Petroleum Exporting Countries—coordinated to reduce the supply of oil which effectively doubled the world price. The subsequent increase in oil prices caused stagflation in most industrial countries, including the United States (Source D).

OPEC Member Countries

Source C

Here are the effects of the change in oil prices on the inflation and unemployment rates in the United States:

Source D

The trends are readily apparent upon a scan of the above data. The 68% increase in oil prices in 1974 resulted in significantly higher inflation and unemployment. After these initial supply shocks, after the economy had stabilized itself, 1979-1981 saw further spikes in the price of oil which again led to double-digit inflation and unemployment.

It was thanks only to the weakening state of OPEC, due to political turmoil among the member countries, that oil supplies were freed up and stagflation was reversed (Source D). Oil prices dropped by 44.5% in 1986 and the United States experienced one of its lowest inflation rates ever as well as a decreased unemployment rate.

Nowadays, however, OPEC itself has less of an effect on economic fluctuations within the United States due to how we’ve shifted to a more service-based economy over the manufacturing basis of our past. This means that we’re going to have to experience greater increases in oil prices for there to be macroeconomic repercussions, but it definitely does seem as if we’re heading in that direction.

Click here for a purely monetary explanation of the stagflation of the 1970s (it’s a link to a NBER-hoted PDF file).

Sources

  1. Source A: http://gasbuddy.com/gb_retail_price_chart.aspx
  2. Source B: http://abcnews.go.com/Technology/Traffic/story?id=485098&page=1
  3. Source C: http://www.opec.org/opec_web/en/data_graphs/40.htm
  4. Source D: Mankiw, Gregory. Macroeconomics.
 
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Posted by on April 8, 2011 in Economic History

 

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Economic History Part V: Factors of Production, The Black Death

Gross Domestic Product, or GDP, is one of the most reliable—or at least most popular—measures for how well an economy is doing. GDP is the total market value of all final goods and services provided in a country in a given year, equal to total consumer, investment, government spending, and net exports (Source A).

Y = C + I + G + NX

But what determines the total production of goods and services? To answer this question, we turn to the factors of production and the subsequent production function. Factors of production are the inputs used to produce goods and services, the most important of which are capital and labor (Source B). This is not a very difficult concept to grasp, as capital is the set of tools that workers use—trucks, drills, buildings, etc.—and labor is quite simply the time people spend working. Capital is denoted by K and labor is denoted by L.

The relationship between the two inputs is expressed through the production function, which states how output is a function of labor and capital:

Y = F(K,L)

Another critical piece of knowledge for anyone interested in GDP is that the total output of an economy is equivalent to its total income, both of which are essentially considered the same thing by economists. And since the factors of production and the production function together determine the total output of goods and services, they also essentially determine national income (Source B).

The distribution of national income is determined by factor prices, which are the amounts paid to the factors of production which, for our purposes, are capital and labor. To put it in perspective, we are talking about the wages that laborers earn and the rent which owners of capital collect.

So what is the relationship between factor prices and factor quantities?

Well I would argue that the best way to find out is through real-life examples. Let’s take a look at 14th century Europe, or more specifically, the 1348 outbreak of the bubonic plague. “The Black Death visited unprecedented mortality rates on Europe, realigning relative values of factors of production, and in consequence the costs and benefits of defining and enforcing property rights…overall one-quarter to one-third of the continent’s population perished in half a decade, although in extreme instances some locales were utterly depopulated…” (Source C).

Due to the massive depopulation taking place in these countries at this time, the marginal product of labor, or MPL, rose significantly. Marginal product of labor is the extra amount of output gained from one extra unit of labor, holding the amount of capital fixed. The economy became unbalanced as feudal society adapted very poorly to the rapid changes taking place; many medieval institutions were destroyed (Source C).

The Black Death left most land and physical capital unscathed, and the effects on the animal population were not so significant, but the human casualties, again, were astounding. Naturally, this led to an increase in the marginal product of labor because the amount of labor fell—the sharp increase in real wages support this fact (Source C). The reduction in the labor force resulted, in fact, in the doubling of real wages (Source B).

