The recovery of the United States after the 1930 crisis and the militant justice of Kirchnerism

Many of my fellow economists are constantly insisting that public spending and taxes be reduced, which I certainly share. The fact is that a lot of colleagues have only stayed in the accounts and do not seem to have made much progress in the relationship between economy and institutions. In other words, they simply say that spending needs to be reduced, but do not explain why record levels of public spending have been reached in Argentina. To solve a problem, you must first recognize it and then try to see why it happened. This is the second part in which I see a lack of badysis.

Unfortunately, economically oriented economists have not read much about economics and institutions to warn that the economic problem is due to institutional problems, which in turn are the result of prevailing values. in the society.

They remained in some econometric models and did not read the authors' contributions such as Mancur Olson, in "Rise and Decline of the Nations" and "Power and Prosperity". Before, Hayek, in The constitution of freedom (1960) made a first major advance in this regard by supplementing it with "Law, Legislation and Freedom," three volumes published in 1973, 1976, and 1979 that show the need to limit the power of the state so that There can be economic prosperity and freedom. Mises, Popper and many other authors have made tremendous contributions to explain this institutional economic phenomenon.

We now know that consolidated public expenditure accounts for 47% of GDP and that To return to the levels of the 1990s, consolidated expenditures are expected to be reduced by about $ 75 billion.

It is clear that the explosion of public spending occurred in the K era, at a time when there had been a populist bond with a strong weakening of institutions. Populism aroused resentment in society by selling the argument that the poverty of some was the consequence of the wealth of others, so that poverty was resolved by distributing wealth instead of generating it. Those who earn the most must pay more taxes to help those who earn less. For that, we had to advance on individual rights, property rights and try to domesticate justice. Not in vain does Kirchner want to come back for revenge and says that there must be militant justice. It is clear that populist regimes that are transformed into autocracies must domesticate justice to commit all sorts of abuses without limiting the limits, although historical evidence shows that independent justice contributes to economic growth.

What happened in the United States after 1930?

In this respect, it is interesting to badyze the fundamental factor that led the US economy to recover from the crisis of 1929, known as the crisis of 30.

Few have thoroughly badyzed this period and Many often claim that the United States emerged from the crisis of the twentieth following World War II, as if a war were generating wealth instead of destroying it..

Others think that it is the Keynesian theory that helped the United States come out of the Great Depression, and others say that it is impossible because Keynes does not. influenced the economy that in 1936, when he published the General Theory.

The case of the crisis of 30 and the New Deal is an emblematic case in which few people have noticed the importance of institutions to emerge from economic crises. The whole debate was limited to determining the success of the New Deal and the influence of Keynesian policies on the end of the crisis.

In general, it is thought that the New Deal was a purely Keynesian recipe for increasing public spending financed by a monetary issue. The reality is that the New Deal was something much more complex than the increase in public spending, although it was proved that Roosevelt was in personal contact with Keynes and his ideas.Then he turned to the general theory in 1936.

In addition to the letter Keynes published in 1933 on the need to increase aggregate demand and deplores the fiscal discipline proposed by Roosevelt in 1934 Keynes met Roosevelt and explained his ideas on the increase in public spending and the budget deficit. In a letter from Keynes to the President dated February 1, 1938, he mentioned at least twice the meeting he had had three and a half years ago, that is, he was referring to the middle of 1934 , meeting confirmed in the draft letter prepared by the US Treasury Secretary to respond to Keynes (letter dated March 3, 1938 and referring to this meeting in mid-1934).

The fact is that Roosevelt knew Keynes's ideas before publishing them in The General Theory in 1936, but he dismissed them because his 1932 presidential campaign was based on balanced budgets. Roosevelt felt that the balanced budget would bring confidence, more investment and improve the situation of economic agents to get out of the recession. Recall that when he took office in 1933, unemployment was about 25% and the Great Depression of 1933 had not completely ended.

The economy has improved somewhat, but the recession process is starting again in August of the same year, in my opinion because of the many regulations imposed by Roosevelt. That's more, he started following Keynes' ideas to a certain extent and started increasing public spending, but not in the magnitude suggested by Keynes.

