A Progressive’s Static View of Society
Nov 12th, 2007 by Micah Tillman | 20 Comments |
Here’s the headline from fellow Wordpress blog, CNN Political Ticker:
Obama: I deserve a tax increase
It’s a summary, not a quotation, but it reminded me of something another Democrat Senator said recently. I can’t find the quotation now, however. *sighs*
The stereotypes are that the Republican Party is the party of the rich, and the Democrat Party is the party of the poor. I think it would be more accurate to say that the Republican Party is the party of the rich, and those who hope to be rich someday.
That’s one reason raising taxes on the rich bothers even non-rich Republicans. They want to be in the economic position on which you’re about to raise taxes. And that makes it personal.
It seems to me that progressives who want to raise taxes on the rich miss this dynamic. (I have no idea if all progressives do. It doesn’t seem to me that raising taxes has to be a cornerstone of the ideology, even if the progressives-in-power want it to be).
“Appease the poor by taxing the rich” only works if the poor don’t have a hope of becoming rich. In a society of static classes, the poor have no such hope. But progressives are about progress, not stasis.
Seems to me that raising taxes on the rich is one good way of attaching a disincentive to progressing into higher brackets.
The other dynamic people miss when discussing taxing the rich (usually accompanied by tax breaks for the poor) is that the rich usually are the people who are responsible for the jobs of the poor.
If you hit the factory owner with a tax hike, and give the guy with the 20,000 dollar a year job a tax break, the guy with the 20,000 dollar a year job might be thrilled about his couple hundred extra dollars a year.
Of course, if the factory owner lays him off to cut costs to cover the tax hike he just received, the tax break might mean a little less.
I don’t pretend to be a total expert on economics and taxes, but it’s never as simple as “the rich can afford to pay more, so they should”
I think it comes down to how you want to get wealth to the poorest. Democratic idealogy says that the government ought to take an active role in directly getting resources to the poor.
Republican idealogy says that a fairly unencumbered economy will benefit the poor… the rich factory owner will be able to hire more workers.
The democrats point out that the wealth doesn’t generally trickle all the way down.
The Republicans point out that the government manages to mess up everything it gets involved in.
Who’s right?
Everybody, a bit.
Generally, though, I side with the Democratic understanding of things. I hope I would even if I was loaded. I gather that this is what Obama was doing and saying when he said that he deserves a tax increase.
Scott is right to say that it’s not as simple as “the rich can afford to pay more, so they should”; clearly this shouldn’t be the only thing we consider. But it needs to be one of the things we consider.
I believe at some point I’m going to be accountable for all sorts of things: actions, beliefs, even how I voted and what positions I argued for.
When I explain myself to my creator, I think He’s not going to be interested in trickle down economics… The question will be did I work hard to see that everybody was clothed, fed, etc… I believe that many people have good intentions on the Republican side of the playing field, but I’m also suspicious about any justification for consumption, any idealogy that allows us to mantain our comfortable status quos. (Not sure if you can make status quo plural, but figured I’d try.)
On the other hand, while God may care very much about whether you distributed your own money to the poor, is it really very likely that he’ll care whether or not you advocated taking money from other people and giving that to the poor? I am not expressing an opinion here about the wisdom of redistributionist policies, but a lot of people talk as if their favoring taking other people’s money and giving it to the poor is on the same level as actually giving their own money to the poor. And it clearly isn’t. Any more than supporting the war in Iraq puts someone on the same level as the person who’s actually serving there.
If Obama wants a tax increase, there is absolutely nothing stopping him from donating that money to the government. And I’d take him a lot more seriously if he were already doing that. But he’s not doing that, because he’s not actually sincere. And neither are any other wealthy leftists I’ve ever met. They too believe that charity is the most efficient way to distribute money to the poor and they donate to charity instead of the government.
That’s precisely it. It would be one thing if the average economic conservative (I bristle at calling any thinking Republican/Democratic thinking these days, since political parties and ideologies are two distinct concepts) took their responsibility to the poor as simply calling for a free economy and left it at that.