The severe drop in the labor force reduced the marginal product of capital as well. As fewer people were available to farm the land, adding more land and other physical capital would not necessarily have increased their output, so land rents fell (Source C).

Essentially, the production function measures technology and not economic behavior. Click here if you’d like an alternate explanation with a practice problem!

  1. Source A: http://www.investorwords.com/2153/GDP.html
  2. Source B: Macroeconomics, by Gregory Mankiw.
  3. Source C: http://www.jstor.org/stable/10.1086/345566?&Search=yes&searchText=death&searchText=black&list=hide&searchUri=%2Faction%2FdoAdvancedSearch%3Fq0%3Dthe%2Bblack%2Bdeath%26f0%3Dall%26c1%3DAND%26q1%3D%26f1%3Dall%26acc%3Don%26wc%3Don%26Search%3DSearch%26sd%3D%26ed%3D%26la%3D%26jo%3D%26dc.Economics%3DEconomics%26dc.Finance%3DFinance%26dc.PoliticalScience%3DPolitical%2BScience%26dc.PublicPolicy%2526amp%253BAdministration%3DPublic%2BPolicy%2B%2526amp%253B%2BAdministration&prevSearch=&item=12&ttl=17407&returnArticleService=showFullText
 
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Posted by on April 7, 2011 in Economic History

 

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Economic History IV: Alexander Hamilton, Path Dependency, and the Financial Crisis

 

Today, public opinion concerning the state of the American economy is unstable at best. There are many indicators which would seem to agree with such a conclusion, the foremost being the growing figure displayed by the National Debt Clock in Manhattan, New York City which has surpassed $14 trillion. In order to put this massive number in perspective for us, those responsible for maintaining the clock have divided the $14 trillion plus dollars equally between all U.S. citizens to determine the debt per citizen, which is currently in excess of $45,000.

There are, however, many variables that go into these calculations—to which the public is generally oblivious—variables such as federal tax revenue, federal spending, and money creation to name a few. With the next round of presidential elections in sight and the recent power exchange in the House of Representatives this last November of 2010, we are coming to find that we are a country divided on the question of how to approach the handling of our economy and personal finances from both macro and microeconomic perspectives.  But this is a bipartisan issue, and the best thing that we could do as a nation is become better informed on the groundwork upon which our economy is based.

Path dependence is the idea that one decision in history can impact, and even determine, the future in a very big way. Several examples of path dependent outcomes are the destruction of the steam locomotive industry, the triumphs of Bill Gates over IBM, and more recently, the adoption of DVDs as a medium over their VHS alternative. Path dependence works in the same way even in the more general case of the U.S. economy and the country’s governmental policies. We can trace contemporary issues back to actions of the past to gain a firmer understanding of what the root causes of said issues are, and what the next best step is in addressing them.

“History repeats itself because no one was listening the first time.” – Anonymous

“Those who cannot learn from history are doomed to repeat it.” – George Santayana

As part of the K-12 curriculum in the United States, students learn that the Founding Fathers of the country were the men who signed the Declaration of Independence, took part in the Revolutionary War, and established the U.S. Constitution. Among these men are George Washington, Benjamin Franklin, Thomas Jefferson, and Alexander Hamilton, though the list goes on and on. It is truly a shame that little emphasis is placed on recognizing the individual contributions to the country made by at least the most prominent of men within this group, as there is much value to acquiring such knowledge.

Oftentimes in our education, we focus on the Who, What, When, and Where. We fail, however, to ask ourselves the most vital question: Why? For instance, why does the concept of debt even exist? Why would foreign countries, foreign citizens, and U.S. citizens loan money to the federal government? Why do we even have a central government to which we pay taxes? The greatest and most detrimental mistake we can make is to accept our surroundings as the norm when we really should be questioning the status quo and arriving to creative solutions to circumvent outstanding problems or even simply to improve our current situations. We can link the current financial crisis back to the very establishment of our country.

