I quote the following passage from William Manchester's The Glory and the Dream because it summarizes the liberal, New Deal position on the cause of the Great Depression and recessions in general:
"The real blame lay in he false underpinnings of the Coolidge-Hoover prosperity. Seen in perspective, the Depression appears to have been the last convulsion of the industrial revolution, creating a hiatus [break] before the technological revolution. In the aftermath of the World War [One], the techniques of mass production combine to increase the efficiency per man-hour by over 40 percent. This enormous output of goods clearly required a corresponding increase of consumer buying power—that is, higher wages. But the worker's income in the 1920s didn't rise with his productivity."
But some of the increased efficiency became consumer buying power through the issuing of credit. Hence people bought on credit during the 20s, and when credit-based buying collapsed in 1929-1930, the entire economy went into a downward spiral. Less demand resulted in less production, and so in workers being fired, and so in a further decrease in demand. It was Herbert Hoover himself who used the term "Depression," trying to imply the whole affair was about a wrong mindset, a lack of confidence. If only confidence would return, the economic downturn would reverse itself.
The natural conclusion, if you buy the analysis is the quoted paragraph, is that all society needed to do was to give people more buying power. Society needed to "share the wealth" as socialists said. Then better-paid workers would buy more things; manufacturers would hire more people to make more things, then these hired people would also spend more, until "happy days are here again" [the Democratic Party theme of 1932] and there's "an automobile in every garage" [the Republican slogan on 1928].
But the problems of the Great Depression must have been more fundamental. Under the New Deal [often passed by an alliance of progressive Democrats and progressive Republicans; both parties had conservative wings that resisted the legislation] the federal government used a variety of methods to increase aggregate purchasing power. By 1934 deficit spending was the order of the day. The economy did improve off its 1932-33 lows, but not to anything resembling prosperity. Beginning roughly in 1939 with war orders from Europe, and accelerating in 1940 when U.S. deficits became even larger to prepare for war, the economy finally got back to where it had been in the mid-20s.
Even Democrats worried about the national debt after World War II; by American standards it was unprecedented. But with the slow-motion collapse of the British Empire, the U.S. had become the dominant world power. The revived economy, and high income-tax rates, generated an equally unprecedented stream of revenue to the federal government. Most federal programs were cut back only minimally, and new programs like the Interstate Highway System created jobs and demand for commodities.
When President Franklin Delano Roosevelt and Congress started running up deficits and the national debt in the 1930s they were starting off a small base, most of it left over from military expenditures for World War I. By the late 1950s even most Republican politicians and businessmen believed in deficit spending. Workers and capitalists alike were prospering, if some more than others. It seemed like capitalism propped up by heavy federal spending was the recipe for permanent prosperity.
This all turned sour in the 1970s, following the prosperity of the 1960s resulting from economic imperialism, spending on the Vietnam War and cold war, and the expansion of the New Deal into the Great Society "War on Poverty" programs.
Demand, in itself, could lead to the opposite problem from the Depression: inflation. In order to stop inflation, the Federal Reserve raised interest rates (and tightened the money supply). A series of recessions, interleaved with booms, followed, with aftermath of the most recent and most serious of the recessions still lingering with us.
Also lingering with us is a $17 trillion federal debt. And therein lies the real problem for America and the world. If during periods of prosperity the debt had been paid down (as happened until about 1930), then the only federal debt today would be from the latest recession. Call it $3 to $5 trillion. But no, instead every problem since 1933 has been solved with debt. If you are ideological you can consider it military debt or welfare debt, but it is an obligation of the citizens, regardless of the specifics of its origin.
So where we are now, in early 2014, can be summed up as:
1. The economy has been growing slowly since 2009, partly because of high deficit spending by the government and partly because of the natural tendency to grow off a bottom.
2. Unemployment is well over 6%, and even that excludes a lot of individuals who are under-employed.
It's not Depression or even Great Recession levels, but it isn't prosperity either.
3. Inflation has been minimal, lately.
4. People would buy more products if they made more money. Most employees are highly productive because of technological advances.
5. Because there are plenty of unemployed people, wages are stagnant; employers don't have to bid up wages to retain employees.
6. Economic imperialism is not really working anymore. It costs more to patrol the American empire (the entire world, for practical purposes) than the U.S. gets in economic benefit from the rest of the world (as seen by our negative balance of trade).
7. There is a $17 trillion and growing federal deficit. Interest payments already make up a considerable part of the federal budget, and if interest rates (on average on government debt) climb to say 5%, they will eat up a huge part of the annual federal budget.
In a Goldilocks scenario the capitalist class, either out of self-interest or forced by the federal government, would both increase wages significantly for workers and pay off a substantial part of the federal debt. The wage increase would increase demand, resulting in profits that would compensate the capitalists for their sacrifices. With increased demand more of the federal debt could be paid off; prosperous workers could help some with that. Inevitably another recession would roll around, at which time deficit spending would be appropriate to counter the economic cycle until growth resumed.
Do not plan on the Goldilocks scenario. It won't happen in our broken political system. Republicans have done a good job emphasizing the debt issue, but are unwilling to raise wages or tax the super-rich to reduce the debt. Democrats would raise the minimum wage, but won't tax the capitalists and won't do anything about the debt.
The Federal Reserve will keep making excuses to keep interest rates low, saying it is to help revive the economy. But the real reason is allowing interest rates to rise will show how naked the economy really is. The math is simple. 5% of $17 trillion is $0.85 trillion per year. The fiscal year 2013 federal budget resulted in spending $3.45 trillion. But revenue was just $2.77 trillion. So if interest rates rise to 5% on average, and revenue stays flat, interest payments on the federal debt will eat up over 30% of revenue.
So less spending, even on the military. And less spending means less demand, meaning fewer jobs. And lower tax revenue.
Or Congress can kick the can down the road a few last inches, into the wall of reality, and continue to increase the debt even when the economy is relatively good.
Which just happened when the Democrats and Republicans in Congress raised the debt ceiling.
