A Short History of Significant American Recessions, Depressions, and Panics: Why Conservative Economic Theory Does Not Work

by Scott Belford

Overview

If you look carefully at the chart on the front cover, you will notice that prior to WW II there was a significant number of Recessions, Depressions, and Panics. Yet, after WW II, there was a noticeable absence of these downturns; and they were both smaller in size and in duration - this is not by accident. This book explores why such a dichotomy exists and who or what is responsible for it. We dig deep into what classical (conservative) economics means and what so-called liberal economics consists of. We look into why and where each is the same and each is different. To understand this is to understand what politicians are telling you and to help determine the veracity of what you are hearing. Through an analysis of over two dozen major recessions, depressions, and panics that have occurred in our 200+ years as a nation we gain an understanding of the five factors needed to have a major downturn. These same five factors were present in the Long Depression in the mid-1800s as well as the Great 2008 Recession. Understanding that this is, in fact, true will help guide you on who to vote for in order to produce the best possible economic outcome for you.

Product Details

ISBN-13:	9781524627102
Publisher:	AuthorHouse
Publication date:	01/11/2019
Pages:	222
Sales rank:	747,683
Product dimensions:	6.00(w) x 9.00(h) x 0.51(d)

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CHAPTER 1

Part 1

Introduction and Background

Introduction

2018

Shortly after this writing, President Donald Trump will reach his 200th day in office, the stock market is soaring, the economy is continuing the weak growth seen since the Great Recession of 2008 ended, his presidency is engulfed in scandal, and passage of his agenda is in serious doubt. This is not a recipe for continued economic success and may be setting the stage for the next charter in this book.

When Americans went to the polls in November 2016 to choose a new president and Congress, I believe few people understood the awesome responsibility resting on their shoulders; first in deciding to vote at all and second in deciding which candidate for which to vote. The choice between Secretary Hillary Clinton and businessman Donald Trump as well as between conservative and moderate/liberals running for Congress was stark; both in rhetoric and vision. For a whole host of reasons including extreme frustration with gridlock in Washington, two very unpopular candidates, a polarized electorate, interference in the election by Russia, and even missteps by the former Director of the FBI Further America made a very unexpected choice. Against all odds, they elected a man with no political, economic, or policy experience as well as a self-confessed disregard for tradition and deep thinking. The people also elected a Congress guaranteed to continue the destabilizing gridlock of the past six years.

The decision the people made will determine the economic stability of America for decades to come, which is the subject of this book. Unfortunately, economics doesn't lend itself to empty sound-bites, bumper stickers, slogans, one-liners, and other simplified forms of communication our political discourse has devolved to; listening to and taking them to heart often leads to very bad decision-making. No longer are you allowed to hear intelligent conversation about important issues of the day, and then you must take time to sort through the billions of words on the Internet and print media to find something meaningful in print.

You aren't allowed to hear relevant information for two basic reasons: (1) ratings and (2) the need for politicians to stay on message. If television and cable started pulling a Walter Cronkite on you and delivered real news, their ratings would fall (as well as advertising income). Moreover, if politicians try to tell you the truth using more than ten words, they fear they will lose you — or worse yet, make a single mistake and be shot down in flames. Therefore, I've found little value anymore in the spoken or written word from today's news sources with only a few exceptions, such as Sirius/ XM's POTUS: Politics of the United States, CNN, Politico, and The Hill (no, they didn't pay me for the plug).

This situation is a recipe for economic disaster, which brings me to why I think it would be worthwhile for you to read this book? I have attempted to offer, in a hopefully coherent, understandable format, relevant information regarding why America has such a checkered past when it comes to a stable economy. Information that I hope provides insight when picking your next president, congressional representative, and senator. The choices you make (or fail to make) bear directly on the standard of living for you, your family, and your country.

But who am I to think I can present such information with any semblance of authority? After all, I start with quite a handicap. I have no PhD in economics, there are no other books to my name, and I have never taught this subject in a formal university or college. I do have, however, a few things going for me such as a Masters in Operations Research and a Bachelor in Accounting. I do hold a Professional Designation as a Cost and Economic Analyst from the Air Force Institute of Technology, I have taught economic analysis to air force personnel who needed it for their work, and have made many presentations to professional organizations in my field of expertise on various aspects of cost and economic analysis.

Most importantly, as it relates to the contents of this book, I spent a career with the Air Force as a professional cost and economic analyst specializing in operations and support costs. Without too much exaggeration, it was my job to figure out what it cost to operate everything from a squadron of F-16 fighters to the whole Air Force, literally. Once I was lent out to NATO to help Slovakia figure out how much its air force might cost to operate depending on which suite of aircraft they acquired while others worked on the cost to acquire those aircraft. My point isn't to pat myself on the back, of course, but to make clear that I know my way around large data sets, statistics, analyses of large systems, and all of the other things needed to present knowledgeably the information that follows as well as to draw the conclusions I do.

It isn't really that hard to do either. Whether you went wow, gave me a raspberry, or sighed ho-hum over my résumé, the fact is esoteric calculus, deep statistical methods, and complex numerical analyses was not needed to write this book. Generally, it was minor statistics and mathematics, but most importantly, an ability to understand systems and the relationship of the parts of the systems to each other and the whole — that is, to see patterns and to recognize what they're telling me.

