(Double click on the image for a larger view)Fellow creatures above and below the waves: We have managed to retrace the route of the Great Depression and repeat the same mistakes as if we learned nothing from history.
Marriner S. Eccles served as Franklin Roosevelt's Chairman of the Federal Reserve from November 1934 to February 1948. In his memoir, Beckoning Frontiers (New York, Alfred A. Knopf, 1951), he offered his opinion of what caused the Great Depression:
As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.Sound familiar? In essence, Bush's economic policies created conditions similar to those that triggered the Great Depression. From 2001 through 2007, the American economy grew by 31%, but the increase in wealth was not fairly or evenly distributed throughout the economy. After-tax income for corporate CEOs grew 40 to 400%; whereas average income for middle class wage earners declined 3% during the same period.
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
Factoring in rising costs of energy, food, education, and health care, which rose faster than the base inflationary rate, what do get? A middle class that can no longer serve as the engine for economic recovery. Thus, the real reason behind our economic crisis is the concentration of wealth in the hands of the few at the expense of the many ... just like it was almost 80 years ago.
Love that quote octopus - it's so succinct.
ReplyDelete... just like it was almost 80 years ago.
ReplyDeleteAnd just like 80 years ago, we're going to try the New Deal (v2.0) again.
And just like 80 years ago, we're looking at another decade of misery. Except we're not going to have a world war to pull the economy out of the crapper.
Nobody seemed to learn a thing. At least the President is term limited this time.
Don't be too sure about that World War thing!
ReplyDeleteIf there ever was an argument against trickle down economics this is it.
I'm too depressed to comment. No pun intended.
ReplyDeleteCapt: So who's Obama going to start a war with?
ReplyDeleteYes the war helped bring about the end of the depression, but only because of massive gov't spending that revived the economy.
ReplyDeleteFDR tried the limited approach at first and it did not work. This is the failure most conservatives cite without looking further.
Krugman argues that FDR realized this and argued for more spending, which we got with the war.
The lessons are to spend big. Whether it'll work this time is anyones guess, but it did then.
"And just like 80 years ago, we're looking at another decade of misery. Except we're not going to have a world war to pull the economy out of the crapper."
ReplyDeleteSo let's just sit here with our thumbs up our asses and do nothing - great plan...
Dave: I see about 8 years of FDR spending in there. And none of that resolved the issues behind the Depression.
ReplyDeleteRocky: I suggested nothing involving thumbs. In fact, Obama is right in that it will take bold action to solve this. The problem is that the Porkulus bill is bold only in how much crap can be crammed under the heading of "stimulus."
My plan actually involves shrinking government. In fact, our current mess has its roots in the plan devised 80 years ago. And yet another expansion will not fix those mistakes.
THANK YOU!
ReplyDeleteFor 20 years I have argued against supply side economics and commented about the concentration of wealth that occurs and how that is the most destructive force to CAPITALISM one could ever imagine...
This proves it...
Patrick, I read your post and I do agree with some points; an eventual leaner, meaner federal government would be a big plus, but it must be effective and efficient.
ReplyDeleteAnd removing any non-economy stimulating pork (which is being added by both GOP and Dems) I can also get behind.
After that, you and I, not so much.
Your post doesn't really address the sheer breadth of the current recession/ depression.
Such as this statement:
"And as the engine of the free market starts kicking in." You offer no insight as to HOW this free market is going to manage to "kick in" when we have lost millions of jobs and businesses. We aren't producing and so we aren't spending. And as the American economy goes, so goes the global economy, if you haven't noticed.
Comparing our economy to the old communist Soviet economy is a real stretch there - like comparing apples and beachballs!
And the conservative base seems to have much criticism for FDR's New Deal policies, but it provided real work - some of which we still enjoy today. Just one example, the Blue Ridge Parkway, built by CCC workers, still has the stonework in the bridges and drainage systems in place. It also allowed the men to send home money to feed their families. AND the economy eventually recovered!
And the less tax, LESS REGULATION portion is just senseless since less regulation helped get us into this mess in the first place.
While I don't advocate intrusive government, I certainly see the need for a minimum of oversight and setting minimum standards since it is glaringly obvious that industry is NOT going to police itself.
I think conservatives are grasping for any sort of foothold to set themselves apart from the current administration and I don't really see any concern for me or my neighbors.