Showing posts with label recession. Show all posts
Showing posts with label recession. Show all posts
Thursday, February 20, 2014
Sunday, December 2, 2012
President Hoover, Depression, and the Fiscal Cliff
According to William Manchester, writing in The Glory and the Dream
, our typical beliefs about Herbert Hoover need some expansion. After nearly a decade of post World War I prosperity in the 1920s, which the Republican Party was happy to take credit for, Herbert Hoover won the Republican Party nomination for President in 1928. He was considered to be liberal best known for his role in supervising food relief efforts to Europe during the war; he was berated by Republican business leaders and right-wing politicians.
In 1929 the stock market crashed, and in 1930 the U.S. economy went down hill. Hoover, who was in many ways a very smart guy, simply did not understand what was happening. He thought American commerce would bounce back, and he had a lot of economists to back that view. He thought the problem was mainly one of psychology: "He himself had chosen the word "Depression" because it sounded less frightening than "panic" or "crisis.""
Despite President Hoover's hard work, happy talk, and genuine efforts to revive the economy, things got worse each year, and in particular in the election year of 1932. Later, from the 1940s to the end of the century, economists mostly agreed about what caused the Great Depression. Since the turn of the century much of economic "science" has become mere politics again. The Fiscal Cliff talks in particular are long on rhetoric and short on genuine understanding of our current predicament. I've written about aspects in earlier blog posts, and have seen some fairly good explanations from the like of Robert Reich and others. But Manchester's description is both short and telling, so I am going to reproduce it at length here, from pages 36 and 37 [I added some paragraph breaks to make it easier to read]:
"The real blame lay in the false underpinnings of the Coolidge-Hoover "New Era" prosperity. Seen in perspective, the Depression appears to have been the last convulsion of the industrial revolution, creating a hiatus before the technological revolution. In the aftermath of the World War, the techniques of mass production combined to increase the efficiency per man-hour by over 40 percent. This enormous output of goods clearly required a corresponding increase of consumer buying power—that is, higher wages. But the worker's income in the 1920s did not rise with his productivity. In the golden year of 1929, Brookings economists calculated that to supply the barest necessities a family would need an income of $2000 a year—more than 60% of American families were earning.
"In short, the ability to buy did not keep abreast of the volume of goods being turned out. It was part of the foolishness of the time to argue that the surge in production was no problem, that "a good salesman can sell anything." In practice this meant that while the rich (and many who weren't rich) were speculating in stocks, zealous salesmen were encouraging a kind of mass speculation. Customers of limited means were being persuaded to take products anyhow, the exchange being accomplished by an overextension of credit.
"The stock market, honeycombed with credit in the form of broker's loans, crashed of its own weight, calling into account the million so little deals consummated by commercial travelers who had sold anything and everything to people lacking the means to pay for it. The panic followed, and the country couldn't cope with it. The last extended economic crisis had been in 1893; since then America had become so industrialized that a massive return to the farm was impossible.
"There was a certain rough justice in Herbert Hoover's ascent to the Presidency on the eve of the catastrophe, for as Secretary of Commerce he had been fascinated with productivity and indifferent to the dangerous lack of buying power. Long after he left the White House, he realized what had happened and wrote: "A margin of some thousands ... got too much of the productive pie for the services they performed ... Another margin of some 20% got too little."
So old Hoover, when he had time to sit back and calmly analyze what had happened, came to an understanding diametrically opposed to most Republican businessmen and politicians today. The Rich took more than their share of pie, the workers got less than their share, and the economy came tumbling down.
What goes around comes around, but today there are some significant differences from 1932. There was almost no national debt in 1929, and despite some depression-driven annual deficits, not much in 1932 either. But computer technology has put all kinds of people out of work, while the monetary benefits of it have accumulated in the hands of a tiny number of people.
Last year's Republican rhetoric was that serious national deficit reduction would be good for the economy. When they saw that the only way to achieve that was to raise taxes and cut the military deficit, they changed their tune to singing "the fiscal cliff is bad for you."
What is needed to save the economy is redistribution of wealth. You don't actually need a socialist government to achieve that. If profitable companies would just pay their workers more, the free market system would probably work out, and a better economy would produce more tax dollars. But Steve Jobs (now a capitalist deity) hoarded his money and paid his workers in American stores (and Chinese factories) starvation wages, the same as they would have gotten working the hamburger machines at any fast food joint. Multiply the same behavior by perhaps 2000 large corporations, and a bunch of "small" greedy business guys, and ice that cake with Wall Street shenanigans, and you have our current serious problems.
Barack Obama, meanwhile, is taking a "let them eat cake" position. He wants to keep the "middle class" tax cuts, while restoring the pre-Bush tax rates for the rich. Thus angering a minimal number of voters with tax rises. But those who have jobs now, and especially those who kept jobs during the Great Recession, have benefited from low tax rates while millions lost their homes, or have been mostly unemployed, or are still hoping for any kind of job.
The employed middle class can pay more taxes, and should not gripe about it. Some of that money might be used for deficit reduction, but some should go to hiring the people that are needed to make society and the economy work in the long run. I'd like to see the IRS expanded to make sure there is less tax dodging. I'd like to see the Department of Labor actually help working people get unionized and bargain for higher wages and benefits. And I'd like the Republicans to read the section of the Constitution that says "Congress shall have power to ... establish Post Offices and post Roads;" in other words, the Post Office should get direct federal subsidies with priority over the many expenditures now made for items that are not even mentioned in the Constitution.
There is no cliff. The economy would get better right away if Republican business people would stop praying to Jesus for tax cuts, sold their government bonds, and invested in their work forces. [See Where Have All the Capitalists Gone?]
To the extent a fiscal cliff needs to be avoided, all we need to do is limit spending cuts to the military budget. Watch the "compromise" in which Democrats agree to not cutting the defense budget, and instead create more misery for the people who made the mistake of voting for them.
One last Herbert Hoover note: the U.S. had done well by lending a lot of money to European belligerents during World War I. Hoover allowed for repayment to be suspended, which helped keep world commerce running.
And which nation's economy did best from 1929 to the beginning of World War II? Russia's, then part of the Union of Soviet Socialist Republics. American historians and economists have a way of forgetting that fact, and everything we learned from the Great Depression.
