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Hooverism Makes A Comeback In The New York Times

Last Wednes­day the New York Times Economix Blog pub­lished an arti­cle writ­ten by Casey B. Mul­li­gan sug­gest­ing Pres­i­dent Obama should con­sider let­ting “a bank panic run its course”. While Dr. Mul­li­gan is an Eco­nom­ics Pro­fes­sor at the Uni­ver­sity of Chicago and the New York Times is one of the most respected pub­li­ca­tions in the world, this arti­cle shouldn’t have seen the light of day and is a dis­ap­point­ing mis­take by the New York Times. The last Pres­i­dent who believed finan­cial pan­ics and bank runs were eco­nomic tools to purge the econ­omy of excess was Her­bert Hoover. Com­pe­tent jour­nal­ists and econ­o­mists should intu­itively know that the United States doesn’t need to try Hoover’s poli­cies and see if they work bet­ter the sec­ond time around.

The idea that finan­cial pan­ics and  bank runs could be good for the econ­omy is ridicu­lous and a lie.

Bank pan­ics are eco­nomic melt­downs that kill the fab­ric of soci­ety by snuff­ing out eco­nomic activ­ity and caus­ing mass human suf­fer­ing. Let­ting a bank panic run its course makes about as much sense as let­ting a nuclear melt­down go crit­i­cal. While nuclear win­ter may not be as bad or last as long as every­one thinks, no sane U.S. Pres­i­dent will inten­tion­ally roll the dice on uncon­trolled ther­monu­clear reac­tions and then see who sur­vives. Nor will any U.S. Pres­i­dent let a bank panic run its course because of the real chance that there won’t be any­thing left of the econ­omy or soci­ety to rebuild.

Just like nuclear con­t­a­m­i­na­tion lasts a long time, uncon­trolled bank pan­ics kill eco­nomic activ­ity for decades. With­out banks money doesn’t work as a means for com­merce and exchange and barter takes over as the pri­mary mech­a­nism for com­merce. Just try to imag­ine going to the gro­cery store and bar­ter­ing for food, bar­ter­ing for shel­ter or bar­ter­ing for police pro­tec­tion. What would you offer to the local super mar­ket in exchange for food? In today’s econ­omy based upon spe­cial­iza­tion and ser­vice how many of us makes any­thing that we can barter to sur­vive. If a bank panic goes crit­i­cal we may have to learn to live in a world with­out ATMs, credit cards and checks. And, try to imag­ine a world with­out enough money cur­rency to go around. The destruc­tion of mod­ern U.S. soci­ety and the Amer­i­can way of life is one of the pos­si­ble side effects of an uncon­trolled melt down of the finan­cial system.

I thought that the United States turned its back on the “liq­ui­da­tion­ist” school of eco­nomic thought when it rejected Andrew Mellon’s jus­ti­fi­ca­tion for Hoover’s eco­nomic poli­cies (Mel­lon was the Sec­re­tary of the Trea­sury under Her­bert Hoover who thought that finan­cial pan­ics and bank runs are good for the econ­omy). Since the Great Depres­sion it has been an arti­cle of faith between the gov­ern­ment and its cit­i­zens that Hooverism is dead and won’t be com­ing back any­time soon. Rewrit­ing this social com­pact ben­e­fits no body and smacks of either polit­i­cal oppor­tunism or media grand­stand­ing. Either way, the New York Times is sup­posed to know bet­ter and be more dis­crim­i­nat­ing in what it publishes.

And, just like the New York Times should have known bet­ter, there is no place for a seri­ous econ­o­mist to advo­cate or accept mass suf­fer­ing as “good” for the econ­omy. Mulligan’s pedi­gree and employer doesn’t make his words any less ridicu­lous than some­one who is less edu­cated and doesn’t have any knowl­edge of eco­nomic his­tory.  It’s just that after years of being edu­cated and study­ing Mul­li­gan was sup­posed to have learned some­thing rather than learned what seems to be nothing. 

Brad DeLong summed up his thoughts on Economix and this arti­cle when he wrote….

Can We Please Shut Down the New York Times’s Economix Now?

This is the final straw:

The Panic of ’08: Reces­sion Cause or Effect?: Recent research ques­tions the claim that the finan­cial pan­ics them­selves con­tributed to their con­tem­po­ra­ne­ous and severe employ­ment downturns…

That most peo­ple writ­ing for Economix are good is no excuse. You read it and you trust it, and you know less after­wards than you knew when you started.

Why oh why can’t we have a bet­ter press corps?

Posted in: Credit Crisis, economy, Finance, Hoover Adminstration, New York Times, Public Policy

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