Friday, September 11, 2015
Do you remember...
To refresh your memory (all emphasis mine):
In 1937, after five years of sustained economic growth and a steadily declining unemployment rate, the Roosevelt Administration began to worry more about possible inflation and the size of the federal deficit than the ability of the economy to sustain the recovery.
As a consequence, in the fall of 1937, FDR supported those in his administration who advocated a reduction in federal expenditures (i.e. stimulus spending) and a balanced budget. The results — which included a massive reduction in the number of people employed by such programs as the WPA — were catastrophic. From the fall of 1937 to the summer of 1938, industrial production declined by 33 percent; wages by 35 percent; national income by 13 percent; and not surprisingly, the unemployment rate rose by roughly 5 percentage points, with an estimated 4 million workers losing their jobs.
What really caused the recession? No one knows for sure, of course, but according to Wikipedia:
Monetarists, such as Milton Friedman, assign blame to the Federal Reserve's tightening of the money supply in 1936 and 1937.
Everyone is talking about a rate hike next week, and I can't for the life of me figure out why. (The more I read, the more confused I get.)
Is it because the economy is overheating? No. Has the threat of inflation returned? No; it hasn't even reached the Fed's target. (And have you seen the price of oil lately?) What about unemployment? Sure it's down, but wage pressures are nowhere to be seen. (A nation of minimum-wage workers doesn't full employment make.) Are the financial markets too "frothy"? Not any more. What about the dollar; do we need to prop it up? Hardly -- just the opposite.
So what gives? Why the drumbeat for a rate hike? I have yet to read any reason, much less a good reason. What's really motivating the tight-money crowd? I honestly don't know.
Are they savers who want a higher return on their investments? Doesn't sound like a quarter-point increase would make much difference, does it?
Are they traders, who want volatility above all else? Could be -- even traders need to make a living. But that doesn't argue for a rate hike for the rest of us.
Is it nutty inflation hawks? Maybe, but -- again -- where's the inflation? Are we at the mercy of a bunch of people who see goblins behind every tree?
Or is it Republicans who want to see a recession in the year before the election? Even I'm not that cynical.
So, really, what is it? Someone please tell me.