People don't care about Reaganomics or New Deal v.2 or any other useless rhetoric - they are concerned with how many days until they'll be sleeping in the car or whether they are going to have to put their kids in foster care so they will be fed.
I don't know what planet ya'll are on, but that's how it is in MY world.
No offense, Patrick, but your plan ignores the lessons of history and fails the basics of Economics 101. I took the time to prepare the above graph for a reason. Your plan resembles what Hoover did (=did not do), and these were the results:
ReplyDeleteBetween 1929 and 1932 ….
GNP had fallen 13.4 percent
Unemployment rose to 23.6 percent
Industrial stocks lost 80 percent of their value
10,000 banks failed, 40 percent of the 1929 total.
Money supply contracted 31 percent
GNP had fallen 31 percent
Over 13 million Americans lost their jobs
Capital investments dropped by two thirds
International trade fell by two-thirds
Farm prices fell 53 percent
The graph shows a turnaround after FDR took office: Within one year, FDR’s spending policies brought the economy from negative 2.1% to positive 7.7%, and unemployment dropped from 24.9% to 21.7%.
By 1936, GNP reached a record 14.1 percent, and unemployment fell to 16.9 percent.
In 1937, Roosevelt, fearing an unbalanced budget, cut spending, which triggered the recession of 1938.
In 1934, Sweden was the first country to fully recover from the Great Depression, having adopted a policy of Keynesian style deficit spending. In 1936, Germany became the second nation to emerge from Depression due to deficit spending in preparation for war. In 1938, Britain recovered from Depression … having adopted a policy of Keynesian style deficit spending.
Patrick, our new President says he will study any plan worthy of consideration. So be my guest. Submit your plan, and let me know what President Obama says.
Crap. I guess I'll have to write a full plan then.
ReplyDeleteIt will still be better than what we're getting.
I would love to hear the cephalopodic analysis of the part played by the drastic top bracket tax cuts introduced by Harding, I think it was. It seems to me that the widening disparity between the very rich and the rest of us is a precursor of boom and bust instability.
ReplyDeleteTop brackets of 50% or more seem to produce controlled growth while, as we can see, the current policy seems to put us right back where we were 80 years ago.
Adjusted for inflation (lots of it) a return to Nixon era tax levels would have annual income over $3.5 million taxed at over 50% yet somehow, the Greedy Old Pr*ck party has convinced Joe the whatever he is these days that it would apply to him - along with the Federal Inheritance Tax.
Patrick: It will still be better than what we're getting.
ReplyDeleteI’ve read your posts (at CC and SPD) and comments littering the blogosphere. My critique: All invective and no content. Object-oriented gender epithets for self-amusement do not indicate a grasp of the subject or raise the level of discourse. If you want to have a discussion, please be analytical and specific.
Right now, federal deficit spending (sovereign debt) is the only rationale left, a fact poorly understood by the public and an object of derision by so-called fiscal conservatives.
A nation is a sovereign entity whose books do not balance in quite the same way as a corporation or individual. A former mentor of mine used to say that countries with a liquidity crisis, or crises in confidence, never truly go bankrupt due to the nature of sovereignty. These are the lessons learned from the Third World Debt crises of the early 1980s. Today, those same third world debtors (Latin American countries) have recovered to the extent that they are in far better financial shape than the U.S. at this moment.
Sometimes, a country needs to increase public debt to stave off disaster ... like now for instance. You ignored my graph and ignored my accompanying comment: When FDR reduced stimulus spending in 1937, it triggered the recession of 1938. Next time, pay attention.
Sometimes monetary policy can serve as an effective stimulus. However, with FED interests rates effectively at zero, there is no amount of FED tinkering that can fix this crisis. That is why massive spending is the only viable option left ... meanwhile the Republican noise machine is “playing chicken" with our financial future.
My critique: All invective and no content.
ReplyDeleteIf you want to have a discussion, please be analytical and specific.
I'm working on that. Soon as I get the kids wrangled.
Object-oriented gender epithets for self-amusement...
But they keep me sane. :)
Captain It seems to me that the widening disparity between the very rich and the rest of us is a precursor of boom and bust instability.
ReplyDeleteCaptain, I looked up the tax changes instituted by the Harding regime (the ones demanded by Andrew Mellon at the time). You are very right about the parallels:
About the Harding Revenue Act of 1921 -- It seems the marginal income tax rate on individuals at the highest income bracket fell from 73 to 58 percent, along with a preferential treatment for capital gains at 12.5 percent (just slightly below the 15% rate introduced by George W).
