We see many articles of significance in the world media, but we haven’t the time to tell you about all of them. So, we will periodically put a couple of key ones into emails and send them out to those who are interested.  We expect to send periodic emails with two or three articles attached to them.

We will try to do our part by filtering and explaining. However, to stay fully informed, investors will have to do some work too.


Those who argue for “buy American”, “buy French”, or any other country, think that they are helping their own interests.  History has shown that this lack of economic knowledge can prove to be devastating to the standard of living…for them and their fellow countrymen.  Although it seems a bit counter-intuitive, free trade actually makes the people who allow it richer.  This has been proven many times.  Those who believe that they are losing their jobs to free trade are often actually losing their jobs because the industry and company in which they work is less efficient.  Their country, industry, and company do not have a comparative advantage in that product area.  To prosper longer term, the country, industry, and company must adapt and create products and services in which they do have a comparative advantage.

To accentuate the point, I want to include an article by two professors from schools that are dear to me, the University of Pennsylvania and UCLA.  In today’s academic environment, it takes some courage to publish research and studies showing that government, companies, and unions have been unwise.  This kind of research is often subject to attack.

How Government Prolonged the Depression

Policies that decreased competition in product and labor markets were especially destructive.


The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR’s policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.

The goal of the New Deal was to get Americans back to work. But the New Deal didn’t restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.

Even comparing hours worked at the end of 1930s to those at the beginning of FDR’s presidency doesn’t paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn’t just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.

Why wasn’t the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.

So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.

The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation’s antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of "fair competition" which spelled out what producers could and could not do, and which were designed to eliminate "excessive competition" that FDR believed to be the source of the Depression.

These codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive capacity by placing quotas on industry investment in new plants and equipment. Following government approval of each industry code, industry prices and wages increased substantially, while prices and wages in sectors that weren’t covered by the NIRA, such as agriculture, did not. We have calculated that manufacturing wages were as much as 25% above the level that would have prevailed without the New Deal. And while the artificially high wages created by the NIRA benefited the few that were fortunate to have a job in those industries, they significantly depressed production and employment, as the growth in wage costs far exceeded productivity growth.

These policies continued even after the NIRA was declared unconstitutional in 1935. There was no antitrust activity after the NIRA, despite overwhelming FTC evidence of price-fixing and production limits in many industries, and the National Labor Relations Act of 1935 gave unions substantial collective-bargaining power. While not permitted under federal law, the sit-down strike, in which workers were occupied factories and shut down production, was tolerated by governors in a number of states and was used with great success against major employers, including General Motors in 1937.

The downturn of 1937-38 was preceded by large wage hikes that pushed wages well above their NIRA levels, following the Supreme Court’s 1937 decision that upheld the constitutionality of the National Labor Relations Act. These wage hikes led to further job loss, particularly in manufacturing. The "recession in a depression" thus was not the result of a reversal of New Deal policies, as argued by some, but rather a deepening of New Deal polices that raised wages even further above their competitive levels, and which further prevented the normal forces of supply and demand from restoring full employment. Our research indicates that New Deal labor and industrial policies prolonged the Depression by seven years.

By the late 1930s, New Deal policies did begin to reverse, which coincided with the beginning of the recovery. In a 1938 speech, FDR acknowledged that the American economy had become a "concealed cartel system like Europe," which led the Justice Department to reinitiate antitrust prosecution. And union bargaining power was significantly reduced, first by the Supreme Court’s ruling that the sit-down strike was illegal, and further reduced during World War II by the National War Labor Board (NWLB), in which large union wage settlements were limited by the NWLB to cost-of-living increases. The wartime economic boom reflected not only the enormous resource drain of military spending, but also the erosion of New Deal labor and industrial policies.

By 1947, through a combination of NWLB wage restrictions and rapid productivity growth, we have calculated that the large gap between manufacturing wages and productivity that emerged during the New Deal had nearly been eliminated. And since that time, wages have never approached the severely distorted levels that prevailed under the New Deal, nor has the country suffered from such abysmally low employment.

The main lesson we have learned from the New Deal is that wholesale government intervention can — and does — deliver the most unintended of consequences. This was true in the 1930s, when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk.

President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries — including autos and steel — are no longer internationally competitive. Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn’t directly address the specific impediments that our economy faces is unlikely to achieve either the country’s short-term or long-term goals.