That’s not reality. I can be a die-hard capitalist and still work on behalf of the poor. If I want to use my money to help the poor, and have them get the most benefit from it, about the worst thing I can do with it is put it into a government social program. So why would I cast my vote to do just that?
I just don’t think abdicating my personal (and our collective) responsibility to care for the poor to the government is the best way to care for them.
My instinct is that we’re not going to make much progress on the debate about whether or not government is an effective tool for redistrubution… This debate is fundamental enough that I’m going to bet that most of us have engaged in enough of them to learn our respective lines of rhetoric. If somebody actually thinks they haven’t heard the left’s arguments I’ll be happy to make them… But I’ll assume that you all know them and disagree with them; I’m not sure that I have any new ones to offer.
I’m more intruiged by Andrew’s thoughts about God’s expectations around me and my money vs. someone else’s money.
First off, yes, God clearly expects me to use my money in a responsible way. I will be clearly held to a higher standard for dollars that were in my hands than for dollars that were in some one else’s hands. Jesus seems to have had a disdain for hypocrites (yes, I see the irony in that, given the level of hypocrisy that flourishes in contemporary Christianity.) so certainly if I called for others to do things I wasn’t myself doing I would be judged for this.
But that doesn’t mean I get to wash my hands of the issue. As a person with some political power– a vote if nothing else– I think I’m called to use this vote in a moral way.
It’s really all part of a larger issue– that I believe God is supposed to penetrate all parts of my life. If there was a referendum which I thought would decrease spousal abuse, I would be called to vote for… It wouldn’t be enough for me to recommit myself not to beat my own wife. If a candidate supported measures I thought would alleviate the suffering of AIDS victims, I would be called to support this candidate (all other issues being equal.) If I saw a man dealing drugs to kids on a school yard, it wouldn’t be enough for me to promise myself to teach my own kids to avoid those situations, to promise myself I won’t buy crack… I’d have an obligation to intervene, even if this intervention is nothing more than dialing “9-1-1″
I’m not claiming that a person with extra money is the moral equivalent of a drug dealer. But I am claiming that surplus is immoral wherever others have a deficit; I’m further suggesting that I’m expected to act in a moral way in all spheres of my life, not just the private sphere. A theme that seems recurrent in my readings of scripture is that God pays special attention to the orphan, the widow, and the foriegner. I think it’s fine for us to disagree about how best to meet these needs… and I also think it’s fine that some people might not see that they have these obligations at all. That’s what debate is for, that’s why we have a civic life, and we vote, and so on.
One of the fundamental questions, maybe, running through all this is “how much of ‘my’ money real is mine?” We all exist in a system that helps us in some ways and hurts us in others. There are profound questions about how best to pay for this system, and who should pay for this system… All of us face the question of how much we should have to financially support the government. Some us face the secondary question of how much we owe God… But I suppose that’s a whole nother can of worms entirely.
Jeff–
Nice points.
But just because it would be good if someone did something doesn’t mean it would be good for you to do it or the people with the biggest guns (”government”) to do it.
It would be good for all the women in the world to have loving husbands. It would be good if every kid had a good father. It would be great if my neighbors down the hall managed their finances better. It would be awesome if the family across the street taught their kids not to listen to music that would lead them to objectify women.
But my being every woman’s husband, every kid’s father, my next-door neighbor’s accountant and my neighborhood’s music censor would be not only impossible but wrong.
How does having the power to vote change that?
Jeff wrote that: “Surplus is immoral wherever others have a deficit.”
How is surplus being defined? I am confident that everyone reading this website, and indeed, the vast majority of Americans, function with a considerable surplus. Up to and including many unwed teenage mothers.
Given the conditions in some other countries, as a moral matter does this mean that our government ought to redistribute all surplus wealth from Americans down to a subsistence level, in order to dramatically alleviate human suffering in other locations?