, our typical beliefs about Herbert Hoover need some expansion. After nearly a decade of post World War I prosperity in the 1920s, which the Republican Party was happy to take credit for, Herbert Hoover won the Republican Party nomination for President in 1928. He was considered to be liberal best known for his role in supervising food relief efforts to Europe during the war; he was berated by Republican business leaders and right-wing politicians.In 1929 the stock market crashed, and in 1930 the U.S. economy went down hill. Hoover, who was in many ways a very smart guy, simply did not understand what was happening. He thought American commerce would bounce back, and he had a lot of economists to back that view. He thought the problem was mainly one of psychology: "He himself had chosen the word "Depression" because it sounded less frightening than "panic" or "crisis.""
Despite President Hoover's hard work, happy talk, and genuine efforts to revive the economy, things got worse each year, and in particular in the election year of 1932. Later, from the 1940s to the end of the century, economists mostly agreed about what caused the Great Depression. Since the turn of the century much of economic "science" has become mere politics again. The Fiscal Cliff talks in particular are long on rhetoric and short on genuine understanding of our current predicament. I've written about aspects in earlier blog posts, and have seen some fairly good explanations from the like of Robert Reich and others. But Manchester's description is both short and telling, so I am going to reproduce it at length here, from pages 36 and 37 [I added some paragraph breaks to make it easier to read]:
"The real blame lay in the false underpinnings of the Coolidge-Hoover "New Era" prosperity. Seen in perspective, the Depression appears to have been the last convulsion of the industrial revolution, creating a hiatus before the technological revolution. In the aftermath of the World War, the techniques of mass production combined to increase the efficiency per man-hour by over 40 percent. This enormous output of goods clearly required a corresponding increase of consumer buying power—that is, higher wages. But the worker's income in the 1920s did not rise with his productivity. In the golden year of 1929, Brookings economists calculated that to supply the barest necessities a family would need an income of $2000 a year—more than 60% of American families were earning.
"In short, the ability to buy did not keep abreast of the volume of goods being turned out. It was part of the foolishness of the time to argue that the surge in production was no problem, that "a good salesman can sell anything." In practice this meant that while the rich (and many who weren't rich) were speculating in stocks, zealous salesmen were encouraging a kind of mass speculation. Customers of limited means were being persuaded to take products anyhow, the exchange being accomplished by an overextension of credit.
"The stock market, honeycombed with credit in the form of broker's loans, crashed of its own weight, calling into account the million so little deals consummated by commercial travelers who had sold anything and everything to people lacking the means to pay for it. The panic followed, and the country couldn't cope with it. The last extended economic crisis had been in 1893; since then America had become so industrialized that a massive return to the farm was impossible.
"There was a certain rough justice in Herbert Hoover's ascent to the Presidency on the eve of the catastrophe, for as Secretary of Commerce he had been fascinated with productivity and indifferent to the dangerous lack of buying power. Long after he left the White House, he realized what had happened and wrote: "A margin of some thousands ... got too much of the productive pie for the services they performed ... Another margin of some 20% got too little."
So old Hoover, when he had time to sit back and calmly analyze what had happened, came to an understanding diametrically opposed to most Republican businessmen and politicians today. The Rich took more than their share of pie, the workers got less than their share, and the economy came tumbling down.
What goes around comes around, but today there are some significant differences from 1932. There was almost no national debt in 1929, and despite some depression-driven annual deficits, not much in 1932 either. But computer technology has put all kinds of people out of work, while the monetary benefits of it have accumulated in the hands of a tiny number of people.
Last year's Republican rhetoric was that serious national deficit reduction would be good for the economy. When they saw that the only way to achieve that was to raise taxes and cut the military deficit, they changed their tune to singing "the fiscal cliff is bad for you."
What is needed to save the economy is redistribution of wealth. You don't actually need a socialist government to achieve that. If profitable companies would just pay their workers more, the free market system would probably work out, and a better economy would produce more tax dollars. But Steve Jobs (now a capitalist deity) hoarded his money and paid his workers in American stores (and Chinese factories) starvation wages, the same as they would have gotten working the hamburger machines at any fast food joint. Multiply the same behavior by perhaps 2000 large corporations, and a bunch of "small" greedy business guys, and ice that cake with Wall Street shenanigans, and you have our current serious problems.
Barack Obama, meanwhile, is taking a "let them eat cake" position. He wants to keep the "middle class" tax cuts, while restoring the pre-Bush tax rates for the rich. Thus angering a minimal number of voters with tax rises. But those who have jobs now, and especially those who kept jobs during the Great Recession, have benefited from low tax rates while millions lost their homes, or have been mostly unemployed, or are still hoping for any kind of job.
The employed middle class can pay more taxes, and should not gripe about it. Some of that money might be used for deficit reduction, but some should go to hiring the people that are needed to make society and the economy work in the long run. I'd like to see the IRS expanded to make sure there is less tax dodging. I'd like to see the Department of Labor actually help working people get unionized and bargain for higher wages and benefits. And I'd like the Republicans to read the section of the Constitution that says "Congress shall have power to ... establish Post Offices and post Roads;" in other words, the Post Office should get direct federal subsidies with priority over the many expenditures now made for items that are not even mentioned in the Constitution.
There is no cliff. The economy would get better right away if Republican business people would stop praying to Jesus for tax cuts, sold their government bonds, and invested in their work forces. [See Where Have All the Capitalists Gone?]
To the extent a fiscal cliff needs to be avoided, all we need to do is limit spending cuts to the military budget. Watch the "compromise" in which Democrats agree to not cutting the defense budget, and instead create more misery for the people who made the mistake of voting for them.
One last Herbert Hoover note: the U.S. had done well by lending a lot of money to European belligerents during World War I. Hoover allowed for repayment to be suspended, which helped keep world commerce running.
And which nation's economy did best from 1929 to the beginning of World War II? Russia's, then part of the Union of Soviet Socialist Republics. American historians and economists have a way of forgetting that fact, and everything we learned from the Great Depression.
Saturday, December 18, 2010
Goodbye, Social Security, Hello Screw Deal
Under the Screw Deal between President Barack Obama, most of the Republican Party members of Congress, and most of the Democratic Party members of Congress, the Social Security payroll deduction is being cut by 2%. One might wonder why, after two decades of official government moaning about Social Security being endangered by insufficient funding, they would choose to reduce funding. The only logical answer is they intend to dismantle Social Security; this is the first step.
