Historical references & the economy

It's become trendy among economic alarmists to label the recess- er... well, slowdown as the next "Great Depression." Such complaints are generally followed with complaints about the economic policies of George W. Bush and a desire for the Democrats more left wing economic policies to save us from complete doom.

This can be rather amusing for several reasons. I will now resort to a Q&A format for purposes of my own amusement.

Why is it amusing at all? Weren't government interventions an important response to the Great Depression and unchecked capitalism?
Well, yes, but that doesn't mean all forms of government intervention are beneficial. For example, banning the charging of interest. Obviously nobody is proposing this (outside of Al Qaeda), but you get the general idea: if lack of intervention causes something bad, only some form of intervention make it better. Returning to the Great Depression idea - Keynesian economics dictate that during a recession, consumption (Demand) should increase. How do you do this? Well, you cut taxes and increase government spending. This is exactly what George W. Bush is doing and has done.

But isn't the deficit bad?
Why yes, it is, but if we're talking about avoiding the Great Depression it's rather irrelevant. If you really want to avoid a recession, Keynesian theory dictates you spend tons of money and have unfunded tax cuts. You know who responded to a recession by raising taxes and committing to balancing the budget (and protecting American jobs via trade restrictions)? Herbert Hoover. Seriously.

Obama wants to cut taxes for the middle class and increase them for the rich. Why can't that work?
Well, what taxes would you increase? Maybe you could get away with increasing just income taxes for the rich without worsening a recession, but the evidence is pretty shaky. More importantly, if you want to really tank the stock market, doing things like increasing capital gains taxes, corporate taxes, etc. during a period of economic volatility are good starts.

Well, surely you must agree that more regulation is necessary!
Yes, but that doesn't actually improve the immediate economic situation any more than putting on body armor is a way to improve a sucking chest wound. Increasing regulation on banks, the stock market, real estate, or whatever is not going to increase growth. It might protect us from befalling the same fate later, though that is dubious as well. So this aspect of the [opposite of GWB policy = recession doesn't turn into a depression] thing is pretty irrelevant.

But unchecked capitalism caused all this mess, right? Just like the Depression?
Well, see link in previous post. It caused it, but that doesn't mean checking it solves it. Also, the idea that unchecked capitalism is the only cause of the Great Depression is a gross oversimplification. Unchecked capitalism was the cause of the 1929 Stock Market Crash, but we have those all the time. The Hawley-Smoot Tariff, Hoover's tax increases, and the Federal Reserve contracting the money supply all contributed to turning a recession into the Depression.

Fine then, how about some constructive commentary then?
Firstly, a Second Great Depression is not inevitable. Secondly, if the economy looks worse or actually slips into a recession, wait until it gets better to raise taxes. Be intelligent about regulation - do not exacerbate the credit crunch. Don't try and "protect American jobs" by complicating trade liberalization. Finally, allow new appointments to the Federal Reserve, even if you think the one nominating them is Satan.

So, you know that Amity Shales came up with half these points in like, March, right?
Yes, or, I do now. Fact-checking your blog posts afterwards is a fabulous way to deflate your ego. Also, sometimes two snowflakes are alike.