People trying to draw analogies with the #GreatDepression, wartime, or 70s stagflation are missing the point IMHO 1/x
GD was a ‘sudden-stop’ shock which ended the credit-boom lending to Weimar as the Young Plan looked in jeopardy. Made worse by politics (war debts, etc), #protectionism (Smoot-Hawley), Hoover call to maintain wage-rates, #FX chaos (esp. when Brits left #gold standard) 2/x
The initial slump & ‘secondary (financial vicious cycle) depression’ then perpetuated by #NewDeal boondoggle vote-buying, #FDR capriciousness, & Brain Trust cranks. This was much more a post-#GFC parallel than today’s #ContaminoBay #lockdown 3/x
Wartime, too, falls short even if we can see close parallels in Pitt’s suspension of convertibility, Lincoln’s #greenback adoption (#MMT when it actually WAS almost modern), and the WWI #Reichsbank 4/x
But war beats ploughshares into swords: it doesn’t shut half the nation’s factories. Excess money creation partly mopped up in war bonds; partly frozen by rationing. Unused liquidity builds up and tends to explode in an #inflation after hostilites cease, until supply adjusts 5/x
A closer analogy would be a siege, or the sort of blockade the Germans endured 14-18. We must tighten belts and make do with shrunken productive possibilities, living off government hand-outs - this time partly in the form of loans, not commissary chits 6/x
For now, we have to allow for the partial (if substantial) loss of income but, at some point, state dole & spending will inevitably impinge on lower provision of goods (higher prices if, as ever, selective ones) 7/x
Once released from confinement, questions: will the #Fed sell its extraordinary purchases back to now reassured savers/investors (& speculators)? Will businesses have to devote some part of earnings to paying back their loans (unfair, in that shutdown not their fault but - 8/x
- somebody, somewhere is going to have to bear the loss of wealth and the more transparently that is done, the fewer the damaging side-effects of financial legerdemain)? This boils down to how much of the vast extra monies created (which SOMEBODY holds) will be spent - 9/x
- as soon as the opportunity again arises and how much will be safely retired in paying down debt?
NB to the extent that latter occurs in a oriductive machinery restored to a semblance of working order, Say’s Law will function, warding off the worst side-effects 10/x
NB to the extent that latter occurs in a oriductive machinery restored to a semblance of working order, Say’s Law will function, warding off the worst side-effects 10/x
A radical programme of ‘Auflockerung’ - deregulation, bonfire of red tape, streamlined govt, pro-#entrepreneurial policies - would greatly help the healing. Sadly, we’re more likely to get more in the way of Autostrada-Roosevelt #Green boondoggle politicking instead. 11/x
So, we could get out poorer but not permanently impaired, but there are few Erhards in the Treasuries & Finmins and no #centralbank with the vision and courage to retreat back into its box. We must therefore fear the worst. 12/x
PS Demographics a red herring: some of us think ageing populations are inflationary (fewer workers + capital consumption), while this idea that the experience will teach people to live more within their means is a highly dubious proposition. Fin de siecle hedonism as likely. 13/x
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