A Depression that Should Not Be Forgotten

 | 

I liked The Forgotten Depression but did not love it.

Its subject is the depression of 1921 — a valuable subject because, as the author indicates, the depression went away without massive government intervention. Imagine that.

The author's brief history of the problems some big banks got into, in the late 1800s and early 1900s, is excellent. Grant shows how the principals of the banks had their own fortunes tied up in the banks’ capital, which usually kept them prudent. Still, they made mistakes. For instance, National City Bank (“forerunner of today’s Citigroup” p. 18) for instance, invested in Tsarist Russia — just before the Bolshevik revolution. The firm had over 60% of its capital tied up in sugar investments in Cuba, when prices were high, then crashed. Guarantee Trust, another huge bank of the time, was considered "too big to fail," almost a hundred years before our present policies on that subject.

The author aptly characterizes the 1920–21 depression as the last major downturn to be "un-medicated" (by government stimulus policies), and makes telling comparisons with the activist Herbert Hoover and Franklin Roosevelt administrations. Notably, the earlier depression was of short duration, while the “medicated” depression of the 1930s and the recent Great Recession went on and on. Grant’s discussions of the various economists, bankers, and policy makers involved in the problems of the 1920s are challenges to today’s economists, policy makers, and historians.

Meanwhile, Grant adds texture and depth to his story with descriptions of the difficulties suffered by the various sectors of the economy during the Forgotten Depression: farming, steel production, the auto industry, construction, and even haberdashers (including one very famous and resentfully unsuccessful one). But be prepared for a massive amount and variety of statistics about earnings and losses, interest rates, unemployment rates, sales rates and amounts, etc., etc. The author is an expert who knows how to deal with statistics. His writing is not nearly as dry as it could be.

Notably, this earlier depression was of short duration, while the “medicated” depression of the 1930s and the recent Great Recession went on and on.

He is also basically sound on substantive economic issues. He provides a good explanation of the classic gold standard up to the 1920-21 depression, and then of the fake "gold exchange" standard thereafter. He understands market forces and government intrusions and distortions. His description of the anti-business, anti-market biases, or ideology, of the key figures in the Woodrow Wilson administration is appropriately sickening.

Unfortunately, Grant’s presentation of basic business-cycle theory is lacking, save for a discussion of people who believe in the market vs. people who think government competent to force “solutions” on it. His explanations of how government coercion usually has unfavorable, unforeseen, and mostly unacknowledged repercussions is good, but probably not good enough to convince those who believe in such things.

Two other matters need to be mentioned.

First, the book has a section called Acknowledgements, which is more like a bibliographic essay. I liked this section very much. It is moderately short, fun, and informative to read, and it gives a great commentary on Grant’s main sources, some of which I highly recommend. The Great Depression sources, which he uses to excellent effect throughout the book, are very important

Second, the "hero" of Grant’s story is wonderful. But I won’t give it away. It’s in the book.


Editor's Note: Review of "The Forgotten Depression: 1921: The Crash that Cured Itself," by James Grant. Simon & Schuster, 2014, 272 pages.



Share This


Enron, Solyndra, and Double Standards

 | 

In the wake of the Solyndra debacle, no less than the head of the Solar Energy Industries Association — one Rhone Resch — opined, “It’s going to be very similar to Enron’s legacy in the oil and gas industry” (though he quickly added, “Just in the sense of a history that flared out fairly quickly and fairly publicly”). Enron, we all recall, was the energy company that hit the wall after misleading investors with fraudulent financial reports.

Pace Resch, I think that the comparison between Solyndra and Enron is a false analogy. It overlooks their salient differences. First and foremost, when Enron went bust, it didn’t burn the American taxpayer, which Solyndra most assuredly did. It had nearly a half billion bucks in guaranteed loans, which the taxpayer must now cover.

Second, while Solyndra’s CEO was a major supporter of Obama, as Enron’s was of Bush, when Enron’s CEO called the White House for help, he got none; but when Solyndra’s head called his buddy in the White House, he got plenty.

Third, the mainstream media trumpeted the Enron fiasco for months, using it as a handy cudgel with which to bash Bush; but the media have been virtually silent about the Solyndra mess, even in the face of the Solyndra execs pleading the Fifth before a congressional committee trying to investigate the mess.

Fourth, it is doubtful that Hollywood will make a movie about Solyndra, as it did with Enron (The Smartest Guys in the Room), indicting both the industry and the president. The Green neo-socialists — aka Watermelons — are much too worshipful of both the solar industry and Obama.




Share This


Being Green Is Not a Sign of Health

 | 

There are two new reports in the Wall Street Journal about flops in the green energy movement — further illustrations of how much hype there is in it.

The first (Jan. 19) reveals that the vaunted new “amazingly energy efficient,” compact fluorescent light bulbs aren’t so energy efficient after all.

Pushing the hapless consumer to replace incandescent bulbs with CFLs (compact fluorescent lamps) has been the received wisdom among lawmakers for years, and no more so than in California, the ever-green state. California’s utilities alone spent $548 million over the past seven years in CFL subsidies. In fact, California utilities have subsidized over 100 million CFLs since 2006. And on the first of this year, the state started phasing out incandescent bulb sales.