Few people are privy to the entirety of Alexander Hamilton’s contributions to the country. Not many know, for example, that he and George Washington first became acquainted after Hamilton impressed the rebel generals in the Revolutionary Way with the professionalism of his New York artillery company over several key battles. After accepting the position of aide-de-camp with the rank of Lieutenant Colonel, Hamilton became Washington’s key confidante. Even as he took on increasing amounts of responsibility in his service with the commander-in-chief of the Continental Army, Hamilton began exploring solutions for policy and administration, casting a critical eye on the Second Continental Congress and their limitations as a governing body.

Hamilton’s Federalist groundings came to be during this time. He believed that congress was overly preoccupied with the various state interests to function effectively. His next step of action was to contact Governor George Clinton of New York to express his views on how there was a great need for a strong central government, particularly if the nation hoped to ever become an international power. The contacts which he had established during his time as Washington’s aide-de-camp came to use as he called for changes to the current government.

The financial plan he outlined back in the 18th century—before he even truly held public office—sounds almost eerily familiar. To secure revenue, he recommended securing foreign loans, taxing businesses and farmers. He advocated an economy based on fiat money and creating a national bank which would act in a manner akin to competitive businesses and even explored ways of turning the national debt into an advantage.

After turning down two nominations for positions within the state assembly, Hamilton returned to the public eye after he wrote the charter for, and became a founding member of, the Bank of New York in 1784. Almost two years after signing the constitution, Hamilton was named the nation’s first Secretary of the Treasury. He became, in essence, responsible for steering the country from a crippling debt to a sustainable power capable of funding professional armies, encouraging growth, and achieving purchasing power. Hamilton followed through with several of the ideas which were mentioned before and exacted a tax on imports, or tariffs, as a means of accumulating some wealth and protecting domestic business interests.

Although all of his policymaking during his time as Secretary of State has impacted us today in one way or the other, the credit system he put into play is perhaps the most relevant to our current crisis. Interestingly enough, it was this facet of his fiscal reform package which helped the country become the international superpower it is today. Thanks to Hamilton’s support of a fluid paper currency, as opposed to landed wealth, investors began filling the treasury’s coffers. His vision of private wealth going towards beneficial public uses was being realized. Hamilton remained true to his Federalist ideals as his policies continued to encourage international trade and domestic industrialization, using the British as a model for success.

Most are familiar with the term bonds, but just to cover all of our bases, bonds are “A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used…to finance a variety of projects and activities” (Investopedia). In 1790, Hamilton submitted a report in support of public credit to Congress in which he stated that the country’s debt would be converted into interest bearing bonds which, after a predetermined amount of time, would mature, luring investors. Clearly, it was vital that the interests of the public creditors were aligned with those of the central government if Hamilton’s system was to work.

Eleven months later, Hamilton submitted a second report to Congress concerning established credit, though this time the central focus was the bank he had proposed. He had pushed for private ownership to prevent the corruption which was prevalent in the Bank of England. The purposes of such a bank, for example, included—but were not limited to—maintaining a uniform currency, lending money and investing in industry and private businesses, loaning money to the government, and acting as a safe store for the nation’s money.

Just when it seemed as if Hamilton had accounted for everything as he forced his agenda through Congress and President Washington, the young nation experienced a crash in 1792. Groups of speculators, with money loaned to them by banks, began to play the market. Their risky, and sometimes foolish and extravagant, practices finally caught up to them when the market crashed, bankrupting the speculators. As the securities began to lose value, Hamilton created the Sinking Fund Commission, which was responsible for purchasing government stocks.

Does this sound familiar? Well it should, because in 2008, Congress authorized the Treasury Department to spend $700 billion through the Emergency Economic Stabilization Act in an attempt to reverse the declining state of the U.S. economy at the time; this number has since been reduced to $475 billion (Bailout ProPublica). And in 2010, the Federal Open Market Committee of the central bank declared that it would buy $600 billion in mortgage-backed securities in an attempt to reverse the declining state of the U.S. economy at the time (MarketWatch).