Where is the public outrage? Workers are happy to have a slight reduction in the Social Security tax in 2011, and seniors already on Social Security are not too worried. The crisis is probably still about a decade away. Everyone is too worried about the short term to worry about the long term. Retired workers will starve some time in the future, but they have no political representation to speak of. Certainly the Democratic Party gave up representing workers decades ago.
Everything is going according to plan, if you are rich. The rich shall pay no taxes. And I really mean no taxes, because even though rich people in theory pay a 15% long term capital gains tax, in reality they can delay payment forever. The other taxes rich people pay, the ones that everyone pays like sales tax, are trivial to them.
A lot of government spending is ongoing, but no one wants to pay for it. Current Social Security taxes pay for current Social Security recipients. In turn current payers are supposed to have their retirements subsidized by future payers. But once erosion begins (and it has now officially begun) no one wants to be there when the levee breaks. So younger current workers will join the rich in calling for reducing the SS tax even further. Until the cycle is complete and we are back to 1929.
Social stratification is growing. The traditional conveyor belt from the working class to middle class, the low-cost college education, is drying up faster than roadkill on a desert highway at midday in summer. Talented people will be trapped in the working class, no-talent rich kids will increasingly become the decision makers of this nation. They will decide to tax the workers and repeal the minimum wage laws. If you want work your options will be the Army, homeland security, and mopping the floors of their yachts.
The working class is not just unorganized, it is disorganized. Socialist parties and revolutionary groups have all but disappeared. The Democratic Party and most unions are rotten or at best incompetent. Even the middle class seems paralyzed by free-market rhetoric.
In the next year or two the economy will continue its normal business cycle recovery. It would have even without the new tax cuts. Given the depth of the recent recession, a recovery cycle might even last five to ten years. The cycle will end when the national debt it too big to repay and interest rates on that debt start spiraling out of control. The rich will be so powerful you can count on both the dismantling of any remaining social programs and the imposition of higher taxes on everyone who is not tax-sheltered.
Of course, other scenarios are possible. But they would take effort. The real problem was the New Deal and the Great Society combined with American global economic dominance post World War II to create an imperialist working class. No one complained about getting $30 an hour to make the steel and explosives dropped on rebellious peasants. Remember when the unions organized workers to attack peace protesters during the Vietnam War? Our unions thought they were indispensable, but they were wrong. Surprise, steel can be made anywhere. Factories can be dismantled and put together somewhere else.
Hopefully Barack Obama will put himself out of his misery and not run for President in 2012. I admit that Obama may have proven to be a better President if he did not have the Republican Party to deal with. But the President can veto any bill passed by Congress, and there should be enough Democrats in Congress to sustain a veto. He could have stopped the tax cut extensions for the rich. He could have gotten a much better deal for the American people in return for those cuts, if he had wielded his veto.
Imagine it being, say, March 2011, three months into taxes going back up to pre-Bush levels. Who would be hurting, who would be willing to make a deal? The rich and their wholly owned politicians. This whole "we have to do it in December" bit was another Big Lie.
What did Barack Obama get in return for himself? Two years of cooperation with Republicans in Congress?
Forget the old deal. Welcome to the Screw Deal. Next Act: Return to the Dark Ages.
Where is the public outrage? Workers are happy to have a slight reduction in the Social Security tax in 2011, and seniors already on Social Security are not too worried. The crisis is probably still about a decade away. Everyone is too worried about the short term to worry about the long term. Retired workers will starve some time in the future, but they have no political representation to speak of. Certainly the Democratic Party gave up representing workers decades ago.
Everything is going according to plan, if you are rich. The rich shall pay no taxes. And I really mean no taxes, because even though rich people in theory pay a 15% long term capital gains tax, in reality they can delay payment forever. The other taxes rich people pay, the ones that everyone pays like sales tax, are trivial to them.
A lot of government spending is ongoing, but no one wants to pay for it. Current Social Security taxes pay for current Social Security recipients. In turn current payers are supposed to have their retirements subsidized by future payers. But once erosion begins (and it has now officially begun) no one wants to be there when the levee breaks. So younger current workers will join the rich in calling for reducing the SS tax even further. Until the cycle is complete and we are back to 1929.
Social stratification is growing. The traditional conveyor belt from the working class to middle class, the low-cost college education, is drying up faster than roadkill on a desert highway at midday in summer. Talented people will be trapped in the working class, no-talent rich kids will increasingly become the decision makers of this nation. They will decide to tax the workers and repeal the minimum wage laws. If you want work your options will be the Army, homeland security, and mopping the floors of their yachts.
The working class is not just unorganized, it is disorganized. Socialist parties and revolutionary groups have all but disappeared. The Democratic Party and most unions are rotten or at best incompetent. Even the middle class seems paralyzed by free-market rhetoric.
In the next year or two the economy will continue its normal business cycle recovery. It would have even without the new tax cuts. Given the depth of the recent recession, a recovery cycle might even last five to ten years. The cycle will end when the national debt it too big to repay and interest rates on that debt start spiraling out of control. The rich will be so powerful you can count on both the dismantling of any remaining social programs and the imposition of higher taxes on everyone who is not tax-sheltered.
Of course, other scenarios are possible. But they would take effort. The real problem was the New Deal and the Great Society combined with American global economic dominance post World War II to create an imperialist working class. No one complained about getting $30 an hour to make the steel and explosives dropped on rebellious peasants. Remember when the unions organized workers to attack peace protesters during the Vietnam War? Our unions thought they were indispensable, but they were wrong. Surprise, steel can be made anywhere. Factories can be dismantled and put together somewhere else.
Hopefully Barack Obama will put himself out of his misery and not run for President in 2012. I admit that Obama may have proven to be a better President if he did not have the Republican Party to deal with. But the President can veto any bill passed by Congress, and there should be enough Democrats in Congress to sustain a veto. He could have stopped the tax cut extensions for the rich. He could have gotten a much better deal for the American people in return for those cuts, if he had wielded his veto.
Imagine it being, say, March 2011, three months into taxes going back up to pre-Bush levels. Who would be hurting, who would be willing to make a deal? The rich and their wholly owned politicians. This whole "we have to do it in December" bit was another Big Lie.