Of course, when I say that the California utilities have been subsidizing the CFLs, I really should say that the aforementioned hapless consumers have been doing so, because all the subsidy money — about $2.70 out of the actual $4.00 cost of the CFL, i.e., more than two thirds of the actual cost — is paid by the consumer in the form of higher utility rates.

Naturally, the rest of the country — and, for that matter, the world — is set to follow California’s lead on CFLs. A federal law effective January 1 of next year will require a 28% step-up in efficiency for incandescent bulbs, and bans them outright by 2014. One consequence of this federal policy — unintended, perhaps, but none the less foreseeable — is that the last US plant making incandescent bulbs has been shut down, and China (which now makes all the CFLs) has seen even more of a jobs expansion, and is able to buy even more of our debt.

The UN is also pushing CFLs to help solve global warming, estimating that about 8% of all greenhouse gas emissions worldwide are caused by lighting. The World Bank has been funding the distribution of CFLs in poorer nations. Last year, for example, Bangladesh gave away five million World Bank funded CFLs in one day.

But now — surprise! — California has discovered that the actual energy savings of switching to CFLs were nowhere near what was originally estimated. Pacific Gas and Electric, which in 2006 set up the biggest subsidy fund for CFLs, found that its actual savings from the CFL program were collectively about 450 million kilowatt hours, which is only about one-fourth of the original estimate.

There are several reasons for the fact the switch to CFLs hasn’t lived up to expectations. First, not as many of the heavily subsidized CFLs were sold as originally estimated. PG & E doesn’t say why, but I will hazard a guess, based on personal experience. Many consumers dislike the light produced by CFLs, which they find dimmer or more artificial in its effect. Also, many complain that lights create static in AM radio reception. In a free market (i.e., one that, among other things, contains no subsidies), it is likely that few consumers would want to switch.

Surprise! — California has discovered that the actual energy savings of switching to compact fluorescent lamps were nowhere near what was originally estimated.

Second, the useful life of the CFLs is less than 70% of original estimates. Amazingly, the estimates were based on tests that didn’t factor in the actual frequency with which consumers turn them on and off. CFLs burn out more quickly the more often they are turned on and off than do the old incandescent bulbs.

Not mentioned in the story is the fact that CFLs contain mercury, and so are supposed to be specially disposed of (which presents an added cost to the consumer in time, money, and energy). The alternative is for the consumer to throw them out in the regular trash, making toxic waste sites out of ordinary trash dumps, with future clean-up costs of God only knows what.

The second Journal story (Jan. 18) reports that Evergreen Solar has closed its Massachusetts plant and laid off all the workers there.

This is deliciously ironic. Evergreen Solar was the darling of Massachusetts. Governor Deval Patrick, devout green and all-around Obama Mini-Me, gave Evergreen a package of $58 million in tax incentives, grants, and other handouts to open a solar panel plant there. In doing so, he simply ignored Evergreen’s lousy track record — a record of losing nearly $700 million bucks in its short life (its IPO was in 2000), despite lavish subsidies from federal and state governments.

Now Evergreen is outsourcing its operations, blaming competition with China, and whining like a bitchslapped baby about China’s subsidies of its solar energy and its lower labor costs. But Evergreen has itself sucked up ludicrously lavish subsidies, and it knew all along about China’s labor rates compared to Massachusetts’.

So Patrick winds up looking like a complete ass, and the taxpayers of Massachusetts wind up eating a massive loss.

But that’s not all. Near the end of last year, the Journal (Dec. 20) revealed still another case of American crony capitalism, of the green sort. It turns out that the wind industry — aptly dubbed “Big Wind” — copped a one-year, $3 billion extension of government support for wind power. It was part of the end-of-2010 tax deal.

Originally, this government subsidy was a feature of the infamous 2008 stimulus bill, under which taxpayers were forced to cover 30% of the costs of wind power projects. The American Wind Energy Association (AWEA) begged for the subsequent bailout, because without it 20,000 wind power jobs would be lost (one-fourth of all such jobs in America). But despite the billions in subsidies, Big Wind is sucking wind; its allure is dropping like a stone. The AWEA’s own figures show a 72% decline in wind turbine installations from 2009, down to the lowest since 2006.

Besides trying to make the 30% subsidy(!) permanent, the AWEA is pushing for a national “renewable energy” mandate that will force utilities to buy a large chunk of the power they sell from renewable sources (mainly solar and wind), irrespective of the fact that the price of renewable energy is sky high. The association has gotten more than half the states to enact such mandates, with higher energy bills for consumers as the result. Not surprisingly, Big Wind is also pushing the EPA to make energy from fossil fuels vastly more costly.

According to the federal government’s own figures, wind and solar take 20 times the subsidy to produce electricity than do coal and natural gas. So you can see why Big Wind keeps blowing smoke up the public’s rear about the fabulous future of renewable energy. You can also see why Big Wind is such a big contributor to the campaign coffers of Democratic politicians. They are the only ones who keep this outrageous boondoggle awash in money.