In terms of my job for the air force, I had to be able to integrate information from (1) personnel, (2) supply, (3) maintenance, (4) operations, (5) logistics, (6) resource allocation, and (7) Congress. For this book, on the other hand, it is necessary to understand the following functions: (1) supply, (2) demand, (3) employment, (4) interest rates, (5) money supply, (6) monetary policy, (7) fiscal policy, (8) the Federal Reserve, and again (9) Congress. To reach the book's conclusions, no math is needed, just some chart-making abilities and around twenty-five panics, depressions, and recessions that you will find tell roughly the same small set of stories. The results devolve into two strikingly different patterns of economic reality that are easy for the eye to discern — no statistics needed — even though there is enough data available to provide a clear empirical story.

And a Little History

This book is a story of two competing economic theories, the Austrian/ classical school, favored by the political Right, and the relatively new Keynesian theory, favored by moderates and the political Left. They are essentially the two economic models followed in America's two-hundred-plus-year history. Proponents of the Austrian school were Presidents Thomas Jefferson, Grover Cleveland, Ronald Reagan, and George W. Bush, as were some Republican presidential hopefuls since President Reagan, with the possible exception of Donald Trump.

Those who might have supported the Keynesian model, had it been around then, are Secretary of Treasury Alexander Hamilton; President John Adams; President Theodore Roosevelt, who was the politician that initiated the creation of the current Federal Reserve; and President Franklin D. Roosevelt. Those who went on the record in support of it were Presidents Truman, Eisenhower, Kennedy, Johnson, Nixon, Carter, Clinton, and Obama. As you will see, the theory that prevails has an enormous impact on our lives and should influence your choice of who you elect as your representative and president.

What I offer for your consideration in the following sections is a record of significant American depressions and recessions, along with an assessment of the fundamental causes, who was in power leading up to the depression/recession, what got us out of it, and who was in power when that happened. I hope you will find this work educational as well as useful as we assess the results of the 2016 presidential election.

The National Bureau of Economic Research (NBER) determined that the United States has suffered at least forty-nine economic downturns since 1785. Of those, five are classified as depressions; the last of which was the Great Depression of 1929–42. For my purposes, I consider only economic downturns that meet the normally accepted criteria for a recession (explained later) and lasted longer than one year or had a significant contraction. This is why the recessions in 1990 and early 2001 aren't included; they were neither long nor felt by a large part of the population.

Some might wonder why the year 2001 isn't included. After all, wasn't there a huge stock market crash and a steep rise in unemployment? Well, yes and no. Even with the crash, the economic contraction lasted only eight months, the third shortest in history. (Two other recessions were shorter, and four more were tied.) Unemployment topped out at 6.2 percent, not much above normal unemployment, and the decline in GDP was only 0.3 percent — hardly a decline. In fact, some say that without the 9/11 terrorist attacks, there might not have been a recession at all.

Let me close this section by giving you a few things to look for as you work your way through this history. The point of this book is to first identify a set of common characteristics that precede each financially based recession or depression. I will tell you now that these are (1) greed, (2) easy credit, (3) an asset which people find valuable, (4) uncontrolled speculation in that asset, (5) an overleveraged financial sector, and (6) a lack of central government regulation of the financial sector or an unwillingness of government to enforce available regulations. Or, as was the case in 2008 – both. If any one of those ingredients is missing, the chances of a bad economic downturn are slim to none2. After that, one must determine which form of economic theory the federal government and the Federal Reserve (once established) used.

At the risk of sounding simple-minded, that's the difference between the classical/Austrian/conservative economic schools (pick your term) and the various forms of Keynesian economics, which through government intervention tries to remove one or more of the legs needed for a major economic downturn to happen.

The List

Below is the list of American panics, recessions, and depressions covered in this book. It is by no means a complete list of all the downturns America has suffered, but just those that met the criteria I established earlier. (Wikipedia)

Table 1.1: Significant Panics, Recessions, and Depressions

The Panic of 1796–97
The Recession of 1802–04
The Depression of 1807
The Depression of 1815–21
The Recessions of 1822–23
The Recession of 1825–26
The Panic of 1836–38 followed by the Depression of 1839
The Panic of 1857
The Long Depression of 1873–85, including the Panic of 1873 and Recession of 1882
The Panic of 1893
The Panic of 1896
The Panic of 1907
The Panic of 1910
The Recession of 1913
The Recession of 1918–21
The Great Depression of 1929–42, including the Recession of 1937
The Recession of 1945
The Recession of 1958–61, comprised of the Recession of 1957–58 and the Recession of 1960—61
The Recession of 1973
The Recession of 1980–82
The Great Recession of 2008 (Wikipedia).

Scorecard

The tables below contain my brief assessments of 1) political orientation of various political parties at different points in time (Table 1.2) and 2) the cause(s) and the economic theory in vogue at the time, if there was one, for each of the recessions I analyze (Table 1.3). I identify the philosophies as either conservative or progressive rather than Democrat or Republican because the platforms behind these political labels change over time while the philosophies do not. For reference, conservative describes the majority of Republicans currently elected to federal offices today, while progressive applies to most Democrats. (Many conservative Democrats were voted out of office in November 2010 and were replaced with even more conservative Republicans.)

