Netflix is addictive. While working on the computer, I spent yesterday watching Seabiscuit twice - once with commentary and once without - and watching the special features, including a mini-documentary about the Seabiscuit's times, the Depression. Unenlightened self-interest has pretty much wrecked horse-racing, but if the current crop of self-styled "Progressives" has its way, we may soon get to relive the 30s economy.
(WARNING; The following links contain shameless self-promotion and extreme economic geekery. Follow at your own risk. The management assumes no liability.)
Even almost 80 years after the fact, we still don't fully understand the Great Depression. Still, economists now seem to be groping towards a multi-pronged consensus: 1) the Fed tightened money when banks were failing, 2) stubbornly high wages and 3) artificially high tariffs kept the costs of doing business up when they should have been falling. Amity Shlaes adds 4) uncertainty caused by incessant government "experimentation" with the economy as another leg.
When unions and union contracts keep wages artificially high, they discourage new hiring. The profit from increased sales doesn't match the cost of the new workers needed to get there. Further. businesses can't lower prices through economies of scale; and consumers don't have money coming into buy the stuff, anyway. This isn't just bad for workers, it's pretty much bad for everyone except union bosses, who can keep on collecting fat-cat salaries and perks, and spending their union dues on politicians devoted to, er, keeping wages high.
Now, you can offset some of this through incresed productivity. Unions don't much care for this, either, because they think that it costs jobs. It's only the very definition of economic progress, so you'd think "progressives" would be in favor of it, but next time you see one, ask how it is we've managed to keep everyone employed as the population has gone up 100 times in 200 years.
But if you've got tariffs in place, the incentive to invest in more efficient equipment and processes declines. Fifty-cent tariffs on Brazilian sugar ethanol mean that we can continue to produce expensive, inefficient corn-based ethanol to the point where we cause food riots in Mexico. Inefficiency makes it harder to ramp up production when you want to, and also artificually suppresses economic activity.
Combined, the two are deadly.
Fortunately, the Dems will only be in a position to repeat mistakes 2) and 3), while exacerbating 4) again as well. Unfortunately, that may well be enough to spread what should be a short recession over most of the next 10 years.
Last word to the brilliant Lileks:
Speaking as an utter amateur, I’m worried less about a recession than inflation. I’m worried most about a recession, inflation AND a jolly round of trade wars, coupled with fragile banks, overcapacity, diminished consumer confidence and aggressive messianic collectivism. Something about that smells familiar. I love studying the thirties and forties, but not first hand.
*Sigh*
Progressively more restrictive. Progressively more expensive. Progressively more intrusive.
Progressively more...reactionary.
