May 24, 2003

The Grapes of Wrath

Our Business School Dean, Tom Campbell, spoke at the Berkeley Economics Department commencement yesterday. The hinge of the talk was the quote below from chapter 25 of Steinbeck's The Grapes of Wrath:

The little farmers watched debt creep up on them like the tide. They sprayed the trees and sold no crop, they pruned and grafted and could not pick the crop. And the men of knowledge have worked, have considered, and the fruit is rotting on the ground, and the decaying mash in the wine vats is poisoning the air. And taste the wine--no grape flavor at all, just sulphor and tannic acid and alcohol.

This little orchard will be part of a great holding next year, for the debt will have choked the owner.

This vineyard will belong to the bank. Only the great owners can survive, for they won the canneries too. And four pears peeled and cut in half, cooked and canned, still cost fifteen cents. And the canned pears do not spoil. They will last for years.

The decay spreads over the State, and the sweet smell is a great sorrow on the land. Men who can graft the trees and make the seed fertile and big can find no way to let the hungry people eat their produce. men who have created new fruits in the world cannot create a system whereby their fruits may be eaten. and the failure hangs over the State like a great sorrow.

The works of the roots of the vines, of the trees, must be destroyed to keep up the price, and this is the saddest, bitterest thing of all. Carloads of oranges dumped on the ground. The people come from miles to take the fruit, but this could not be. How would they buy oranges at twenty cents a dozen if they could drive out and pick them up? And men with hoses squirt kerosine on the oranges, and they are angry at the crime, angry at the people who have come to take the fruit. A million people hungry, needing the fruit--and kerosine sprayed over the golden mountains.

And the smell of rot fills the country.

Burn coffee for fuel in the ships. Burn corn to keep warm, it makes a hot fire. Dump potatoes in the rivers and place guards along the banks to keep the hungry people from fishing them out. Slaughter the pigs and bury them, and let the putresence drip down into the earth.

There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificates--died of malnutrition--because the food must rot, must be forced to rot.

The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quicklime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is a failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.

I could say many things. One of the most important is that it is a real shame for the country that Tom Campbell is not the leader of the California Republican Party.

Posted by DeLong at May 24, 2003 07:42 AM | TrackBack

Comments

If children needed to eat, the Free Market would have made them a cake.

Posted by: citizen k on May 24, 2003 08:18 AM

I have to second that emotion. It's a shame — but perhaps a well deserved one — that the most visible state party chair these days seems to be the Texas GOP's Susan Weddington, who exhorted the press to refer to the missing Democratic lawmakers a couple of weeks back as being "on the lam," as though this were Thelma & Louise with coats and ties.

Posted by: Greg Greene on May 24, 2003 08:26 AM

"The little farmers watched debt creep up on them like the tide."

Actually, I thought you (BDL), along with Krugman, were one of the leaders of the pro-debt party. The Fed needs to lower interest rates to ward off deflation, with of course the effect that more people go into more debt. And then if (when?) they can't pay it off, they lose their farms or their homes. But I guess, don't blame the economists, blame the politicians.

Posted by: Andrew Boucher on May 24, 2003 08:49 AM

"If children needed to eat, the Free Market would have made them a cake."

- Yes yes....

Who needs Socisla Security and Medicare, we have Republicans.

Lise

Posted by: lise on May 24, 2003 09:32 AM

Lise

That is "Social," but the radical-republican agenda is decidedly to "let them eat cake." The 800 billion dollar tax cut, that is what it really was, will be followed at once by more attempts to cut taxes for the richie rich and throw cake crums to the rest while assuring our middle class parents and children a sorry dilemma.

Love you, L.

Anne

Posted by: anne on May 24, 2003 09:45 AM

The problme with LOWER interest rates, and the low interest rates we have now, is that older folks who hold lots of interest bearing securities and are going to have lower incomes till rates turn up strongly, but then prices of bonds will be sharply falling.

