Saturday, 17 March 2012

The 1937 Crash

Social security was the start of a crash every bit as large as the 1929 stock market correction and yet it seems to be overlooked and forgotten leaving the constant set of interventions  and resulting crashes as an infrequent event that come only rarely and not with the changes in government policy that precede them.

Why do I state the interventions that preceded, well, like all other crashes, there is generally a policy of “good intention”acting to make the “world a better place” at then unseen expense (but at the cost of other people’s money).

In 1937, social security came into being. Designed to “help”and to ensure people had a safety net in case they lost their job, well the initial result was a large scale loss of jobs with a system that had nothing in it to actually fund people for many years and then a scheme where we saw a pyramid build on the notion that the population will always increase sufficiently to fund it into the future.

The start of social security in the US took a large sum out of the economy. The result was a widespread loss of jobs leading to nearly 19% of the US workforce being made unemployed. So much for a 

Roosevelt lead recovery from the great depression.

Worse, corporate profits slumped. Due to the downturn in the economy as people could no longer fund their prior expenses and stopped consumption, corporate profits where directed effected and where cut by as much as 80% of the lowered profits seen in the already limited years of the early 30’s. Industrial output slumped by over 40%.

The result, the relief lines and those seeking aid rose. In fact, these people where coming out of the proverbial woodwork. In the year following the introduction of social security, the number of people requiring help rose by 400% in city's such as Detroit.

It was another four years before the US economy started to recover form this act of good will. Yet, we continue to fail to see the cause of crashes as interventionist policy and maintain the cause as business cycles.

Maybe we would all be better off if we started to see business cycles as a consequence of uncertainty generated through political “good will”.

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