Financial microregulation Fail.

Micromanagement does not work. Microregulation stops adaptation. Central planning is parasitical.

And the rest of the world came out of the great depression in the mid 1930s: the fascists included, because they were not as stupid as the progressive democrats.

After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

“President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,” said Cole, also a UCLA professor of economics. “So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.”

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt’s policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.

In the three years following the implementation of Roosevelt’s policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

“High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns,” Ohanian said. “As we’ve seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market’s self-correcting forces.”

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.

Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.

History does not rhyme, but there are patterns. As in the 1930s, there is a tendency to micro regulate. To control our spending. The current stimulus has not worked — we have not hyperinflated despite money being made at an unprecidented rate — because it goes directly into the investment class, to play roulette with bonds and shares, and this bubble has nothing to do with value.

The economy has been static, and wages, in real terms, are falling. Interestingly, the rich, as in the 1930s, are building status homes, virtue signaling, and consuming conspicuously.

But the current move is to make cash inconvenient. I like cash. I don’t really want anyone to keep track of which coffess shops I went to. Cash is universal. It allows for trading of second hand goods and upcycling. It is private, and it is unregulated.

But, since cashflow is how illegal industries work, and illegal industries do not pay tax, cash must go. We must have micro-regulation in case of money laundering. We must triple down. And expect the prudent not to rebel.

Cheap money encourages risky behavior. It gives banks an incentive to give ‘no money down’ loans to homeless people with no employment history.

It creates bubbles (like the housing bubble from 10 years ago), and ultimately, financial panics (like the banking crisis from 8 years ago).

Banks are supposed to be conservative, responsible managers of other people’s money.

When central bank policies penalize that practice, bad things tend to happen.

Traditionally when a commercial bank in Europe wants to play it safe with its customers’ funds, they would hold excess reserves on deposit with the European Central Bank.

In the past, they might even have been paid interest on those excess reserves as an extra incentive to be conservative.

Now it’s the exact opposite. If a bank holds excess reserves on deposit at the ECB to ensure that they have a greater margin of safety, they must now pay 0.3% to the ECB.

That’s what it means to have negative interest rates. And for the bank, this eats into their profits, especially when they have tens of billions in excess reserves.

Talk about being between a rock and a hard place.

On one hand, banks stand to lose a ton of money in negative interest. On the other hand, they put their customers’ deposits at risk if they don’t hold extra reserves.

Well, the Bavarian Banking Association has had enough of this financial dictatorship.

Their new recommendation is for all member banks to ditch the ECB and instead start keeping their excess reserves in physical cash, stored in their own bank vaults.

This is not going to end well. Time to hunker down.