Yes, I am still worried even with this monster-job-creation tax cut.

Posted by: jd on May 24, 2003 09:57 AM

Old people who have to scrape by on interest and the bond market are really tragic. If Steinbeck had been a real moralist instead of some bleeding heart commie he could'a written a book about the suffering of bondholders instead of some no-good white trash judged as low value by the Infallible Market.

Posted by: citizen k on May 24, 2003 10:04 AM

Okay, and the reason why the small fruit growers couldn't just sell the fruit to the starving people directly is what? Lack of commercial initiative? Restrictive business licensing? Violent Pinkertons hired by the big producers?

It is quite a mystery to me, and has always reduced my enjoyment of Steinbeck. Hasn't he ever heard of Say's Law?

Posted by: Brian on May 24, 2003 10:13 AM

It's not a mystery. Broke customers are no customers. Cost = growing +picking +packaging + transport + marketing + distribution + DEBT SERVICE. Not much to be done there. Price = $0. Following the famous Mcawber's Law, Price Business Failure. If there had been a free market in banking, bankers would have competed to finance this enterprise on the theory that one day, economic recovery would provide an advantage to the established providers. But there is no free market in finance.

Posted by: citizen k on May 24, 2003 10:23 AM

Why couldn't the indebted fruit growers just sell the fruit directly to the hungry fruit cravers? Lack of commercial initiative? Restrictive business licensing? Violent Pinkertons on retainer to the canning companies?

This question has always limited my enjoyment of Steinbeck. Hasn't he heard of Say's Law?

Posted by: Brian on May 24, 2003 10:29 AM

Could they sell them for a price that made sense to them and the propective buyer? If the big producer can undercut them, say by a 30%, maybe even at a loose on the markets where the small producers could compete, compensating with the gains they got in more closed markets, they will not get enough money to pay their debt and live.

DSW

Posted by: Antoni Jaume on May 24, 2003 10:33 AM

>>Why couldn't the indebted fruit growers just sell the fruit directly to the hungry fruit cravers<<

The hungry fruit cravers had no money, because they had no work.

Posted by: Brad DeLong on May 24, 2003 10:36 AM

Brian: It's not very mysterious, as citizen k says, the small farmers couldn't sell to the starving people, because the starving people had no money. And, it is the nature of Man's Inhumanity to Man that the farmers--who were screwed either way-- would rather destroy their crops, and let them rot, than give them away to the needy.

Anyway, I don't see why it should reduce your enjoyment of Steinbeck. Steinbeck wasn't writing epic fantasy with poorly-explained world-building, he was describing real conditions during the Depression.

For the most part, I don't really enjoy Steinbeck, but the passage Brad quoted is a major exception. It sends chills down my spine.

Posted by: Alex on May 24, 2003 10:38 AM

So, K, the consumers don't have any cash AND they don't have any assets that can be traded for cash AND they don't have any land or capital to mortgage for cash? And there is no way to trade labor for cash nearby?

In effect, the cash has evaporated from the economy somehow. And the mortgages on the farms are denominated in dollars so no barter system can arise. Can't the few people who own their land free and clear or the purchasers of forclosed properties restart the system? You'll need to come up with a new currency somehow.

But there were foreclosures and currency in circulation was increased and the Depression lingered for a decade anyway. Surely there is a problem with the story. Maybe a Japan-style jam where banks were scared away from writing off underperforming assets and foreclosures didn't happen and regulators refused to force the system to liquidate.

-Brian

Posted by: Brian on May 24, 2003 11:05 AM

Brian:
"And there is no way to trade labor for cash nearby?" Yup. That's called "unemployement". And for your previous questions - in our society now, and even more so in the 1930s, most people have no assets other than their labor. Shocking, ain't it?

"In effect, the cash has evaporated from the economy somehow." Not from the economy. As Steinbeck notes, those with capital profit from depression by picking up leveraged assets at bargain prices.