What did Barack Obama get in return for himself? Two years of cooperation with Republicans in Congress?
Forget the old deal. Welcome to the Screw Deal. Next Act: Return to the Dark Ages.
Wednesday, November 3, 2010
Obama's Luck Runs Out
Fishtailing is a good way to describe the American body politic these days. The Democrats only got in back in 1996, and here it is in 2010 and they are on the outs again, at least in the House of Representatives. Our grand Constitution ensures that clean sweeps are nearly impossible by having only one-third of Senators elected every 2 years, and of course Barack Obama has two more years guaranteed.
Unfortunately we can't toss out lobbyists every two years. The same lot of bloodsuckers is there in Washington (and in State capitals) no matter who is President or which party controls Congress.
Obama is beginning to remind me of Herbert Hoover, and certainly reminds me of the ancient Greek adage that you don't know whether a man has had a lucky or unlucky life until he is buried. Herbert Hoover was a great guy and swept the nation in his Presidential bid in 1928. He had served less than a year in office when the stock market crashed. The Democrats won the House of Representatives in 1930 after roughly the first year of the Great Depression, except that no one knew in 1930 that anything was much wrong beyond a rather sharp drop off in the business cycle. Everyone thought the economy would start back up in 1931.
By the time Franklin Delano Roosevelt took office in 1933, blame for the Great Depression had firmly stuck to Hoover and the Republican Party. As far as I can tell, nothing they did caused the Depression and nothing they could have done could have prevented it. Even though the economy did not get much better under Roosevelt during his first term in office, most people failed to shift blame from Hoover to Roosevelt. World War II ended the Great Depression, not Roosevelt or the New Deal. I like some of the provisions of the New Deal, and some were helpful to people at the time, but it is false to give it credit for ending the depression.
Unfortunately we can't toss out lobbyists every two years. The same lot of bloodsuckers is there in Washington (and in State capitals) no matter who is President or which party controls Congress.
Obama is beginning to remind me of Herbert Hoover, and certainly reminds me of the ancient Greek adage that you don't know whether a man has had a lucky or unlucky life until he is buried. Herbert Hoover was a great guy and swept the nation in his Presidential bid in 1928. He had served less than a year in office when the stock market crashed. The Democrats won the House of Representatives in 1930 after roughly the first year of the Great Depression, except that no one knew in 1930 that anything was much wrong beyond a rather sharp drop off in the business cycle. Everyone thought the economy would start back up in 1931.
By the time Franklin Delano Roosevelt took office in 1933, blame for the Great Depression had firmly stuck to Hoover and the Republican Party. As far as I can tell, nothing they did caused the Depression and nothing they could have done could have prevented it. Even though the economy did not get much better under Roosevelt during his first term in office, most people failed to shift blame from Hoover to Roosevelt. World War II ended the Great Depression, not Roosevelt or the New Deal. I like some of the provisions of the New Deal, and some were helpful to people at the time, but it is false to give it credit for ending the depression.
Obama's timing, like Hoovers, was just bad. By the time Obama was elected in late 2008 the economy was falling apart. George W. Bush was not to blame; he did not create the housing bubble. Keep in mind that most American's don't follow politics or economics closely. It takes time for reality to sink in. Reality was real clear for all but the most obtuse by mid-2009, but by then Obama was President. Also, he made big promises to get elected, and some fools believed him.
Federal money that could have been used to create temporary jobs for people had to be used for banking and auto-industry bailouts. Those bailouts probably did save us from a depression-style crash, but the average voter doesn't worry about what might of happened. They know what happened: if they did not lose their job, people they know did. And almost everyone had their hours of work cut back in 2009, and so felt poorer. Small businesses in particular were driven to the wall.
Another difference between Roosevelt and the 1934 Democratic Party and Obama and the 2010 Democratic Party is that there was no safety net to speak of in 1932. So between '32 and '34, people were just happy to be fed and sheltered. The safety nets were in place in 2008, so people wanted more. They wanted their jobs back.
The Republican Party has no solutions available. They want to cut the Federal budget, but they won't cut where the fat is: defense and homeland security spending. Cutting the federal budget means cutting jobs. Their idea of creating jobs is giving rich people tax breaks; job creation does not work that way, and tax breaks for anyone will just add to the federal deficit. The Tea Party and Republican ideology advocates do-nothing government. That may be a fine thing in some ways, but it does not create jobs.
But it probably does not matter. We are in an upswing of a business cycle, helped by robust demand from better-managed nations like China, India, and Brazil (all socialist, more or less). I doubt the Republicans in Congress will be able to do anything that would help or hurt the economy in a major way. But that won't keep them from taking credit for the improving economy. Of course, with Obama in the White House, he'll be working hard to take credit for the improving economy too. So maybe his luck will change again.
Monday, September 6, 2010
Paul Krugman's Blind Eye: 1938
Paul Krugman's September 5, 2010 New York Times Op Ed, 1938 in 2010, turns a blind eye on many of the economic and political realities of both 1938 and 2010. I don't think this is because space in an op ed column is short, and the realities were (and are) two complex to cover completely in a short essay. He ignored what contraindicated the pie he is selling. Paul Krugman is a pretty astute guy, even the Nobel Prize committee thinks so, so let's take a look at his blind side.
Krugman's basic thesis in 1938 in 2010 is that in 1938 the Great Depression had a comeback because of lack of federal deficit spending. He goes on to say that the massive deficit spending during World War II (the U.S. officially entered the war in December, 1941, but began re-arming seriously in 1939) led not only to the end of the Depression and prosperity, but also to the long-term success of the U.S. economy during the second half of the 20th century.
Economic cycles are not really simple downward or upward slopes. Even in aggregate (on the macroeconomic level) they exhibit short-term changes of speed and direction. If you look at sectors (for example housing, or medical services, or steel production) they are typically not fully synchronized, and each sector has its ups and downs on a monthly or even weekly basis.
In the 1930s two command and control economies were growing: the communist economy of the U.S.S.R. and the German economy under National Socialism. Franklin Delano Roosevelt's New Deal failed to produce similarly spectacular results mainly because it was not as centralized or as well thought out. Of course command economies do not always do well; sometimes they fail spectacularly. Same for capitalist free-market economies, and even for mixed economies. But in the late 1930's the global economy was reviving mainly because of the expanding German and Russian economies, which were about as command-control as you can get.