If not, why not? And how does this compare to redistribution programs within the U.S.?
“Democratic idealogy says that the government ought to take an active role in directly getting resources to the poor.”
Then Democratic ideology is unconstitutional. It also makes the false assumption that the government has its own resources to give away. The government, truly understood, is “we the people” not the Congress. When our Congressional leaders vote to take away our money, they are actually violating their constitutional duty to “secure the blessings of liberty to ourselves and our posterity.”
———
“The democrats point out that the wealth doesn’t generally trickle all the way down.”
Then they are wrong. It trickles all the way down to the boy who mows lawns and picks watermelons to make extra money to buy a car. (Which then trickles down to the used car salesman’s kids’ allowance, which then trickles down to a cashier at the convenience store where the kids buy candy, which then trickles down to an employee’s college professor who employs a housekeeper three times a week, etc., etc.)
“When I explain myself to my creator, I think He’s not going to be interested in trickle down economics… The question will be did I work hard to see that everybody was clothed, fed, etc… ”
Exactly did you work hard to see to it–not did you work hard to force others to see to it.
“. . .but I’m also suspicious about any justification for consumption, any idealogy that allows us to mantain our comfortable status quos.”
Uh, without consumption there would be no jobs. (There would certainly not be the computer that you typed your comments on, either.) But the primary justification for consumption is that it is one of our freedoms. Freedom is a good thing.
“. . .so certainly if I called for others to do things I wasn’t myself doing I would be judged for this.”
But even if you are doing your part, should you force others to do so? Did Jesus?
“I think I’m called to use this vote in a moral way.”
I agree, and it’s immoral to take other people’s money, even if you want to use it for what you consider a good cause. Hold a fundraiser and urge people to give voluntarily, but don’t use the government’s might to confiscate somebody else’s earned money.
“But I am claiming that surplus is immoral wherever others have a deficit; . .”
Not if that surplus was honestly earned. And since when did Democrats believe that you can legislate morality? Will people really score points with God by giving money that they are forced to give by the government? Is that really the moral equivalent of donating clothes to the neighbor’s kid or donating money to a homeless shelter on your own volition?
“One of the fundamental questions, maybe, running through all this is “how much of ‘my’ money real is mine?” We all exist in a system that helps us in some ways and hurts us in others. ”
This is your best point, in my opinion. However, it points to the moral goodness of voluntarily giving to the needy around us and not to a right for a group of legislators to take earned money from us, except to fund the constitutional functions that they are supposed to perform.
“All of us face the question of how much we should have to financially support the government.”
Actually you miss the more fundamental question, which is what the government should be doing, and that brings me back to the beginning of this comment: it is unconstitutional for the government to run a wealth redistribution program.
Greetings, Jeff. I’m not going to keep criticizing here since I believe your basic points are probably defensible. I’m not a Christian, so there’s no reason to take me too seriously, but on occasion I meet people who seem to believe that if you’re not a Republican, you can’t be a Christian. On rarer occasions, I meet people who seem to believe that if you’re not a Democrat, you can’t be a Christian. Both views strike me as rather obviously heretical. Again, though, I’m not a Christian.
[...] 13th, 2007 by Micah Tillman As I wrote below, I think a lot of political policies assume a static society. So I found this interesting: The [...]
Wow-
There is so much to respond to here. I’m not sure I’ll get to it all. I’m going to start with the oldest post I haven’t responded to and work my way down.
Micah:
Thanks.
I’m not sure I kept up with your first paragraph. I’ll just tell you what I think you’re saying first– if you tell me that I get your point then I’ll respond to it later.
Are you saying that we should draw a distinction between the just actions of individuals and the just actions of governments?
As for your second two paragraphs:
I think we both agree that different roles and relationships imply that we do different things. If my kids are going through the same issue as a random person on the street, then I won’t necessarily react in the same way.
I’m with you on the idea that our specific actions might be quite different based on our relationships.
