Sunday, March 15, 2015

Prohibition and the Great Depression

You would think that if econometrics and modeling had any validity at all then the issue of the cause and resolution of the great depression would be resolved.  Obviously they don’t.  The debate generally centers on some well propounded common sense axiom that has been violated and the ensuing consequence as proof of its validity.  A good synopsis is in Wikipedia:
It is generally held that World War II ended the great depression.  This correlation has been unfortunate for America’s self-perception and foreign policy.
The debate for whichever cause is met by instances where such stupidity did not cause the great depression.
I offer prohibition as a major factor.  The untraced illegal flows of capital may have severely burdened all the other extenuating circumstances.  The opium trade should also be considered.  When investors can get much larger returns with substantially less risk why should they consider legitimate markets?
If we ever can model economies then capital must be considered.  It is well understood that various investments and industries impact people’s livelihood in different ways.  The aforementioned defense industry requires large capital investment with relatively less employees.  Whereas smaller manufacturing enterprises spread the risk and employ far more people for less investment.
There is also the social cost of enterprise.  For instance mining and logging while initially profitable can have much greater costs for the nation than any profits extracted.
If it is ever possible to reasonably model the flows of money and investment then it may well be found that prohibition, by absorbing so much cost and investment was the unique and underlying cause of our financial ruin.

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