Kshartle wrote:
MediumTex wrote:
Kshartle wrote:
All that needed to happen was for wages and prices to drop. Rapid drops will be tough even if the government doesn't impose controls. Paper has no magical properties though. Well, I guess if were an alien looking at humans I would assume it's magical since people will do anything for it and trade anything for it.
Are you saying that wages and prices didn't drop during the 1930s?
Some prices dropped. Many were prevented from dropping by law. I won't bother you with links, if you're interested to learn about how the recession was turned into a depression that information is all out there.
I think that a LOT of prices dropped. Even where there were price controls in place, if no one could afford to buy something at the regulated price, that would have felt exactly like a price drop to someone who was selling it.
It seems to me that part of the problem in the 1930s was that asset prices were mostly allowed to drop...and drop...and drop. Of course, this set in motion a wave of defaults on loans that were initially used to purchase these assets, which caused banks to fail, which led to a shortage of currency in circulation.
The thing I've never been able to figure out about the 1930s, though, is where all of the entrepreneurs were who were supposed to come into the market and buy assets at depressed prices and then allocate them more efficiently. Ultimately, it seems like it was only when the government introduced a wave of demand into the economy when it needed to buy guns and jeeps and airplanes in 1941 that these entrepreneurs came out of the woodwork.
Why hadn't they come forward earlier?
I don't know what the cure is exactly, but it seems to me that a deflationary spiral can just continue spiraling until literally every single outstanding loan has been defaulted on, unemployment is incredibly high and a vast amount of productive capacity is sitting idle.
The problem, of course, is that sometimes while you are waiting for the entrepreneurs to gallop to the rescue John Galt-style, a revolution breaks out and they are forced to flee the country with whatever capital they have left, which obviously makes things even worse for the economic refugees who can't afford to leave.
I don't have the answer to how this type of situation should be addressed, but I think that the Austrian "let the market clear" narrative leaves out a lot of ugly non-economic stuff that can happen along the way to the "market clearing."