Aftershocks

My friend Jeff sent me a nice article about how the current economic situation resembles 1937-38; so I thought I’d write an article about it.

Basically, it says that when the economy started to upswing, just like now, everybody started to freak out about the national debt we were wracking up, so they increased taxes and cut programs, just like the Republicans and Democrats are fighting about now. Scary stuff, because in doing so they threw the country back into recession.

The Nobel-prize winning economist Milton Friedman blamed the Fed and the contraction in the money supply in his epic β€œMonetary History of the U.S.” And the stock market itself may have been a culprit, falling so steeply that it wiped out the wealth effect of rising prices, undermined confidence and brought back painful memories of the crash. But taken together, they suggest that policy makers moved too quickly to withdraw government support for the economy.

So that’s cool; it’s important to learn from our past mistakes–we should definitely pay attention to what happened before. (What’s the Churchill quote? “If we do not study history we are doomed to repeat it.”) But as we look at what the Tibetans call the tun kyens–the surrounding conditions–as always, we ask, is that the cause?

For example, would it be possible for the government to raise taxes and not through us back into recession? Sure, it’s possible. How would that work? Because I have a generous state of mind, and I think about how my taxes can help others, the result is that the economy improves.

As I’ve written before, what’s the way out of the debt crisis? Wanting to pay back my debts, because I don’t want the mental seeds in my mind of stealing.

What’s the proof? Raising taxes hasn’t got Greece out of trouble; it seems to have worsened it. (Or maybe not. Time will tell.) But there is a point where it’s beneficial to increase taxes. At least theoretically.

So what should we do? Study our history, educate ourselves on what are our best options, but first: plant seeds.

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12 Responses to Aftershocks

  1. iggy says:

    George Santayana. Not Churchill.

  2. iggy says:

    tax the rich and no off-shore tax havens for U.S. Corporations. And jail the bankers.

  3. Patrick McGinn says:

    Plant the seeds and chill. Keep the hatred and worry out of the equation and keep being generous. Thanks for the article.

  4. iggy says:

    “Those who cannot remember the past are doomed to repeat it.” -G.S. Scribner’s 1905

  5. Paul says:

    Sometimes history has positive examples to learn from as well. After WWI, there was depression in 1920-21 that has become almost forgotten because it was barely a blip. Perhaps the remedy is one not easily digestible: do nothing. Encouraging spending and consumption does not seem like a wise method for solving the problem of debt. If you plant the same seed, you will get the same result. The difference between 1920 and the Great Depression is that the latter choose ‘stimulus’ instead of savings. Unfortunately we are doing the same today.

    Maybe what we need is a little more renunciation?

    • ericbrinkman says:

      Dear Paul,

      Thanks for pointing this out. Of course, on a seed level, the solution to all financial problems is to plant seeds for giving. In that sense, you could say the problems in all cases in personal consumption–when we only think of ourselves, and just consume, the economy fails. When we “spend” to help others, then our economy will succeed.

      If you want to look at tun kyens–the conditions surrounding a result, which we have to be careful to remember, are not causes–then the condition that is different in this economic crisis that many economists and almost all politicians are avoiding is the influence of China on global markets. China is not playing by our rules–they can set prices and “fix” markets for their (short-) term benefit. They are buying dollars to keep down the RMB so that they can continue to under-cut other markets in manufacturing.

      The effect this–the #2 economy in the world fixing prices–was to artificially raise the value of the dollar–leading us to all believe that a golden age was upon us. Banks are giving away paper money that isn’t worth what the markets are trading it at, because again, it was artificially stimulated. So what no one wants to accept is that it’s not that US markets have crashed–instead, what has happened is that we have moved towards the real value of our markets. No resurgence in US markets is predictable, because we were just riding on an artificial bubble created by Chinese spending. Economists are already predicting when China’s economy will pass the US.

      Unless we plant some different seeds…

  6. Paul says:

    Thanks for the response Eric. In terms of seeds, I completely agree. Consumption and greed planted the seeds for the current situation, and we must stop planting more of those seeds. Giving is THE seed to plant in order to escape financial grief in the future. But I think it’s important to make sure that we are giving from our own individual means. Giving someone else’s money would be theft rather than generosity – which is precisely what we do today and what we did in the depression.

    Blaming China, as many politicians and economists are want to do, is a perfect example of a country mistaking outside forces for the problems created by itself. The much larger problem is US fixing of prices, interest, and manipulating currencies on a world-wide scale for the last 40 years. The RMB is a minor currency, while the US Dollar is the reserve standard of the world, affecting the entire global economy. If it were true that Chinese inflation were driving up the value of the US Dollar in real terms, it should actually drive down prices rather than create a bubble in things like Real Estate (Higher Dollar value means a lower asset value). The bubble was created by the US, inflating it’s own currency and stimulating the housing market (giving with other people’s money), long before the Chinese had an economy of any reasonable size. Both countries are involved in the same thing today. The price of the RMB is a relative indicator. If you measure the value of the Dollar to Gold or commodities, you find that the US is engaged in the same currency manipulation for decades, which has actually destroyed the manufacturing sector and is killing local purchasing power. Inflation is a form of theft, which is certainly a seed for destroying an economy.

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