Ex Fed Vice Chair Blinder on the Great Depression vs the Great Recession: Are We as Doomed Now as we Were Then?

pic credit: Adam Koford's Laugh-Out-Loud Cats
(it should actually be
"I's on teh ceiling, fuxin wit ur persepshuns"
but who is keeping track?)

I preface this post by saying that I, unlike the man with whom I share a birthday (Fed Chairman Zimbabwe Ben Bernanke), am no student of the Great Depression. I was not alive to see it (hell, I wasn't even alive to see Paul Volcker bitch slap inflation when Jheri Curl was still cool) so I can't report on the happenings and have a slight suspicion that what I was taught throughout my public school career cannot possibly be an entirely accurate representation of what actually occurred.

That being said, Alan Blinder is old enough that he should really know better. Granted, he wasn't really around to witness it firsthand either but he's old enough that he should recall what it felt like to grow up in the post-apocalyptic world left in the Depression's wake.

Blinder is also an ex Fed Vice Chairman so you would do yourself well to ignore the man behind the curtain and just watch his eye twitch when he speaks. Oh snap! He's also the madmoneyscientist behind the "Cash for Clunkers" scheme which seemed like a bad idea at the time and still does. Sorry, it's just so stupid that I refuse to bother to put together an intelligent sentence criticizing it.

In a recent New York Times feature, Blinder capitulates on the all-important comparison between current events and Ben Bernanke's obsession. That's all well and good, and as I said, being 28 years old with a typical Millennial disregard for "history" on top of the distorted foundation laid by public school education (Abraham Lincoln freed the slaves out of the goodness of his heart? My ass he did), I am probably in no position to question Blinder's education on the matter. But if the article is any indication (add this to his Fed credentials, of course), the guy is misguided to say the least. I'd go so far as to say he's an idiot but I don't think it is appropriate for one to call a Princeton economics professor an idiot. Oh wait! We do that all the time to Zimbabwe Ben! Please disregard.

Alan Blinder on the Great Depression, the geniuses in charge, and Ben Bernanke's lifelong training mission for The Great Depression: The Sequel:

Contrary to what you may have heard from some doomsayers, 2009 is not 1930 redux. What we must guard against, instead, is 2010 or 2011 becoming another 1936.

Realistically, there is little danger that the economy is heading toward a repeat performance of the Great Depression — when real gross domestic product in the United States declined 27 percent and unemployment soared to 25 percent. What we have is bad enough: our worst recession since the 1930s. But unless our leaders behave unbelievably foolishly, we will not repeat the tragic slide into the abyss of 1930 to 1933 — for two main reasons.

Hold it right there, Blinder. "[U]nless our leaders behave unbelievably foolishly, we will not repeat the tragic slide into the abyss of 1930 to 1933" - so that right there means we are pretty much screwed at this point. Glad we cleared that up.

Let us continue with Blinder's Bernanke reach-around - make sure you get all up on his nuts while you're down there, Alan, don't miss a spot.

First, our economy has many built-in safeguards that did not exist back then — like unemployment insurance, Social Security and federal deposit insurance, to name just three. These programs serve as safety nets that cushion the fall. And while they are certainly not strong enough to prevent recessions, they should be enough to prevent another depression.

The more important reason is that Barack Obama, Timothy F. Geithner and Ben S. Bernanke are not Herbert Hoover, Andrew Mellon and Eugene Meyer. (Who’s that? Mr. Meyer was the Federal Reserve chairman from September 1930 to May 1933.) In stark contrast to the laissez-faire crowd that ruled the roost in 1930 and 1931, our current economic leaders are not waiting for the sagging economy to right itself. Rather, they have taken numerous extraordinary steps already — and stand ready to do more if necessary.

As asked in an alternate interpretation of Blinder's article, what laissez-faire crowd are we referring to? I might argue here that Blinder has again contradicted himself in admitting that the current cast of idiots are choosing interference over natural market correction. Though this method has proved to be dangerous if not fatal to any chance at economic recovery (in case you missed it, we are worse off with stimulus now than we were told we would be without it), they continue to exercise it with blatant disregard for the consequences of their reckless behavior. Print, print, print; now that sounds like a wonderful solution!

If you’ve been paying attention, you know that a number of critics of the Fed are sounding alarms over the huge stockpile of excess reserves it has created — more than $775 billion at last count. What these critics are fretting about now is exactly what goaded the Fed into action in 1936: that the vast pool of loose money will ultimately be inflationary. The clear inference is that some of it should be withdrawn before it’s too late.

On the fiscal side, many of President Obama’s critics are complaining vociferously about the huge federal budget deficits. Try to ignore, if you can, the sheer hypocrisy of many Congressional Republicans who, having never uttered a peep about the huge deficits under George W. Bush, are suddenly models of budget probity.

Nice try, Blinder, but as a right-wing extremist (I kid, I kid) I am offended by the assumption that Republicans are somehow entirely hypocritical for their obstreperous Obama criticisms (ooh didn't know I had words like that in me, did you? Well yeah, I'm a little pissed off about this, breaking out the big guns).

My inner accountant must interject here and voice a tiny concern: Are we sure we are comparing apples to apples?

As WSJ's Peggy Noonan said in 2005:

The Republican (as opposed to conservative) default position when faced with criticism of the Bush administration is: But Kerry would have been worse! The Democrats are worse! All too true. The Democrats right now remind me of what the veteran political strategist David Garth told me about politicians. He was a veteran of many campaigns and many campaigners. I asked him if most or many of the politicians he'd worked with had serious and defining political beliefs. David thought for a moment and then said, "Most of them started with philosophy. But they wound up with hunger." That's how the Democrats seem to me these days: unorganized people who don't know what they stand for but want to win, because winning's pleasurable and profitable.

But saying The Bush administration is a lot better than having Democrats in there is not an answer to criticism, it's a way to squelch it. Which is another Bridge to Nowhere.

To that I say... so? Enough with the politics. Just as the Democrats were butthurt in '05, so are the Republicans butthurt now and it's all one big stupid distraction to keep us from getting to the core of the issue which is, of course, that America is being looted from the inside and no one seems to want to do much to stop it. Yes, I'm even talking to you, my passionate little conservative counterparts. In fact, I am especially talking to you since we have little to do now but formulate our broken party's strategy while the Democrats work themselves into a lather over the seemingly endless supply of funny money coming out of the Fed.

Alan Greenspan once said of the Fed's sickeningly low interest rates which led us straight into the lion's mouth of economic collapse that deflation was the Fed's largest concern: "We wanted to shut down the possibility of corrosive deflation. We were willing to chance that by cutting rates we might foster a bubble, an inflationary boom of some sort, which we would subsequently have to address....It was a decision done right." (via his tome to himself, The Age of Turbulence)

This, of course, was written before the bubble burst. And we have certainly heard that line since (*coughZimbabweBencough*) so who is to say that this time intention will be met by desired outcome?

And these, kids, are the men in charge of economic recovery. That's all I'm saying. I remind you also, dear reader, that the New York Times has a sordid history with pro-Fed propaganda. So that being said, why don't we just disregard Blinder's thoughts entirely and move on to the next disaster? Great!

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


What Blinder is saying is what I was taught in undergraduate school economics. Blinder graduated from Princeton in 1967, so I assume he was taught what I was taught. He just never questioned anything he learned.