But the New Deal was not just about public spending, In addition, Roosevelt prohibits the possession of gold. It is as if today it was forbidden for the Argentineans to have any dollars. The Agricultural Adjustment Act by which agricultural producers have been subsidized so that they do not produce. This grant was financed by the processing fee. A tax that had to be paid by those who bought agricultural products as inputs. The one who bought cotton to make a shirt paid the processing tax, so that the one who produced cotton produced less with the subsidy that the state gave him with this tax.

The establishment of National Industrial Recovery Act which regulated the activity of the industry, the hours of work, wages, etc. And, in addition to the imposed protectionism, the National Recovery Administration to regulate the whole economy.

All this tangle of New Deal regulations has drowned the economy and led to a number of tests challenging their constitutionality. At first, the Supreme Court accompanied, but came to a point where he said enough.

Here, it should be noted that Herbert Hoover, the president who preceded Roosevelt, left a tribunal composed of four conservative members, two moderate and three liberals (here it looks like "progress"), according to the work of Antonia Sagredo Santos published by the Complutense University of Madrid. That is, Roosevelt was not against the entire Supreme Court. But in 1935, the tribune began to put an end to the avalanche of unconstitutional regulations and, in January 1936, he turned the heart of the New Deal that was in the country. Agricultural Adjustment Act for the United States case against Butler, known as the Butler case. In essence, the Supreme Court declared unconstitutional the tax of transformation to compel freedom, say extortion for those who did not want to comply with the orders of the government to produce less, advanced the rights of the states transforming the United States into a unitary government and executive power was arrested to exercise legislative powers.

When the Agricultural Adjustment Actshortly after National Industrial Recovery Act and the National Recovery Administration because they were based on the spirit of the first. This statement of unconstitutionality freed the economy from the regulatory drowning and already in 1935 with the first limitations and in 1936 with the brake on the tangle of New Deal controls, the economy covered the trust.

obviously Roosevelt wanted to remove part of the Court, which reminds the Kirchner, of being opposed to his special powers delegated by Congress, something the trubuna deemed inadmissible in a state with a division of powers. Roosevelt's badault on the US court had no support even in his own party, the Democrat, and this position has helped to restore confidence.

Then the president wanted to neutralize it by increasing the number of members. Not having achieved this goal, he tried to reduce the age of his members to 65 years. It did not work either. The firmness of the Court and the functioning of the American institutions, including the Democratic Party, have allowed the economy to recover after the confiscation of deposits, prohibition of possession of savings and l & # 39; 39, establishing the most absurd rules of the Moreno style, as well as the budget deficit. That is to say, the economic barbarities of the New Deal, which we copied with great enthusiasm, were hampered by the institutional functioning. Finally, The spirit of the founding fathers prevailed when the right of ownership and the division of powers had to be respected.

I have the impression that they are neither the New Deal, nor the Keynesian recipe – that Roosevelt knew since 1934 – nor the Second World War, which allowed the United States to get out of the 30th depression.

What I want to clarify is that: 1) the worst thing that can happen to Argentina is to have a militant justice, because it would destroy the rights of the individual and would plunge the economy into a phenomenal decline long-term and 2) The economic problem is not solved solely by the ingredients of tax reform, the state, openness to the world and labor reform. There is no doubt that these factors are important, but we must insist that the quality of institutions is the first step towards economic recovery and that the quality of institutions depends on the values ​​prevailing in society.

If you look at the crisis of the 30th, you can check that the release of the depression was for institutional reasons. If we consider why Argentina was an economic power at the end of the nineteenth century and at the beginning of the twentieth century, it is because the Alsatian constitution of 1853/60 laid the foundation for institutional quality. And if we look at cases like those in Spain after Franco, Ireland, Chile and many other examples, it warns that the step before economic takeoff was the change institutions, that is, the rules of the game that should prevail in society.

With militant justice, we can only expect more poverty, indigence and corruption. With institutional quality, the horizon of prosperity opens before us. This is what seems to be for now ahead of the October elections. A militant justice that leads us to Chavismo, or the long road that leads to the reconstruction of institutional quality before the economic recovery.