But it seems to me that all these different specific actions will over all move us to the same goals.
We hope that all adults who want to be in comitted romantic relationships will find them. We hope that all families make sound financial decisions. We hope that all people expose themselves to art which glorifies the human experience.
We can’t do anything to meaningfully impact some of these problems… But when can do something, we should, I think.
We might disagree on how much we are obliged to sacrifice; we might disagree on the most effective way to help. But I don’t think I’m taking a particularly radical position when I suggest that we are obliged to help in a variety of ways.
Lesley:
I think you’re exactly right: If I’m going to claim that surplus can be immoral I ought to define my terms.
I’d say that the surplus I’m talking about is a surplus of any requirement of life. I’d say the immorality is directly proportional to how excessive the surplus is and how feasible it would be to get the item to those in needy.
If somebody has 4 extra loaves of bread, I wouldn’t say they are very guilty if somebody on the other side of the world starves to death. However, if they walking down the street and watched the person starve to death while snacking away on there bread I’d say this is a different matter; similarly, I’d say if they have 4,000 extra loaves of bread, they are similarly culpable.
You are also right that nearly all of us have a surplus. As you and several others imply, I have not sold all my belongings and given everything I have to the poor. (Obviosuly, for example, I have a computer to be typing this on.)
Thanks for the stimulating discussion everybody, I’ll try and post more later.
Jeff
Jeff–
Thanks!
To respond to your question about just actions of people vs. governments:
I don’t think there’s any such thing as the just action of a government qua government. Governments are just groups of people. They’re people just like the rest of us. The only difference is they have guns and we don’t.
I should say, by the way, that I believe Lesley was indulging to some extent in an ad hominem. Just because you don’t live by your moral philosophy doesn’t make that philosophy false. Of course, I do believe the philosophy is false. I think such a radical redistribution (essentially sending virtually all American wealth overseas) would result in more poverty and starvation, not less, but that’s an economic argument.
Ad hominem or not, I find it very cool to have a husband/wife duo conversing here!
Very cool indeed.
Lesley convinced me that she was not intending an ad hominem (and rereading her post, I’m convinced she’s right). She was genuinely simply trying to clarify Jeff’s position and was not offering a tu quoque fallacy. Mea culpa.
By the way, Mr Tillman, while you and your family may not have guns, the same certainly doesn’t apply to the American populace as a whole. 39% of Americans report living in a home with a gun.
Hi everybody-
I’ll try and respond to individuals later.
One clarification of my own position, and one fact I’d like to introduce into this discussion, first, though:
Clarification: I don’t believe that we should evenly distrubute all the stuff in the world. I do believe that we should work hard to equalize opportunities to get stuff… And I also believe that in cases where death will result if one person doesn’t have stuff (e.g. food) and another person has too much of that stuff, then a more agressive redistrubution is a moral act.
The fact that I’d like to introduce into this conversation: De facto redistrubution goes on all the time. There are winners and losers in nearly every major law and policy decision.
If we decide to make a new high way wealth is redistrubuted from all the tax payers into the pockets of a distrubutor who know transports his goods for a cheaper price; when we invest in more street sweepers wealth is distrubuted to the new people hired and perhaps the stores which might attract business because they are cleaner; when we invest more money in education we in the long-term distrubute the wealth into the students pockets through better future employment opportunities; when we decide to increase regulation of an industry we put money in the pockets of the consumers, though they never realize it, because we reduce the liklihood that they will have to pay for injuries resulting from the regulated good.
I realize that there is a difference in intent; and sometimes intent is important. But I’m a little surprised at how radical my position seems to some folks, because we engage in these activities all the time.
Hi everybody-
A few more minutes for a few more thoughts.
Andrew:
You’re absolutely right… Folks on both sides of the political spectrum are busy attempting to remake God in their own image…
A tension I feel around this issue that I haven’t quite worked out though, is how to both boldly stand by my convictions and leave room for others to have the freedom of theirs.