Mr. Cole is professor of economics at the University of Pennsylvania. Mr. Ohanian is professor of economics and director of the Ettinger Family Program in Macroeconomic Research at UCLA.


Shortly after Chavez took over in Venezuela ten years ago, we predicted that in a few years he would ruin the country.  We further predicted that he would become increasingly authoritarian.  It wasn’t a hard call, because he was implementing all the old shopworn socialist programs that have failed over and over around the world.  Let us catch up with Hugo and his Bolivarian revolution today.

Hugo is presiding over an inflation rate of 31%, the highest in Latin America.  Crime has risen.  Last year, Venezuela had about 15,000 murders versus about 6,000 when he took office.  The government has not been favorable to private property, so not much building has taken place, and there is a shortage of rental housing.

The upper and middle classes have been mostly dismantled.  Many middle class technocrats have left the country after being fired by the national oil company, to make way for new employees who were more vociferous in their support for the Bolivarian revolution.  For example, Venezuelan geologists and petroleum engineers can be found working in Canada and other oil provinces around the globe. Venezuelan oil production fell substantially when Chavez actively fired most of the knowledgeable energy technocrats who ran the oil industry. 

In spite of this period of higher oil prices (as compared to ten years ago), the poor in Venezuela have been treading water economically.  Now that the price of oil, the main resource for the Venezuelan economy, has fallen, signs of an economic implosion are becoming more visible.  The state owned oil monopoly is months behind in payments to suppliers, and the currency has fallen in value.  Also, as expected, Hugo is becoming increasingly authoritarian.

We anticipate that over the next few years the bad management, corruption, and incoherence of the Chavez administration, will lead to a severe economic crisis…even if oil prices recover.  Sadly, the poor, who Chavez purportedly set out to benefit, will be sucked into the morass with everyone else.


Increased protectionism will lead to lower economic growth and higher inflation.  It will lead to a longer and stronger depression and much more suffering.  WEKNOW THAT THIS PREDICTION IS NOT POPULAR TO STATE, but it will turn out to be true.

Eventually, most observers will agree that the protectionist policies that many countries are embracing will have been a major mistake.  Unfortunately, this realization will dawn after much damage has been done.

Another unpopular statement that we made was that the recession began in November 2007.  At the time, a lot of criticism came our way.  However, recently, theU.S. government has admitted that it probably began in December 2007.

Equally unpopular was our statement in 2008 that the U.S. was in a depression, not a recession, and that it would likely not end in mid 2009 as many have predicted.  We do not doubt that our view will be affirmed by many others in the coming months.



  1. The U.S. is in a depression, and it will continue.
  2. European and U.S. government programs thus far implemented have been too little too late, and therefore are not working.  The U.S. banking system will not recover until at least $1 trillion more is contributed to its restructuring.
  3. Politicians have no idea now to solve the problem, and the appropriate solution flies in the face of their desire to give gifts to voters via pork barrel programs and handouts.  U.S. politicians are sowing the seeds of disaster for their nation.   The following article discusses the trillions already committed by the U.S.:
  4. Worldwide money supply growth is very rapid.  Money printing, to buy bonds, will be happening soon. This printing of money to pay for borrowing will eventually lead to economic suffering for current and future generations. 
  5. Just as the Russian, British, Hungarian, Icelandic and many other currencies are in the process of collapse, the U.S. dollar will eventually collapse in value, and many loyal supporters of the U.S. status quo will be much poorer.
  6. The world banking system write-offs of bad assets are far from finished, and will continue for years.


  1. Gold and gold shares.
  2. Food related commodities, especially soybeans.  There are crop problems currently brewing in China and Brazil.  If a drought occurs in the next two years, food prices could explode to the upside due to very small food stock carry-forward inventories worldwide.
  3. At some time in the next few months, energy prices should move upward because, although demand is falling, supply is falling fast as well.  Global oil production is falling 2-4 percent per year in our opinion.
  4. Many currencies will come under pressure due to unwise government actions in Europe, and many other parts of the world.  Recently, the Russian ruble, the Hungarian forint, other eastern European currencies have joined the British pound and the Icelandic crown in the dog house.  We predict that it is a big dog house, and will eventually have many inhabitants including the U.S. dollar.
  5. World stock markets will get periodic rallies of 25%, and occasional rallies of 40%, even as the long term trends in stocks continues to be down.  In other words, one must take profits periodically to survive.

Thanks for listening,

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