The Dean of the Cox School of Business at SMU, Albert Niemi, spoke at an economic summit the last week of February. He focused on our current economic situation and how it compares to the Great Depression and other recessions. So how does a REcession end up as a DEpression? You might be surprised
First, the Great Depression was a uniquely American problem. It did not extend around the world as our current problem does.
Second, our current recession has been going on for 15 months now. This compares to the recessions of 1973-75 (24 months), 1981 (16 months), 1991 (6 months) and 2000 (8 months). Predictions are for the current recession to continue for 24-30 months total.
Third, the only reason that the Great Depression turned into what it was instead of just a recession was because of the response of the Presidents and Congress at the time. Herbert Hoover and Franklin Roosevelt both decided to cut spending and raise taxes during the 1930's. They couldn't conceive of operating in the red regardless of the advice of the famous economist John Maynard Keynes. This is what sent the country into despair.
So that brings us to today. Our most recent and new presidents and Congress have all demonstrated that they aren't afraid to spend. They are doing that at an unprecedented pace. And Mr. Niemi supports that saying he would have voted for the stimulus packages had he been in Congress.
But his biggest fear is that President Obama now seems intent on repeating the same tax mistakes of the 1930's. He plans to let the current tax breaks expire and increase taxes on the "rich." Forget that the top 1% of Americans already pay 40% of the taxes and the top 50% pay 97% of taxes while the bottom 40% pay nothing at all.
The problem with taxing the rich is that they stop spending on luxuries and those luxuries are often provided by those at the bottom of the economy. He gave the example of Jimmy Carter's luxury tax on boats. The rich stopped buying boats opting to rent them instead which resulted in 200,000 unemployed New Englanders who no more reason to build boats.
Mr. Niemi had many more thoughts and the stats to back them up. I'd be happy to hear your thoughts on this issue. Please give me a call if you'd like to talk more.
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