Posted by: citizen k on May 24, 2003 11:25 AM

I'm afraid, Alex, that I just can't identify with ranch workers whose fantasy of a small farm of their own must be understood as unrealistic pipe dream. Why not just save that paycheck until it adds up to a down payment? Americans with modest incomes have owned homes and farms since before the beginning of the Republic.

I can't imagine why villagers don't learn some market savvy and urban sophistication when the need arises. Folks in small towns in Mexico can figure out how to handi-vac my wallet and manage their money well enough in real life, why not in fiction?

And I can't understand why small farm owners couldn't hire themselves a stable of folks desperate for work and do the hard manual labor of traditional farming. Pest control through regular egg-case picking and fruit washing is free but for labor. Seed saving is free but for labor. Hand tilling if free but for labor. Hand weeding is free but for labor. Barter is efficent, but for labor searching for a double coincidence of wants.

How can I enjoy myself when I can't get these questions out of my head?

Posted by: Brian on May 24, 2003 11:36 AM

"Maybe a Japan-style jam where banks were scared away from writing off underperforming assets and foreclosures didn't happen and regulators refused to force the system to liquidate."

There were many many foreclosures. In fact, the real-estate map of today does not feature small truck farms in Napa valley because land went from small farmers to banks. But the main point here was that - "regulators" did not exist. No regulators to insist on anything. No social security. No medicaid. No FDIC. In fact it was paradise! The economy did not have a bunch of dumb government bureaucrats and do-gooder lefties interfering, and it worked spectacularly well. Think how happy those starving people were as they watched all that food get dumped in the river (no EPA to mess around with that either!)! I mean, they weren't paying any taxes to the Gummint either and the only function of the state was to guard private property. Lightly. Generally only needing some playful swats with a stick to keep the hungry from forgetting about Says Law and firing weapons into crowds only when strictly necessary.

Posted by: citizen k on May 24, 2003 11:45 AM

The New Deal DID work. The New Deal improved the economy and workers plight from the beginning. There was slow but steady progress made, though in 37 there was a recession. Of course the mobilization to war brought the economy to full employment, but the New Deal reaaly really worked.

As we watch the Administration on a course to destroy the New Deal legacy we had better remember THE NEW DEAL WORKED. Do you really want to end Social Security and Medicare and Medicaid and all sorts of other social benefit programs? that is what radical-conservative-Republicans want.

Posted by: lise on May 24, 2003 12:37 PM

Of course, Tom Campbell is not the leader of the California Republican Party. The Republican Party is increasingly led everywhere and at all levels by the radical-right. These mean-spirited folks do mean to end every legacy of FDR.

Posted by: bill on May 24, 2003 12:45 PM

Lise: How can you hold onto that decayed new deal stuff when the wonders of free market capitalism are all around us? Look at the technical innovations brought by unregulated Enron
and MCI; could a government bureaucrat have
invented "aggressive accounting" ? No way. That takes Free Enterprise. I mean, a fellow like Ken Lay or Dick Cheney, guys who rose to the top through hard work and personal merit and not through any connections, wouldn't be at the helm of major institutions if we lived under the grim rule of some kinda Stalinist State where tax money, taken at gunpoint from productive citizens would be wasted on feeding the poor and
education. Ask any one of the professors at the Chicago school- they'll tell you. And think of the personal sacrifices they've made - giving up the opportunity of selling chiclets at the side of the road in the vibrant "informal economy" in order to bring us the Truth - even though they've had to settl for 6 figure salaries and tenure!

Posted by: citizen k on May 24, 2003 12:50 PM

In high school, Steinback was my favorite author. But I did not know then that this passage from Grapes of Wrath was such a natural extension of Keynes's General Theory (which I only read after going to college). Now I agree with the suggestion that low (nominal) interest rates of today are reducing the income of the elderly who live off their savings, but this misses the economic point of the first paart of this passage. Real interest rates for debtor farmers were quite high despite the low nominal rates because of falling prices. And the farmers failed to pick their crops knowing that even if they could sell them - it would be at very low market prices. So in a way - the only options were leaving them on the vine or declaring bankruptcy. What an incredible testimony to the inefficiencies that Keynes tried to describe in his General Theory!