 
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Posted by on April 5, 2011 in Economic History

 

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Economic History III: Seigniorage, Paying the Bills

Click here to be taken to Part I if you haven’t read the introduction.

There are several ways a government can finance its spending. One such method is to enact taxes upon the benefactors of the government’s services through both personal and business taxes, another is to sell government bonds to the public, and a third is to create money. Another term for printing money is seigniorage.

When the government prints a lot of money, they’re basically imposing an inflation tax upon all holders of currency. Due to the increased money supply, prices rise as money loses its value. A concise way of stating it is that this resulting inflation is like a tax on holding money (Mankiw, P.93).

Seigniorage accounts, on average, for less than 3% of America’s government revenue as opposed to other countries, especially those experiencing hyperinflation:

Source: Reid

But America didn’t always have private investors climbing over each other to loan the country money or purchase its bonds.  The 1775 Continental Congress found itself in dire straits as it explored different options for financing the Revolution. The French government, who was not particularly fond of Great Britain at the time, had lent some money to Congress, and some states had responded to the Congress’ requisitions upon the states, but even combined, this amount was not nearly sufficient (Woods).

John Witherspoon, a New Jersey clergyman and an official signee of the Declaration of the Independence, said this of the effects of the paper money in America, “For two or three years, we constantly saw and were informed of creditors running away from their debtors, and the debtors pursuing them in triumph, and paying them without mercy” (Woods). This is funny in retrospect, but one can only imagine the chaos of the time as people experienced their money losing value overnight. If only those creditors had held variable interest rates.

Wrap your mind around the actual amounts of newly issued continental currency over the years:

1775 $6 million
1776 $19 million
1777 $13 million
1778 $63 million
1779 $125 million

The continental dollar became nearly worthless as a result of this increased supply. It was thanks to Alexander Hamilton that Congress passed the Mint Act of 1792, which established gold and silver as the basis for the new system of commodity money (Mankiw, P.93). To read more about Alexander Hamilton, click here.

Sources:

  1. Mankiw, Gregory. Macroeconomics.
  2. Reid http://www.jstor.org/stable/pdfplus/2601207.pdf
  3. Woods, Thomas. http://mises.org/daily/2340
 
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Posted by on April 5, 2011 in Economic History

 

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Economic History II: The Great Depression, Fiscal Policy, and the Financial Crisis of 2007

The Great Depression, Fiscal Policy, and the Financial Crisis of 2007

Click here to be taken to Part I if you haven’t read the introduction.

To this day, the Great Depression (1929-1939) remains one of the most fascinating periods of study to historians, political scientists, and economists. Despite extensive studies, however, there remains much about this time period which yet eludes us.

This serious drag in the country’s economic performance can be attributed to several events, many of which are interrelated. To begin, there was the Stock Market Crash of 1929—a product of inflated confidence in the market through most of the 1920s—which led to an approximate loss of $40 billion. Incidentally, some of the banks had fallen prey to these very same traps and lost the money they themselves had invested into the stock market. These events led to subsequent bank failures all throughout the country as debtors became unable to repay their debts. Economic growth and recovery were essentially brought to a grinding halt as the surviving banks became more cautious in their lending practices, leading to reduced expenditures and a decreased money supply (Anari, P.676). This was, in essence, a crisis of confidence.

Consumer spending was in decline, which meant there was less demand for goods in general, which led to businesses decreasing factory inputs, spurring the country’s annual unemployment rates to new heights.

When peoples’ standards of living are at stake, they expect their government to step up and take action. It was no secret how the public was dissatisfied with the president, Herbert Hoover’s, performance as the shantytowns were referred to as Hoovervilles and the newspapers used to shelter the homeless from the cold Hoover Blankets.