I recognize that I’m not perfect; and I further recognize that God doesn’t play politics… However, I also have to confess, in my heart of hearts, that I think God “looks” more like a progressive than a conservative… If I believed otherwise, I wouldn’t be mostly a progressive, not a conservative. I’m maybe not so much disagreeing with you as confessing my own failings in the area you point out.
Lesley & everybody on the subject of ad hominem arguments…
I agree, it’s pretty cool that a couple are engaged in this debate, and even cooler that they can disagree.
I actually think ethics is a pretty unique category… ad hominem arguments in some ways aren’t so fallacious here as they in other categories… If a mechanic had a run down car, it would be reasonable to question their qualifications. If somebody is pronouncing on ethics, it’s reasonable to call into questions their qualifications if they aren’t living these ethics out.
The mechanic might have a reasonable explanation, which allows us to mantain faith in his abilities… Ditto the ethicist. But personally, even if she’d intended questions about my character, to me these would seem reasonable.
Finally, Renessainceguy:
My post above at least attempted to respond to your critiques. Bottom line: I think it’s a non-issue whether or not wealth redistrubution is consistent, inconsistent, or neutral to constitutional principles. I think it’s a non-issue because it’s unavoidable. Regardless of our intentions, wealth gets redistrubuted with almost every major decision government makes.
It might be that we have quite different intents in mind than redistrubution… But if a series of decision shifts the wealth in a certain direction, it’d seem reasonable to shift some of that wealth in the opposite direction.
An example:
One of the intents of the freeway system was to create a method for large military vehicles to travel quickly across the country in case of invasion. A result of this was that it made it cheaper and easier to ship goods across the country. Wealth was shifted from all the tax payers to the folks who transport goods.
If this series of shifts occured and everybody seemed to be getting a fair shot then I wouldn’t call for an intentional, counterbalancing redistrubution.
I would not deny that the wealth trickles down to some.
I would, however, deny that it trickles down to everybody.
People are starving to death, they are stuck in cyclical poverty, they are living in debilitating debt.
If the claim is made that unchecked capitalism allows for more capital to flow down, then I think an explanation is owed for the great depression. The government regulated much less back then, it siphoned less off in taxes… and yet, there was staggering uneployment, startvation, etc… Why didn’t the wealth of socieities elites trickle down into that societies neediest?
Actually, given the care I took to phrase my comment as neutrally as possible, I’m disappointed (in myself) that I did not make myself more clear.
Naturally, given Jeff’s earlier comment, the charge of hypocrisy was the elephant in the room. I was trying to respond to a bold moral claim, “Surplus is immoral wherever others have a deficit,” and get more information on Jeff’s point of view without making it personal. I do not believe Jeff made this statement with the intent to condemn, and did not see any need to respond defensively.
The charge of hypocrisy is an easy one to throw around, but frequently not very interesting in any given discussion.
Whether or not one lives up to one’s own moral standards is largely irrelevant to whether those moral standards are correct. Every human being sometimes fails to live up to his own expectations.
I was for many years an habitual liar. It was a habit I developed as a teenager which took years to break. I knew it was wrong, even as I was doing it. (It was bad enough that I now avoid even the little socially lubricating white lies that most people tell, and which are largely harmless.) The fact of my own weakness didn’t make me any less able to identify dishonesty in others, or any less right in criticizing it.
I reserve the derogatory charge of hypocrisy for one who advocates a position that he himself does not actually believe in. For example, a supporter of campaign finance reform who truly _believes_ that he is supporting a means of muzzling free speech and protecting incumbency, but claims to be intent on reducing corruption in politics. Andrew and I disagree on whether John McCain is an example of this.
I wanted first to clarify Jeff’s moral claim. “Surplus wealth” is a very easy concept to discuss if defined approximately as basic subsistence (we can say enough food, warm clothes, shelter, etc throw in some health care or whatever you like, I’m sure any definition you pick for “subsistence” is reasonable enough for our purposes).