Posted by: Hal McClure on May 24, 2003 12:58 PM

K: >>>But the main point here was that - "regulators" did not exist. No regulators to insist on anything. No social security. No medicaid. No FDIC. In fact it was paradise! The economy did not have a bunch of dumb government bureaucrats and do-gooder lefties interfering, and it worked spectacularly well. Think how happy those starving people were as they watched all that food get dumped in the river (no EPA to mess around with that either!)! I mean, they weren't paying any taxes to the Gummint either and the only function of the state was to guard private property. Lightly. Generally only needing some playful swats with a stick to keep the hungry from forgetting about Says Law and firing weapons into crowds only when strictly necessary.
<<<

I'm imagining Pinkertons with blackboards explaining all about liquidated assets turned to more productive uses and Jean-Baptiste Say. And the rioting, angry, hungry villagers being satisfied to return to their shanties through the overwhelming logic of those great persuaders in the private security forces.

Soon everyone would plan to be retrained for the new service economy and, verily, it must have been paradise.

Posted by: Brian on May 24, 2003 01:10 PM

OK, so the Fed allows/causes the money supply to contract by a third between '29 and '33, causing massive unemployment and bankruptcy and what's to blame? Uh...evil capitalists! Yeah! It all makes sense to me now.

Posted by: Ross N. on May 24, 2003 03:33 PM

Paradise returns.
One depressing way to look at the last 70 years of US history is as a long delay while the Mellons recover from Smedly Butler's betrayal.

Posted by: citizen k on May 24, 2003 03:38 PM

One problem of that time was worker training, or lack thereof. Workers were trained for agriculture. However, productivity increase in Ag means more food produced per worker. Unless food demand is keeping pace with productivity increase, it means fewer ag sector jobs.

This is the case in the pre WWII economy and many third world economies. One of the reasons that the US did not lapse back into depression following WWII is that Congress authorized the GI Bill to train returning veterans for jobs outside of the Ag sector. This period saw a great increase in the size of public universities. The GI Bill passed as a way of thanking the American Servicemen, but it provided the fundamentals of a resurgent American economy, a highly trained workforce ready to create new wealth. This is a continuing problem in third world countries, the lack of a modern well trained workforce.

The importance of workforce training should not be underestimated in any period of economic downturn. The sectors leading out of the downturn will not be the ones leading just before the downturn. Without education or workforce training, the economy will be stuck with an overcapacity of workers trained for the wrong jobs and an undercapacity of the types of workers and entrepreneurs needed to establish the next wave.

Posted by: bakho on May 24, 2003 08:44 PM

Lise, on "the New Deal worked":

To free-marketers, steps that simply reduce human misery are not of any value at all. Human misery is irrelevant. So if Europe has 10% unemployment, the fact that the European unemployed still can get medical care (whereas American unemployed can't) doesn't improve the situation. It actually makes it worse, as a dis-incentive to work. Whereas layoffs that increase worker productivity at the cost of ruining some peoples' lives are unequivocally a good thing. It's hard to argue when your premises are so far apart.

Posted by: zizka on May 25, 2003 10:21 AM

"Burn corn to keep warm, it makes a hot fire." He means maize, actually, but Trollope records that this really happened in the westerly states during the American Civil War when their access to markets via the Mississippi was cut off.

On the main problem, I still see it as an externality, as those dispossessing/downsizing are spreading costs onto others at large. That is, it can be described equivalently as an externality, whether it can also be described in other ways or not (and you also need those approaches, to bring out other aspects). Whether those external costs are Vagrancy Costs from a system without the Social Security that compounds for them here and now, or the tax burden of that, the costs don't connect to the people at the point of the decision.