I also want to take a moment to explain my use of the political/ philosophical terms conservative,] progressive, and liberal. These terms do not mean what you may think they do, especially given their use today. In today's vernacular, progressivism — or more generally, liberalism — is often confused with socialism. In fact, they are two quite different philosophies (see glossary for more details). If you look behind the curtains, you will find that socialism (along with true Edmund Burke–type conservatism) has a distinctly different ancestry than progressivism/liberalism.

America, in the main, is not conservative, although conservatism has a much stronger hold in America than socialism does. Nevertheless, Americans generally believe in liberalism, which emphasizes the rights of individuals over that of the groups, e.g., the right to marry who you want vs. what some group believes is right; there is simply no room for classes in a liberal society. Socialists and conservatives, on the other hand, believe that society cannot function without a class structure of some sort — different types, obviously — but need a defined structure in any case.

What divides America is the degree the central government should be involved in our day-to-day lives; this division is key to which economic system ought to become US economic policy. Socialists and active-state liberals believe there is a strong role for the federal government to play, while minimal-state liberals and conservatives believe just the opposite. For the sake of variety, I will use most of these terms in this book, but know that when I use progressive or active-state liberal, I'm writing about people who think the federal government should play an active role in American lives. Likewise, when I use the terms conservative or minimal-state liberal, I'm referring to people who think the federal government has no business in our business.

A Short Primer on Economics

I offer this section, as well as the glossary at the end of the book, because I think it will be very helpful to recognize the two basic schools of thought about how the economy works. This, I feel, is necessary to understand the fight between the conservatives/minimal-state liberals (MSLs) and the more progressive active-state liberals (ASLs). One school describes the conservative economic philosophy, and the other describes that of moderates and progressives. The essential difference between the two philosophies is this:

1. Conservatives and MSLs believe the market is a self-correcting mechanism and is supply-driven; leave it alone, and it will take care of itself (the Austrian/classical school or family of conservative economic thought).

2. Active-state liberals think the market is demand-driven and not always self-correcting and needs government intervention from time to time (the Keynesian school or family of progressive economic thought).

From the late 1700s to today, both conservatives and MSLs have followed some variation of the Austrian/classical school of economics (which from here on out I will simply call classical). So strong was the belief in this system that it persisted as the dominant economic philosophy of all major political parties until the 1900s. Periodically, over that era, economic progressives tried to implement different policies, but they were largely short-lived until President Theodore Roosevelt began making permanent changes to federal policy.

Ultimately, it took the Great Depression to usher in the progressive Keynesian school of economics, which John Maynard Keynes developed in 1936. The current incarnation of the classical school is known as supply-side economics — or, derisively, "trickle-down economics." The progressives are less inventive in their descriptive titling; the latest version of progressive theory is called ... New Keynesian economics.

I have talked a lot about schools of economic thought, assuming you knew what I was talking about. If you're drawing a blank or wondering why I waste so much ink on these schools, let me explain.

It is indeed interesting that there are such things as elasticity and inelasticity in demand or that luxury items flip the price-demand curve on its head or that eigenvectors and values play some part in the deep esoteric economic calculations that I have long forgotten. Yet they play no part here. The point I'm trying to get across is the fact that classical economists think microeconomics is essentially the be-all-and-end-all of economics. Keynesian economists, on the other hand, think macroeconomics is important as well and useful in preventing damage caused by an out-of-control microeconomic periods — you might know this as the boom-bust cycles. Therefore, allow me to spend a little more time drilling into these two theories; we will revisit them in the analysis section.

(Continues…)

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Excerpted from "A Short History of Significant American Recessions, Depressions, and Panics"
by .
Copyright © 2019 Scott Belford.
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Table of Contents

Part 1 — Introduction and Background, 1,
And a Little History, 6,
Scorecard, 9,
Part 2 — Panics, Depressions, and Recessions, 29,
The Panic of 1792, 32,
The Panic of 1797, 36,
The Recession of 1802, 42,
The Depression of 1807, 44,
The Depression of 1815–21 and Recession of 1822, 48,
The Panic of 1825 and Recession of 1825–26, 53,
The Panic of 1836 and Depression of 1843, 56,
The Panic of 1857, 61,
The Recession of 1865, 68,
The Long Depression of 1873–79, 72,
The Depression of 1882–85, 81,
The Panic of 1893, 85,
The Panic of 1896, 94,
The Panic of 1907, aka The Banker's Panic, 96,
The Panic of 1910 and Recession of 1913, 106,
Post-War 1918–21, Double-Dip Recession/Depression, 109,
The Great Depression of 1929, 114,
The Recession of 1937, 129,
The Recession of 1945, 132,
The 1958 and 1960 Recessions, 135,
The Recession of 1973, 139,
The Recession of 1980, 147,
The Great Recession of 2007 to 2009, 153,
Part 3 — The End Game, 191,
Analysis and Conclusions, 193,
Glossary, 203,