[southernmissouri2007]

Are recessions/depressions natural in a economy ? If the United States of America had always had tax cuts and lower taxes and or even no income tax or a flat tax would we still have recessions/depressions in our economy ? Taxes were low during the 1920's but there was still a recession therefor my question is are they natural in a economy ?



http://en.wikipedia.org/wiki/Depression ... E2%80%9321

[Paradigm]

They are a natural part of capitalism, which is based on the competitive pursuit of surplus value. It is precisely this instability that makes capitalism "progressive" in the Marxist sense of the term. It must continue to evolve in order to survive. Previous modes of production were much more conservative, in the sense that they sought to maintain an existing social order. They did not experience what we would tend to think of as recessions, because the way employment and profit operate under capitalism didn't apply back then.

[mikema63]

or you could go libertarian and blame inflation warping the prices of interest rates simulating a change in time preferences that cause entrapanuers to make malinvestments and reducing peoples savings (reducing their time preference while investors perceive an increase) so that the malinvestments created by inflation are worse.

then it goes kablooie when the investments go bad when consumers reasert their time preferences onto interest rates. thus inflation must be increased (putting the problem off till later but making it worse) or the bad investments are allowed to be liquidated causing short run problems (recession).

[Paradigm]

or you could go libertarian and blame inflation warping the prices of interest rates simulating a change in time preferences that cause entrapanuers to make malinvestments and reducing peoples savings (reducing their time preference while investors perceive an increase) so that the malinvestments created by inflation are worse.

then it goes kablooie when the investments go bad when consumers reasert their time preferences onto interest rates. thus inflation must be increased (putting the problem off till later but making it worse) or the bad investments are allowed to be liquidated causing short run problems (recession).

The problem with this is that recessions and depressions occurred with the same regularity when we were on a gold standard and had no central bank.

[mikema63]

the central bank isn't the only way money can be inflated

[Paradigm]

the central bank isn't the only way money can be inflated

But we're also talking about a time when we were on a gold standard. I thought this was precisely the arrangement you guys advocated. Can you point to some policy that you think caused inflation during this time, which you libertarians would do differently?

[mikema63]

it depends on the time period, give me a reccesion and ill do some looking for you.

as to the gold standard ive been leaning more towards free banking as of late. it seems to allow commodities to compete in the system as well which i think gives people a good range of options.

when people say a gold standard they usually mean gold backed dollars but i dont think thats such a good idea.

[Nunt]

But we're also talking about a time when we were on a gold standard. I thought this was precisely the arrangement you guys advocated. Can you point to some policy that you think caused inflation during this time, which you libertarians would do differently?

While central bank interest manipulation is a cause of recessions, it is not the only cause. Even in a gold standard recessions can occur according the Hayek's theory. For example, Hayek also discussed how private banks can expand and contract the money supply in a fractional reserve system. They can do this by lowering their money reserves and lending more. This would expand the money supply and have the same effects as central bank manipulation.

Other factors can also influence the amount of money. Large gold imports from the New World (not so likely now). Or protectionist trade practices aimed at hoarding gold.

Furthermore, money increases were often caused by expensive wars. Both during the American civil war and the first world war, governments used inflation to fund war expenses. Even though at the time they were still officially using the gold standard. When the war is over, you still have a lot of money circulating your economy that can create the next bubble. The British government having inflated much during the first world war, insisted on going back to the gold standard at pre-war parity. This means that during the interbellum, the Pound wasn't really in a gold standard since not all Pounds were covered by gold. Which means the country was rapidly loosing gold and having too high prices.

Non Austrian explanations may also on occusion by accurate descriptions of a recession. Say crop failures or 9/11.

[Eran]

I should add that the American banking industry in the 19th century was highly regulated.

State banks were typically restricted to a single branch, prohibiting diversification and thereby making panics much more common.

Still, before the age of massive government interventions beginning in 1929, recessions tended to be very brief, with recovery back to long-term growth trendline typically taking place within 1-2 years.

In fact, there is a clear inverse relation between degree of government intervention and length of the recession, with FDR policies extending the 1929 recession to over 10 years. Who knows how long Obama's policies will stretch the current one?

[Rich]

Still, before the age of massive government interventions beginning in 1929, recessions tended to be very brief, with recovery back to long-term growth trendline typically taking place within 1-2 years.

In fact, there is a clear inverse relation between degree of government intervention and length of the recession, with FDR policies extending the 1929 recession to over 10 years. Who knows how long Obama's policies will stretch the current one?

Oh really? So what about the recessions in the fifties and sixties when Keynesian was dominant. Even the early seventies recession had a quick recovery. Are you arguing that government intervention in Britain and America was minimal. I agree that Roosevelt's policies were particularly inept and I'm in favour of monetary expansion rather than fiscal deficit expansion to boost demand but I see nothing to support your allegation accept wishful thinking. The most successful major economy in history of course is China. No free market utopia.

[Eran]

The most successful major economy in history of course is China.

It is much easier to sustain strong growth when you play technological catch-up. China is still much poorer (per person) than any western nation.