In the light of that insight I see the outworking of a lot of the value in Solon's reforms, and also of the proposals of the 19th century British Allotment Movement. For our day and age I see merit in Professor Kim Swales' ideas, that he goes into at http://www.faxfn.org and which I present in a different way at my own publications page http://users.netlink.com.au/~peterl/publicns.html.

Posted by: P.M.Lawrence on May 25, 2003 04:36 PM

Well argued!

Been turning through John Steinbeck today. What a pleasure.

Lise

Posted by: lise on May 25, 2003 05:14 PM

As one of those freshly minted Ph.D. graduates whom Tom Campbell was supposed to be addressing, I thought the Grapes of Wrath reference seemed patched on for a speech with a main message that was "Go out and make a lot of money."

Posted by: Gabriel on May 25, 2003 10:06 PM

Reminds me of Thorstein Veblen's notion of industrial sabotage - we live in a world of abundance, but big business has an incentive to reduce production in order to keep prices up hence they engineer scarcity. See "The Theory of Business Enterprise" and "The Engineers and the Price System".

Posted by: Kerry Nitz on May 25, 2003 10:23 PM

Gabriel

Agreed. The message through the business school is always, make a lot of money and go about it humanely if at all possible. We try.

Posted by: bill on May 26, 2003 05:01 AM

Two of my favorite quotes about economics. I found the second one somewhere here on Brad's website.


"Iíve always been interested in why people are poor," he said. "What economics is about is trying to prevent poverty, insofar as that is possible.Ē

George Akerloff

http://www.berkeley.edu/news/features/2001/nobel/index.html

The toast came at the end of a speech by Keynes at a dinner on the occasion of his retirement as editor of the Economic Journal in 1945: "to economists, who are the trustees, not of civilisation, but of the possibility of civilisation" (quoted in Harrod's Life, p. 194).


Posted by: R Young on May 26, 2003 06:21 AM

"I could say many things. One of the most important is that it is a real shame for the country that Tom Campbell is not the leader of the California Republican Party."

Is this the same Tom Campbell who was a U.S. Representative, and who pushed successfully to get a (after-the-fact) vote to declare war against Yugoslavia (over Kosovo)?

If so, it's a real shame for the country that there aren't many clones of him in the U.S. Congress. I really respected the honorable Mr. Campbell for doing that.

Posted by: Mark Bahner on May 26, 2003 09:09 AM

"Okay, and the reason why the small fruit growers couldn't just sell the fruit to the starving people directly is what?"

Well, this wasn't the reason for ALL crop destruction during the Great Depression, but the Roosevelt Adminstration championed laws that included *paying* farmers to destroy their crops...and to take their land out of production. (The man was a friggin' economic genius!)

http://www.lewrockwell.com/orig/woods2.html

"Hence the logic, such as it was, of the Agricultural Adjustment Act, which paid farmers to destroy enormous quantities of crops and livestock and to take countless thousands of acres out of production entirely."

Posted by: Mark Bahner on May 26, 2003 10:58 AM

Heh, heh, heh! I missed this, but Joe Flynn definitely has a way with words:

"Its figures were sobering: America was not producing enough food to sustain its population at the minimum (subsistence) diet. 'How to better this may be a problem,' Flynn observed, 'but the last course a government run by sane men would adopt to get it solved would be to destroy a good part of what we do produce.'"

Posted by: Mark Bahner on May 26, 2003 11:12 AM

...By the 1930ís, when the Great Depression developed, demand for these products dwindled and the market for farm products became unstable. In 1937 the Legislature passed the California Marketing Act to bring stability to agricultural markets.

The Act declared that the inability of producers to maintain markets or develop new ones for their commodities, as well as a lack of uniform grading standards, prevented farmers from earning a fair return...