Hoover’s unsuccessful policies ushered Franklin D. Roosevelt into the office of presidency, a position he would hold on to for 12 years. In contrast with his predecessor, Roosevelt wasted no time in enacting his New Deal Programs. Here are some examples of how his administration tackled the problem of the day:

  1. To counter unemployment:
    1. 1933, Public Works Administration (PWA). Large-scale public works projects. Six billion dollars. Airports, dams, aircraft carriers, schools, hospitals.
    2. 1933, Civilian Conservation Group (CCC). Public works projects.
    3. 1933, Civil Works Administration (CWA). High paying jobs in construction.
  2. To combat the housing crisis:
    1. 1933, Home Owner’s Loan Corporation (HOLC). Services to refinance homes. One million people received long term loans.
    2. 1934, Federal Housing Administration (FHA). Regulated mortgages and housing conditions.
  3. Poverty upon retirement:
    1. 1935, Social Security Act (SSA). Still active. Addresses poverty among retired, wage-earning senior citizens.

The list continues, but you get the point. Essentially, Roosevelt was a president of action and direct intervention and, as a result, his popularity soared. But how successful were his efforts? Did these programs help dig the country out of its dire situation, or can the recovery be attributed to something else? How does this compare to our current financial crisis and can we learn anything from this?

P. 676 Ali Anari

The above graphs indicate exactly how rough the times were. Industrial production hit an all time low due to a combination of decreased demand, money supply shocks, and the rise in unemployment rates (Anari, p.770). As is shown on the graph, the recovery from the Great Depression began around 1934 with the U.S. economy reaching new heights upon the country’s involvement in World War II, when the economy returned to full employment (Romer P.758).

Studies conducted on the recovery, however, suggest that the New Deal was not necessarily the engine of recovery itself, but as something which cleared the way for a natural recovery (Romer P.758). In fact, many postulate that the greatest result of these policies seems to be the resurging strength of the federal government.

So flash forward about 80 years to today’s current financial crisis. Can we link the effects of the aggregate-demand stimulus of the recovery from the Great Depression to the government bailouts in 2007 and the years following?

Definitely.

The Federal Reserve Board invoked the same authority it had invoked in 1932 to aid in the stabilization of firms through monetary aid, which allowed the Fed to rescue AIG through loans, a move which is controversial to this day (Posner, p.1613 and 1629). Through the Emergency Economic Stabilization Act of 2008, the Treasury was granted $700 billion to buy mortgage-related assets along with many additional powers to deal with the crisis (Posner, p.1614).  After the fall of the Lehman Brothers, the government “began pumping liquidity into the system at unprecedented levels” in the hopes of bolstering confidence in the markets (Bartlett, A25). The financial institutions receiving government aid include, but are not limited to, automakers, banks, saving associations, credit unions, insurance companies, etc. (Bartlett, p.1633).

The government did not stop there either. Immediately upon being elected into office, President Obama began working towards securing stimulus money, accomplishing this in early 2009 (NY Times, Economic Stimulus). But has the $819 billion stimulus package requested by President Obama and passed by Congress helped or hurt us? (Yourish, Washington Post). The following is a breakdown of the tax cuts and the program’s intended recipients:

Data from NY Times

Economists have reported that the administration’s actions led to a decrease in taxes for most Americans (NY Times, Economic Stimulus). In early May of 2009, however, it was estimated that the package fell short of the administration’s optimist forecast of unemployment peaking at 8.5% and was estimated to have saved only 150,000 jobs of the promised 600,000—unemployment surpassed 10% at one point but dropped to 9% in January 2011 (Bureau of Labor Statistics). Other benefits include an increase in the rate of home sales, tax cuts to small businesses, and increased infrastructure spending similar to Roosevelt’s plans.

Much like Roosevelt’s New Deal, perceptions of the stimulus package’s effectiveness are wide-ranging and many. It is almost universally agreed, however, that the government’s actions, while not insignificantly increasing the country’s deficit, helped stem some of the worst consequences of the crisis. Economic optimism and activity have increased in recent months but perhaps all that remains now is hoping that Adam Smith’s “Invisible Hand”, the argument that free enterprise and self-interest benefit society when transactions are voluntary to both parties, proves true and that the economy arrives at optimal levels of employment and economic prosperity (Narveson, p.201).