It becomes considerably more complicated if it means what many people advocating redistribution mean: “More than I have.”
Whether or not Jeff lives by this, aspires to live by it, or responds pragmatically to a competitive, market oriented economy, is not in the least bit interesting to me.
What was interesting to me was if by “surplus wealth” Jeff means anything beyond subsistence, and if we have a moral duty to vote for candidates who will support redistribution to provide for those whose basic needs are not being met, then it seems to be that the logical extension of these arguments is that “We have a moral duty to elect candidates who will support redistribution of all of America’s surplus wealth to those outside our borders who are considerably worse off.”
If Jeff believes this is true, then there is a discussion we can have about that, both on moral and pragmatic issues. If he does not, then what is the distinction between cross border redistribution, and internal redistribution?
Jeff’s clarifications suggest a somewhat more moderate view, and I will likely respond to those in the next few days.
Awesome questions… I’ll look foreward yo your replies.
As you inferred, I don’t think we have a moral obligation to share all our wealth. I do however, think it’s pretty tricky to define exactly what counts as luxury and what counts as necessity.
I think we have a moral obligation that’s theoretically the same to anyone, no matter where we are… But on a practical level, I think the strength of our obligation is proportional to how effectively we can remedy the injustice. International borders pose some hurdles, so I think maybe they mitigate some of our obligation…
A thought experiment that just popped up out of the recesses of my warped brain clarifies the issue for me.
I live in the Northeast. If a person 2000 miles to the west of me was dying of starvation he’d be in the U.S. Assuming I have a finite ammount of resources to devote to him, I’d spend a certain ammount of these in getting to him and a certain ammount of these to remedy his issues.
If somebody 2000 miles Southwest of me was in a similar condition, he’d be in Central America, I think. I’d have to cross borders. This would take a certain ammount of additional resources. The remainder of my resources would still go to this person, but there’d be less remaining.
More total good was done by not crossing my borders. All other things being equal, then, it seems more logical to care for the closer person first.
There are of course, a variety of things which could be unequal; if more Americans are taking care of their countrymen, his need might be less and the needs of the Central American would become primary.
Maybe I’ve over thought this whole thing.
I’ll answer some of the issues raised here, though many are quite difficult issues so I won’t be able to do them full justice.
I have no particular opinion on the character of God, obviously, since I don’t believe there is such an animal. However, I could very easily take the Gospels and demonstrate pretty much whatever political philosophy I wished. As Aquinas defined heresy, it is “restricting belief to certain points of Christ’s doctrine selected and fashioned at pleasure.” I do think the Right is more guilty of this than the Left, in general. When the Left does it, it tends to be with a wink and a nod, and is usually done by non-believers to wield as a club against their political opponents.
I actually agree with your critiques of Renaissance Guy’s constitutionality argument. Even if I agreed about the unconstitutionality (and I probably do, but that argument lost the day a long time ago), it’s just a legalistic argument and does not actually go to the morality at issue. Renaissance Guy does make some substantive economic points which I broadly agree with.
For example, you made an argument about surplus bread. I don’t know of anybody who hoards bread in order to deny it to the starving, however. Indeed, I would be quite baffled at such behavior. Occasionally, I have to throw away food because I bought too much of it and can’t eat it before it spoils. But I never do this intentionally and I don’t think anybody else does either. Moreover, I would be more than happy to give it to anybody who needed it, but soup kitchens aren’t terribly interested in donations of perishables.
The Great Depression is an interesting case. Prior to 1913, the United States had no central bank. This caused some problems, since people didn’t always trust the banks to have the ability to repay their deposits. There were a series of “panics” and bank runs during the late 19th century which often led to recessions by contracting the money supply, including 1873, 1893, and 1907. (Basically, during the run, the bank would be unable to redeem the accounts of all their depositors since that money had been lent out to other people. The banks would then have to call in the loans or go out of business and the money supply would contract.) Congress set up the Federal Reserve in 1913 to deal with this problem. It is very important to realize that while 19th century America did have a fairly laissez-faire economy, by the time Hoover was President, this was no longer really true. Teddy Roosevelt and Woodrow Wilson had both done an awful lot of meddling in the economy before the Great Depression. Moreover, the Great Depression was a global phenomenon, encompassing every economy.