Germany was also re-arming. Eventually other European nations felt they also had to re-arm, and eventually even the U.S. re-armed. This stimulated the economies of the re-arming nations. But the nation that benefited most was the United States. The British Empire, that cruel monster, borrowed money from the U.S. and bought armaments or the makings of armaments (steel, in particular). This external stimulus, plus the fact that the U.S. economy was already in a late-Depression natural economic upswing, is what caused the U.S. economy to be clearly in an up cycle in 1940.
Of course the massive U.S. debt run up during World War II stimulated the economy. But the debt was not what was responsible for postwar prosperity. Our global imperialist-industrialist rivals had their factories bombed to smithereens. Or in the case of Japan, vaporized.
If anyone in the world wanted to buy anything made of metal, after World War II essentially the only source would be the U.S. Even to rebuild their own factories Japan, Germany, Italy, and France had to buy machine tools and steel from the United States. Only the U.S.S.R. retained significant industrial capacity at war's end, and they had lost 20 million people in the war, which knocked back their economy but good.
If Mr. Krugman wanted to engage in historical re-enactment arguments, he could urge Obama to bomb factories in Germany, China, Japan, Korea ... That would be a lot more effective than even greater deficit spending.
Krugman used a false historical analogy, but he still could be right when he says the U.S. economy would benefit from more federal stimulus. On the other hand, maybe when you have economic rivals that are not prostrated by war, stimulus backfires because it almost always uses resources inefficiently. The argument will go on. But using 1938 as a 2010 comparison is comparing two very different situations.
Krugman's basic thesis in 1938 in 2010 is that in 1938 the Great Depression had a comeback because of lack of federal deficit spending. He goes on to say that the massive deficit spending during World War II (the U.S. officially entered the war in December, 1941, but began re-arming seriously in 1939) led not only to the end of the Depression and prosperity, but also to the long-term success of the U.S. economy during the second half of the 20th century.
Economic cycles are not really simple downward or upward slopes. Even in aggregate (on the macroeconomic level) they exhibit short-term changes of speed and direction. If you look at sectors (for example housing, or medical services, or steel production) they are typically not fully synchronized, and each sector has its ups and downs on a monthly or even weekly basis.
In the 1930s two command and control economies were growing: the communist economy of the U.S.S.R. and the German economy under National Socialism. Franklin Delano Roosevelt's New Deal failed to produce similarly spectacular results mainly because it was not as centralized or as well thought out. Of course command economies do not always do well; sometimes they fail spectacularly. Same for capitalist free-market economies, and even for mixed economies. But in the late 1930's the global economy was reviving mainly because of the expanding German and Russian economies, which were about as command-control as you can get.
Germany was also re-arming. Eventually other European nations felt they also had to re-arm, and eventually even the U.S. re-armed. This stimulated the economies of the re-arming nations. But the nation that benefited most was the United States. The British Empire, that cruel monster, borrowed money from the U.S. and bought armaments or the makings of armaments (steel, in particular). This external stimulus, plus the fact that the U.S. economy was already in a late-Depression natural economic upswing, is what caused the U.S. economy to be clearly in an up cycle in 1940.
Of course the massive U.S. debt run up during World War II stimulated the economy. But the debt was not what was responsible for postwar prosperity. Our global imperialist-industrialist rivals had their factories bombed to smithereens. Or in the case of Japan, vaporized.
If anyone in the world wanted to buy anything made of metal, after World War II essentially the only source would be the U.S. Even to rebuild their own factories Japan, Germany, Italy, and France had to buy machine tools and steel from the United States. Only the U.S.S.R. retained significant industrial capacity at war's end, and they had lost 20 million people in the war, which knocked back their economy but good.
If Mr. Krugman wanted to engage in historical re-enactment arguments, he could urge Obama to bomb factories in Germany, China, Japan, Korea ... That would be a lot more effective than even greater deficit spending.
Krugman used a false historical analogy, but he still could be right when he says the U.S. economy would benefit from more federal stimulus. On the other hand, maybe when you have economic rivals that are not prostrated by war, stimulus backfires because it almost always uses resources inefficiently. The argument will go on. But using 1938 as a 2010 comparison is comparing two very different situations.
Thursday, September 2, 2010
Republicans Try to Keep Recession Alive
The Recession is dead. Gone. Passed away. Kaput.
But the Republican Party has elections to win in November. They, and the media outlets they control, are trying to keep the recession alive, constantly throwing out the terms "slowdown," and Double Dip.
I'm not saying the Democratic Party deserves very much credit for ending the recession. Many of the measures put into place to save the economy during the crisis are fairly attributable to the administration of George W. Bush. Of course, the awful policies that caused the crisis were put in place by "consumers are fair marks" politicians from both sides of the aisle and powerful cronies of Bush and Clinton. But the downturn also had the usual cyclical components, and the upturn has been a fairly typical story of the upward rebound part of the cycle.
Usually the business community, which is largely Republican, likes to talk about the resilience of free markets and the American economy. They like government handouts, tax breaks, and low interest loans too, but that is just human nature. Most of them believe the Great Depression would have ended more quickly if FDR had not created the New Deal.
But Fox News and company, even spilling over to NPR, have been harping on a double dip recession for six months now. Where is it? Despite trying to scare businessmen out of making new hires, consumers out of consuming, and everyone out of buying a home despite rock bottom prices and interest rates, the recession just is not showing any signs of life. The big European crisis fizzled when Germany reported its economy is growing quickly. China is doing great, so are Austrailia, Canada, and India. Russia is in a bit of trouble, but that has done wonders for the U.S. agricultural sector.
It could be that bond traders are more powerful than you think, since the main financial market to benefit from this "catastrophe is just around the corner" thinking is the bond market (think Goldman Sachs). But I think it is mainly political.
The Democratic Party just happens to be sitting on its collective ass right now, holding the Presidency, Senate, and House of Representatives. The economy is turning up. Normally that would be the makings of sure-fire electoral victory in November. But if there is widespread perception that the economy is going to fail again, even if that is not true, it will help Republican candidates in November.