Meanwhile, the promises of green energy look more and more hollow, every day.




Share This


Hat Trick

 | 




Share This


Your Recovery Dollars at Work

 | 

About three months ago, a curious sign appeared at one end of my street. It reads, “Putting America to Work. Project Funded by the American Recovery and Reinvestment Act.” It depicts a hard-hat-wearing stick figure digging into a pile of dirt — as if this jaunty cartoon of a “shovel-ready” project would soothe my anger at the wealth confiscation that funds such ridiculous endeavors.

Not much goes on in my small, East Coast rural enclave. The acquisition of “city” sewage by the nearest two towns was a big deal around here. So the government sign was the talk of our street. There was no explanation of why the sign appeared, no explanation of what project was in the offing. This was strange.

Then, roughly two weeks after the sign was erected, road crews appeared on both ends of our street and started tearing up the asphalt. The re-paving project was completed two weeks later.

Some neighbors speculated that the project was inflicted on us to predispose us to vote Democratic in the upcoming local election. But elections here are the smallest of small potatoes. It wasn't logical that federal funds would be spent to influence local voting. One neighbor speculated that the road was being prepared for a utility development set to occur in the next few years; but another road is slated to be built specifically for that purpose, at the opposite end of the nearest big town. None of us could come up with a reasonable answer. I suppose I could have attended a township meeting to divine the reasons behind this project, but I don’t have the time to waste and it’s highly unlikely that the simple folk, and by that I mean simpletons, who make up the township committee would have a credible answer.

As I said, this is a rural area. Roads need only be passable  — pickup trucks and tractors do just fine. Given that my street is only one section of a decently long through road, this paving project does not qualify as a “road to nowhere”; but it is very strange that the project was limited to one section of the road. Even stranger, there was nothing wrong with this part of the road in the first place. Nary a pothole! There is no meaningful difference between the street in its pre-recovery- dollars condition and the street in its post-recovery-dollars state. The road is now black. It used to be to gray.

In short, the project was a colossal waste of money. The dollars devoted to it should not have been printed, let alone spent. The workers involved in it did not achieve sustainable employment; they simply received unemployment subsidies by another name. No one was “put to work” in the sense that the designers of the Recovery Act intended the populace to believe.

Increased employment results from increased demand for goods and services. Allowing taxpayers to keep the majority of our dollars is the best option for “Recovery and Reinvestment” in all areas. Greater disposable income spurs demand as well as mitigating the risk of investment in small ventures. A person can spend his or her own dollars on any number of goods or endeavors that would contribute to sustained economic activity. More dollars in the hands of the citizenry will “put more people to work” than dollars in the hands of government ever will.

The first step to an actual recovery is limiting government spending. How do we achieve this?

We can apply my friend’s sound advice on dealing with young children: give them only very limited options. For example, instead of asking, “Where would you like to go for your birthday dinner?” ask, “For your birthday dinner, would you like to go to Friendly’s or McDonald’s?” Young children are ill-equipped to handle unlimited discretion. Governments are too.

With the country in its present mood, severely limiting government’s spending discretion is an attractive and realizable goal. We already have the set of tools necessary to do this. It’s called the Constitution.




Share This


Stimulate This

 | 

As stories pile up about how the money from Obama’s massive stimulus bill was spent, it is becoming clear why the money stimulated few jobs. Two recent stories illustrate this.

First is the report from Randolph, Massachusetts, on how that city spent $4.6 million in scarce taxpayer dollars from the stimulus funds.

The lucky district took its windfall cash and repaired — a horse bridge! Yes, the horseshit project connected two parts of the 238-acre “Blue Hills Reservation,” making it easier for horseback riders and pedestrians to wander freely therein.

An owner of a local equestrian center was of course delighted at this pork project: “I was psyched. I thought, Whoo-hoo, new bridge!” Her defense — standard for anyone who has never read Bastiat — was, “How many other misappropriations have been given through the state for financial funding?” In other words, it benefits me, and the state has approved other senseless projects, so what’s the big deal?

A local bureaucrat, one Wendy Fox, spokesperson for the Massachusetts Department of Conservation and Recreation, said that the bridge was popular and often used, though she couldn’t give any numbers. The horses on the farm on one side of the bridge total 30, and those on the other side total 20  — which averages about $92,000 per horse to build the bridge.

Then there is the happy news that nearly 90,000 people who got “stimulus payments” were either prisoners or . . . corpses. The thinking must have been that the cash would go beyond stimulation and into the realm of resurrection.

Yes, 72,000 stimulus checks (each for $250 of loot stolen from taxpayers) went to deceased people, in anticipation of one last blast. Seventeen thousand more payments were sent to prison inmates. And only about half the money has been returned.

Your tax dollars at work.




Share This
Syndicate content

© Copyright 2017 Liberty Foundation. All rights reserved.



Opinions expressed in Liberty are those of the authors and not necessarily those of the Liberty Foundation.

All letters to the editor are assumed to be for publication unless otherwise indicated.