Recalling what Warren Buffet said last year: Buffet pays a 15% capital gains tax on $54 million while his secretary pays 34% on a fraction thereof. Indeed, it seems Bush replayed the same economic formula of the Harding years and laid the foundation for the current crisis.
A curious historical footnote: When FDR readjusted the tax tables to redistribute income from the wealthy to the poor, the Duponts and J. P. Morgan planned a military coup to overthrow FDR and install a Mussolini-style government.
Captain: the Greedy Old Pr*ck party has convinced Joe the whatever he is these days that it would apply to him - along with the Federal Inheritance Tax.
When I hear the rants of Joe the Dumber, it seems to me that the proletariat has been co-opted into making the argument on behalf of the oligarchs. In other words, get the slaves to argue in favor of their own enslavement. That seems to be the way oppression works these days.
Simple Dino Point (TM): from a psychological perspective, the basis of capitalist economics is desire – specifically, desire for whatever goes beyond the bare minimum necessary for existence (adequate food, shelter, and clothing). There's no doubt that our desire for pleasurable excess is very strong and that Madison Ave has come up with fine ways to "manufacture" it right along with an abundance of material goods and services, but other imperatives can and do replace it, sometimes with disastrous social and political consequences. In times of crisis, primal fear trumps the desire for "the good things in life." Capitalism is a bit like a British luxury car – powerful and sleek when it runs, but it needs regular and quality time in the mechanic's shop to keep going. It is not a perpetual-motion prosperity machine. The present reality is that the market system has temporarily failed us; it has done so mainly, I believe, because of the arrogant, ignorant jackasses to whom we entrusted political power for many years and because of the greedy, cynical jackasses who have long been in charge of the financial and other sectors of our economy. Looks like the "repair bill" is going to be alarmingly big this time, and the work is going to take a good while. The system works when people are smart enough to know how things can go wrong and responsible enough to prevent them from going wrong.
ReplyDeleteBloggindino: from a psychological perspective, the basis of capitalist economics is desire ...
ReplyDeletePerhaps a propensity for addiction is hard-wired into the human organism. The endorphins take over in response to pleasure with a desire for “more, more” leading to excess. Not just substance-abuse behaviors but addictions to gambling and thrill seeking and playing the stock market. There is just no substitute for "clean and sober."
Hello Octo,
ReplyDeleteI don't see anything wrong with a healthy desire for "excess." It just seems like something fundamental to humans. As King Lear says, "Allow not nature more than nature needs, man's life's as cheap as beast's." A very speciesist thing to say on Shakespeare's part, but it seems to go with the territory.
I'll drink to that (but only in moderation).
ReplyDeleteFurther to the notion of top bracket tax relief and prosperity, they're still insisting that giving Mr. Buffet lower taxes will inspire him to be more of an entrepreneur than giving a few extra bucks to Joe Average. Of course the Lords of America are not barons and dukes but CEO's and CFO's and their perks and bonuses and massive salaries are salted away in the Caymans and homes in Tuscany and such. Motivating corporations to curtail this and plow money back into the company -- or God forbid into dividends, would do a bit more to boost entrepreneurship, methinks.
ReplyDeleteI read recently about a company going into bankruptcy because it couldn't pay the 100 million in debt service. The CEO's salary was $100 million. Hmmmmmm.
Anyway, all they can do is to keep referring back to the discredited tenets of their supply side religion no matter how many times it fails to do anything but destroy the economy. It's kind of like people praying for rain that never comes. Rather than admit there is no rain God, they have to assume it's the infidels' fault for sabotaging the rain dance.
Here is Joe the Dumber talking about the stimulus bill:
ReplyDeleteThe money that they’re talking about spending is just absolutely incredible. You can’t get your mind around it ...
I mean, cut cable when I realize that I’m not making enough money to cover my bills, I use coupons. Shouldn’t we expect the government to cut some programs?
… or stop paying your taxes as Joe did.
In his latest NYT opinion, Paul Krugman concludes that there has been no wealth creation since 2001:
ReplyDeleteLast week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.
Krugman attributes this lack of wealth creation to shrinking assets due to recession. I disagree. I still think the situation is attributable to supply-side economics that bled the middle class and favored the wealthy.