(From the offical California web site: http://www.cdfa.ca.gov/mkt/mkt/mktb-3.html)

And you end up with perfectly fine fruit that most farmers would have been happy to see in the mouths of poor people destroyed as official government policy.

I agree with Brad about Tom Campbell. The party as currently led has dropped the pretense of being a responsible organization for cooperating in the governance of California. Tom follows in the noble tradition of Pete McCloskey of sanely leading where too few on the right are brave enough to follow. All hail the naked emperor!

Posted by: Dave Roberts on May 26, 2003 02:09 PM

Kind of ironic that some of the folks here are talking about this Grapes scene as an act of evil capitalism, when it really represents the implementation of FDR's agricultural subsidy policy, keeping prices high by discouraging farmers from selling their produce to consumers. Ironic that the lefties posting about the evils of Republicans "undoing the New Deal" are so completely unaware that the New Deal's own agricultural policies (which continue to this day) are about reenacting this scene from Grapes ad infinitum. But then, saying "unaware lefties" is just repeating yourself, isn't it?

And one more thing: As far as his writing goes, Steinbeck's no better (or worse) than Ayn Rand.

Posted by: Keith on May 26, 2003 04:07 PM

An analysis of the historical accuracy of The Grapes of Wrath. (General conclusion: The book isn't historically accurate.)

http://www.newcriterion.com/archive/20/jun02/steinbeck.htm

"Ironically, for someone whose politics have been described by his several biographers as a “typical New Deal Democrat,” Steinbeck identified the wrong culprit. In two separate studies of the plight of southern tenant farmers in the 1930s, the historians David Eugene Conrad and Donald H. Grubbs have blamed not the banks but the agricultural policies of the New Deal itself. In the early 1930s, some sixty percent of farms in Oklahoma, Arkansas, and Texas were operated by tenants. However, during the Depression they found themselves victims of Franklin Roosevelt’s 1933 Agricultural Adjustment Act, which required landlords to reduce their cotton acreage. Fortified by AAA subsidies, the landlords evicted their tenants and consolidated their holdings. It was government handouts, not bank demands, that led these landlords to buy tractors and decrease their reliance on tenant families. By 1940, tenant farmer numbers had declined in the southwest by twenty-four percent."

Posted by: Mark Bahner on May 26, 2003 06:28 PM

Agree with you on Campbell (though I didn't agree with his opposition to Kosovo) - a great catch for the Haas School at Berkeley, but if the California GOP had more brains than a sea cucumber, they'd be pushing him for governor.

Posted by: Tom on May 26, 2003 08:08 PM

Just skimming the New Criteron article, it seems to pick on Steinbeck for clearly literary embellishment (e.g. pointing out that the Dust Storm occured not in the town in Oklahoma that ne mentions but father north) and shouting "Contradiction!" where there is none. So he supported the New Deal--the New Criterion authors seem to imply that means he doesn't have the right to criticize any New Deal policy. It seems to me that fair reading of the passage (and the book) is that it is an indictment of the ag policy. How else can you read the following sentence, with "State" with a capital "S":

"The decay spreads over the State, and the sweet smell is a great sorrow on the land."

Steinbeck certainly knew that crops were destroyed as part of the ag policy.

Posted by: Gabriel on May 27, 2003 04:52 AM

Keith,
Have you read any passages in Ayn that overtop Stenbeck's first paragraphs in "East Of Eden"? Please cite. I am anxious to read them. Stenbeck's passages make me cry. Ayn makes me cry in rage.
My wife and I have been riding our horses in East of Eden during last year and this spring and can attest to the beauty of this land and the beauty of Stembeck's language. Who in the hell cares about Stenbeck's knowlege of economics?

Posted by: Dilbert Dogbert on May 27, 2003 09:05 AM

To be objective: the argument emerging from this interesting forum is between two readings of the Great Depression:

a) The Depression is the natural result of laissez-faire capitalism and demonstrates conclusively that substantial government intervention in the economy, such as the New Deal, is necessary to prevent future relapses;

b) The Depression was caused by underdeveloped economic knowledge and tight monetary policy between 1929 and 1932. The New Deal was is unecessary given the current state of economic knowledge.