Are there problems ahead of us? There always are. Global warming is more serious and its effects are coming sooner than most people think? Do Americans now have to earn their jobs in the global marketplace, as Carly Fiorina says? Yes, after having it way too easy after World War II, in which everyone's factories except our own were destroyed, this is only getting back into balance. There is a lot of room for improvement in the U.S. economy, and mostly that has to come from people working hard, being creative, and taking risks. The government won't do it for us, and won't do it as well as we can.
If you are still unemployed, best to redouble your job search efforts. Talented but unable to find a position as lofty as the one you had? Get in at the ground floor somewhere. Buy or manage a franchise when you learn the business. Stop whining. (Even Greens like me can only take so much whining from people who have had so much past privilege and can't cope with a little adversity.)
There are a bunch of things local, state, and federal governments could do to help, but they won't, so I'll discuss those topics later.
The recession is over. Do the best you can in this up cycle, be more careful what you spend your money on. If you own long-term bonds get out of them before they decline in value. There will be another recession somewhere down the road, sure, so shore up your finances and make sure that the next time executives have to lay off workers (and management), you are one of the indispensable people who is kept.
But the Republican Party has elections to win in November. They, and the media outlets they control, are trying to keep the recession alive, constantly throwing out the terms "slowdown," and Double Dip.
I'm not saying the Democratic Party deserves very much credit for ending the recession. Many of the measures put into place to save the economy during the crisis are fairly attributable to the administration of George W. Bush. Of course, the awful policies that caused the crisis were put in place by "consumers are fair marks" politicians from both sides of the aisle and powerful cronies of Bush and Clinton. But the downturn also had the usual cyclical components, and the upturn has been a fairly typical story of the upward rebound part of the cycle.
Usually the business community, which is largely Republican, likes to talk about the resilience of free markets and the American economy. They like government handouts, tax breaks, and low interest loans too, but that is just human nature. Most of them believe the Great Depression would have ended more quickly if FDR had not created the New Deal.
But Fox News and company, even spilling over to NPR, have been harping on a double dip recession for six months now. Where is it? Despite trying to scare businessmen out of making new hires, consumers out of consuming, and everyone out of buying a home despite rock bottom prices and interest rates, the recession just is not showing any signs of life. The big European crisis fizzled when Germany reported its economy is growing quickly. China is doing great, so are Austrailia, Canada, and India. Russia is in a bit of trouble, but that has done wonders for the U.S. agricultural sector.
It could be that bond traders are more powerful than you think, since the main financial market to benefit from this "catastrophe is just around the corner" thinking is the bond market (think Goldman Sachs). But I think it is mainly political.
The Democratic Party just happens to be sitting on its collective ass right now, holding the Presidency, Senate, and House of Representatives. The economy is turning up. Normally that would be the makings of sure-fire electoral victory in November. But if there is widespread perception that the economy is going to fail again, even if that is not true, it will help Republican candidates in November.
Are there problems ahead of us? There always are. Global warming is more serious and its effects are coming sooner than most people think? Do Americans now have to earn their jobs in the global marketplace, as Carly Fiorina says? Yes, after having it way too easy after World War II, in which everyone's factories except our own were destroyed, this is only getting back into balance. There is a lot of room for improvement in the U.S. economy, and mostly that has to come from people working hard, being creative, and taking risks. The government won't do it for us, and won't do it as well as we can.
If you are still unemployed, best to redouble your job search efforts. Talented but unable to find a position as lofty as the one you had? Get in at the ground floor somewhere. Buy or manage a franchise when you learn the business. Stop whining. (Even Greens like me can only take so much whining from people who have had so much past privilege and can't cope with a little adversity.)
There are a bunch of things local, state, and federal governments could do to help, but they won't, so I'll discuss those topics later.
The recession is over. Do the best you can in this up cycle, be more careful what you spend your money on. If you own long-term bonds get out of them before they decline in value. There will be another recession somewhere down the road, sure, so shore up your finances and make sure that the next time executives have to lay off workers (and management), you are one of the indispensable people who is kept.
Friday, February 5, 2010
Micro v. Macro: Credit and Debt
I have two conflicting feelings, or corresponding scenarios, about the economy. The happy feeling is that we are just going through the normal economic cycling the world has known since the industrial age began. When I got out of college in 1976 there was a recession with no jobs, and I got used to the idea that there would only be brief periods when jobs were available.
The concern is that now that I have finally gotten my economic life together by building a micro-business and saving and investing carefully, is that the U.S. government is going to sink the entire economic ship. Even well-built life boats could be sucked down with the ship.
Within the the worst case scenario is its own best-case scenario. The U.S. will not sink entirely, but will be thoroughly globalized. There could be even larger numbers of people barely surviving than there are today, but the rich will (mostly) survive. Some of us, workers and middle-class types, will be closely enough tied to the global means of production to get by in what we now think of as a civilized style.
Almost everyone admits that the current crisis was caused by too much credit creation in the years 2004 to 2007. You have to remember that for every credit, there is a debt. So it is just as accurate to say that there was too much debt creation. There was not enough real productivity to support the level of credit and debt. Once debts could not be repaid, giving further credit was no longer in the interest of the banks.
Allegedly to prevent another Great Depression, the federal government stepped in. The rhetoric was save the American people, but the reality was to use taxpayer funds to save most of the capitalist class. A few capitalists were tossed to the sharks; not enough, in my opinion.
But the rescue created its own problems. Most Americans have tried to be thriftier since the recession began. That in itself caused reduced demand, which could also spiral into a more severe recession. So the government started spending money like mad.
Which means that since early 2008, while Americans have been saving (except for the unemployed, who have been exhausting their savings), the government has been spending money for us.
On crap I would never buy for myself. Like new highways. Like a war in Afghanistan, and the continued U.S. military occupation of most of the world. On special deals for all sorts of special interest groups that do not include me.
Yesterday the House of Representative just raised the federal debt limit $1.6 trillion dollars. Rounding to 300 million citizens, that is over $5000 of debt each. Thats on top of trillions already owed (See U.S. National Debt Clock, for instance)
The credit is being extended, in this case, by fools who are buying government-backed bonds and getting less than 4% interest for the risk they are taking. If the economy does revive, interest rates should go back up (unless kept artificially low by the Federal Reserve, as they were during the last bubble), making the current bonds worth far less. If the economy does not revive, these bonds could become worthless.