Very early on, the Federal Reserve was a disaster. In 1928-29, the economy was just emerging from a recession, commodity prices were declining, and there was no inflation. The Fed decided to raise interest rates because it was worried about “speculation” in the stock market. They had tried to pressure banks not to lend money to investors and brokers and, when this failed, raised interest rates themselves. This caused the economy to slow down and the resulting slowdown led to the stock market crash of 1929. (Many economists believe that there were other contributing causes to the crash of ‘29 and they are almost certainly correct.) The crash made things worse, of course, and the economy continued to slow. Meanwhile, the U.S. was still on the gold standard. I think Ron Paul advocates a gold standard or something like it (as do some other libertarians) and let me say right now that I think it’s a foolish idea. The problem with the gold standard is that it is not and cannot be a guarantee of value. Investors, you see, will always be able to doubt a country’s ability to make good on its gold promises. And if they doubt it enough, this can lead to speculative attacks on the currency. (A large number of people simultaneously demanding gold for their currency.) This happened to Britain in September of 1931, forcing Britain to abandon the gold standard. The United States dollar was next in line. The Federal Reserve decided to raise interest rates again, even though the currency had gone through massive deflation, the economy was still contracting, and raising interest rates was about the worst thing they could do. However, they were hoping to tempt speculators into staying with the dollar, and forestall the speculative attack on it, by guaranteeing better interest rates on their dollar investments. Meanwhile, the Fed had to ignore the thousands of bank failures that occurred in the early ’30s, which further worsened the monetary situation.
In 1932, Congress urged the Fed to ease up on monetary policy. The Fed gave in to the pressure, but then decided they had eased enough and tightened back up. One reason, by the way, that they were making these mistakes is because throughout this period, nominal interest rates were always actually very low. The reason why real interest rates were so much higher was because the U.S. was experiencing serious deflation. The currency was becoming more valuable all the time (because there was so much less of it in the economy). This was compounded by hoarding. Since nobody trusted the banks, money was simply being put into coffee cans where it didn’t do any good to anybody and further contracted the money supply. By allowing these persistent declines in the money supply, the Federal Reserve greatly destabilized the United States economy. Another reason the Fed was making these mistakes was because its hands were tied by regulations requiring it to extend credit only if sufficiently backed by gold. (The gold standard was a serious handicap.)
The Federal Reserve was started because private banking with no centralized bank had led to panics and recessions, and this is perfectly true. That the worst panics and the worst recessions have occurred under the Federal Reserve system is one of the ironies of history. I am not, of course, advocating getting rid of the Federal Reserve. A well-run central bank can be a real boon to the economy as we have seen under Volcker and Greenspan. Our current economy has been practically recession-proof for twenty-five years with only a couple of extremely minor recessions in 1990 and 2001. Contrast, though, with the Great Depression or with the stagflation of the ’70s and its attendant recessions, ending with the 1981-82 recession when Volcker gave the economy its “tough medicine” to wring out inflation.
All of this, by the way, comes from A Monetary History of the United States by Milton Friedman and Anna Schwartz, which persuaded almost all economists that the Great Depression had principally monetary causes. I should state that there are still many economic historians who believe monetary causes are secondary to other issues (like the drought of 1930) and a few unreconstructed Keynesians who believe monetary causes played no role at all. I also didn’t even touch on various things the government did which made things worse like the Smoot-Hawley Tariff of 1930 which seriously reduced international trade. (After all, the real unique thing about the Depression wasn’t how bad it was, since previous recessions had been just as bad, but how long it was. The Depression could be given dates of 1930-1942.)