So how do I choose between these two scenarios.

Posted by: JT on May 27, 2003 10:41 AM

How about "unless the government properly manages the macroeconomy, market economies are vulnerable to deep depressions"? Everyone seems to agree on that.

The problem, however, is that Keynesians, Friedmanites, and Hayekians violently disagree on what "properly manages" means.

The Hayekians think that the Federal Reserve "caused" the Great Depression by allowing asset prices to rise in 1926-1929--that the asset price bubble and the investment it caused set the stage for the Depression, and if only the Federal Reserve had followed a "neutral" monetary policy and raised interest rates to keep stock market prices at their 1926 levels, all would have been well...

The Friedmanites think that the Federal Reserve "caused" the Great Depression by raising interest rates in 1928-1929 to try to cool off the asset price bubble, and then by not lowering interest rates far enough and fast enough in 1929-1933...

The Keynesians follow the Friedmanites, but fear that even a very rapid lowering of nominal interest rates to close to zero in the immediate aftermath of the 1929 stock market crash might not have been enough--that big government budget deficits to boost spending in the Depression were a definite help...

In my view the Hayekians look hopeless, and the Keynesians (especially after watching Japan for the past 15 years) look pretty good.

Posted by: Brad DeLong on May 27, 2003 03:50 PM

JT - not only is that a false dichotomy (not your own so much as the one usually on offer that you are accurately presenting to us) but also each contains a non sequitur. The policy recommendations wouldn't even follow necessarily if the conditions of either option were met (though they might if yet other things happened, which would mean being right by mistake, something that encourages bad habits).

Posted by: P.M.Lawrence on May 27, 2003 04:48 PM

One of the most puzzling things in state politics is why Tom Campbell wasn't supported by the Republican party when he ran against Feinstein, and how it is that nobody noticed that the Republican was *more liberal* than the Democrat in that race.

Posted by: aphrael on May 27, 2003 11:44 PM

Buy doesn't Japan's example show that massive government spending on make-work projects is insufficient to cure the liquidity trap? If you take the position that WWII, and not the New Deal, got us out of the Great Depression (which seems reasonable to me, given that unemployment still stood at 18% in 1939), then Keynes seems to have been right about the problem but wrong about the solution. And I heard a Michigan economist who specializes in Japan convincingly argue that the expectations of debt were killing any stimulative benefit from the spending. Most people I've read about on Japan seem to be urging monetary inflation of some sort (the Michigan economist wanted a pre-announced, multi-year series of sales tax step-ups), which seems more Friedman-ish to me, certainly not Keynsian. But perhaps I've misunderstood?

Posted by: Jane Galt on May 28, 2003 05:07 AM

Interesting responses. Thanks. I hope someone will address Jane Galt's post, too.

Posted by: JT on May 28, 2003 06:18 AM

"In my view the Hayekians look hopeless, and the Keynesians (especially after watching Japan for the past 15 years) look pretty good."

??? The Keynesian's "look good?" Japan's federal government has spent so much that, as I recall, their national debt is now over 1.3 times their GDP...the highest among industrial nations:

http://www.swcollege.com/bef/econ_news/paradox.html

(The above link was from 1999...levels apparently have risen from 1.19 times GDP to 1.3 times GDP in the last 4 years.)

Oops! I see Jane Galt has addressed this issue, but from the site quoted above, the long-term interest rates are so high in Japan, that they considerably reduce investment. The likely cause of high long-term rates (60 times short-term rates) is the expectation that, eventually, the government will attempt to print away its debts.

So I don't see how the situation in Japan makes Keynesians "look good."

Posted by: Mark Bahner on June 12, 2003 09:24 AM
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