This is not an examination of which political party’s ideologies are correct, but more so an exploration into the effectiveness of policy in times of economic crises. My data is specific to the time period of the Great Depression and our most recent circumstances, so any conclusions I would come to would be moot in the grander scheme of things, but that does not mean that there isn’t much to learn from the subject matter I have brought to light.

 

Sources:

Anari, Ali. “Bank Asset Liquidation and the Propagation of the U.S. Great Depression.” The Wharton Financial Instiutions Center.

Bartlett, Bruce. The New York Times. “How to Get the Money Moving. Dec. 24, 2008.

Narveson, Jan. “The Invisible Hand.” Journal of Business Ethics, Vol. 46, No. 3.

The New York Times. “Economic Stimulus.” Times Topics. Dec 15, 2010.

Posner, Eric A. “Crisis Governance in the Administrative State: 9/11 and the Financial Meltdown of 2008.” The University of Chicago Law Review

Romer, Christina D. “What Ended the Great Depression?” National Bureau of Economic Research, Inc. .

Yourish. The Washington Post.

http://americanhistory.about.com/od/greatdepression/tp/new_deal_programs.htm

 


 
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Posted by on April 2, 2011 in Economic History

 

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Economic History I: Introduction

Why the Past and the Present Are Inextricably Linked

“Those who cannot learn from history are doomed to repeat it.” – George Santayana

Click here to be taken to Part II if you’ve already read the intro.

Over the last few years, the most pressing issue on the minds of Americans, and many without the country’s borders, is the uncertainty revolving around the state of the economy.



Source: Bureau of Labor Statistics, U.S. Department of Labor

With January’s unemployment rate at 9%, both graduate and undergraduate students are being pressured, both internally and externally, to look to more practical and secure academic pursuits. As a second-year at the University of California at Davis, a mere 15 miles from Sacramento, the state’s capital, I have witnessed this phenomenon firsthand many times over. As an Economics major, I must confess that I too have—and continue to—experience this pressure. With each lecture, I find myself questioning whether the subject matter of the day, week, month, or quarter will provide me with the tools to become a success in my field.

To fulfill the requirement of achieving an A.B. in Economics at UC Davis, all undergraduates must take at least one Economic History course, though additional courses may count towards other major requirements. As can be expected, especially in times of recession, the first question most of my peers ask is: “How is this class relevant? What am I going to learn in here that’s going to help me succeed?”

I would never myself, for example, challenge the practicality of Econometrics which factors in mathematical formulae, statistics, and economic concepts to create mathematical models in an attempt to determine the statistical significance of findings to describe economic systems. Thus it seems only natural for majors within the Economics department to lean towards these branches of study as opposed to Economic History.

Economic History encourages its disciples to find patterns in the sequence of past events which will prove useful in making day-to-day decisions, determining policy, and anticipating the future. Individuals should leverage all of the resources they have at hand in order to make informed decisions. Why would you overlook the events of the past in making such determinations?

What can we learn from the collapse of the Soviet Union? Were there events that foreshadowed its failure? Can we use our findings to help us determine the success or failure of other countries?

How did the Federal Reserve first come to be? How has it adapted to different crises and is it effective enough at its regulation and oversight duties to justify its existence?

Mission Statement: The goal of this series is to explore and link events of the past with modern day issues in order to gain insight into the topics/phenomena at hand as well as those we might expect in the future.

This series has benefited from the supervision of Dr. Janine Wilson at UC Davis.

Additional sources:

  1. http://freepages.history.rootsweb.ancestry.com/~cescott/economics.html
  2. http://www.federalreserve.gov/pubs/frseries/frseri.htm

 

 
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Posted by on April 2, 2011 in Economic History

 

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