People are pretty used to the idea that the Federal government is never going to pay the principal on its debt, just the interest. Just like the mortgage loans of yesteryear, which are now illegal.
If the economy continues its gradual up cycle, the Fed and Congress should be able to gradually remove the stimilus measures. But don't expect them to. Once the Federal govenment starts giving away money, the special interest groups who receive it (typically corporations) decide they can't live without it, even during the good times. Look at agriculture subsidies, which have been with us since the days of Herbert Hoover. Look at the anti-poverty programs from Lyndon Johnson, that were supposed to lift everyone out of poverty, and instead trapped generations of families.
Republicans scream about socialism, but what we have is called state-capitalism (which, oddly, was what the Soviet Union had become by the 1970s, before it switched to just plain capitalism). Most of the benefits of both thought-out socialism and free-market capitalism are being eaten by the need for a global military occupation combined with politics based on keeping incumbents in power through special deals for donors and voting blocks.
I hope for a gradual recovery, because I am too lazy and not violent enough by nature to live comfortably if there is an economic collapse. My objective analysis, however, is that even if we have a recovery all the old debt will linger, and the next down cycle really will be more of a collapse than a recession.
The concern is that now that I have finally gotten my economic life together by building a micro-business and saving and investing carefully, is that the U.S. government is going to sink the entire economic ship. Even well-built life boats could be sucked down with the ship.
Within the the worst case scenario is its own best-case scenario. The U.S. will not sink entirely, but will be thoroughly globalized. There could be even larger numbers of people barely surviving than there are today, but the rich will (mostly) survive. Some of us, workers and middle-class types, will be closely enough tied to the global means of production to get by in what we now think of as a civilized style.
Almost everyone admits that the current crisis was caused by too much credit creation in the years 2004 to 2007. You have to remember that for every credit, there is a debt. So it is just as accurate to say that there was too much debt creation. There was not enough real productivity to support the level of credit and debt. Once debts could not be repaid, giving further credit was no longer in the interest of the banks.
Allegedly to prevent another Great Depression, the federal government stepped in. The rhetoric was save the American people, but the reality was to use taxpayer funds to save most of the capitalist class. A few capitalists were tossed to the sharks; not enough, in my opinion.
But the rescue created its own problems. Most Americans have tried to be thriftier since the recession began. That in itself caused reduced demand, which could also spiral into a more severe recession. So the government started spending money like mad.
Which means that since early 2008, while Americans have been saving (except for the unemployed, who have been exhausting their savings), the government has been spending money for us.
On crap I would never buy for myself. Like new highways. Like a war in Afghanistan, and the continued U.S. military occupation of most of the world. On special deals for all sorts of special interest groups that do not include me.
Yesterday the House of Representative just raised the federal debt limit $1.6 trillion dollars. Rounding to 300 million citizens, that is over $5000 of debt each. Thats on top of trillions already owed (See U.S. National Debt Clock, for instance)
The credit is being extended, in this case, by fools who are buying government-backed bonds and getting less than 4% interest for the risk they are taking. If the economy does revive, interest rates should go back up (unless kept artificially low by the Federal Reserve, as they were during the last bubble), making the current bonds worth far less. If the economy does not revive, these bonds could become worthless.
People are pretty used to the idea that the Federal government is never going to pay the principal on its debt, just the interest. Just like the mortgage loans of yesteryear, which are now illegal.
If the economy continues its gradual up cycle, the Fed and Congress should be able to gradually remove the stimilus measures. But don't expect them to. Once the Federal govenment starts giving away money, the special interest groups who receive it (typically corporations) decide they can't live without it, even during the good times. Look at agriculture subsidies, which have been with us since the days of Herbert Hoover. Look at the anti-poverty programs from Lyndon Johnson, that were supposed to lift everyone out of poverty, and instead trapped generations of families.
Republicans scream about socialism, but what we have is called state-capitalism (which, oddly, was what the Soviet Union had become by the 1970s, before it switched to just plain capitalism). Most of the benefits of both thought-out socialism and free-market capitalism are being eaten by the need for a global military occupation combined with politics based on keeping incumbents in power through special deals for donors and voting blocks.
I hope for a gradual recovery, because I am too lazy and not violent enough by nature to live comfortably if there is an economic collapse. My objective analysis, however, is that even if we have a recovery all the old debt will linger, and the next down cycle really will be more of a collapse than a recession.
Wednesday, October 1, 2008
George W. Bush, Herbert Hoover, and the Great Depression
George W. Bush has not been a very popular President. Many Republican Party members believe he has not done enough to push their religious agenda, or believe he has run up too big of a national deficit. Democratic Party members hate him because he is a Republican.
Now, on top of all that, there is the distinct possibility that George W. Bush will be tarred with an economic recession serious enough to be called a Depression. A serious recession may still be averted, but it is not unreasonable to contemplate Herbert Hoover at this time.
Hoover was Secretary of Commerce in the early 1920's and was elected President in 1928 by a landslide. He was an impressive guy. His background was humble. He became an engineer. Then while working in that capacity in China he was fated to deal with a humanitarian situation. After that he was frequently tapped to deal with large scale humanitarian food crises. He was probably the best-known humanitarian of his times. Because the Republican Party had become synonymous with economic prosperity in the 1920's and because he was personally popular, in the 1928 election Herbert Hoover carried every state in the Union except Rhode Island, Massachusetts, and 6 states in the Democrat-dominated racist Deep South.
When the stock market "crashed" in October 1929, no one thought that much about it. I once went back and read Wall Street Journal from that era, and no one said "Hey, this could be the start of a Great Depression." It was a market correction; everyone knew that stock prices were in a bubble, just like the Internet bubble that burst in 2001. Herbert Hoover did not burst the stock market bubble of 1929. George W. Bush did not burst the Internet bubble; he just happened to be President when enough people realized the party was over.
1930 was not a particularly bad year for the economy, just an ordinary recession year. So neither Hoover nor Congress did anything extraordinary. In the Congressional elections in the Fall of 1930 the Democratic Party did well, partly because of the recession and partly because the Republican Party had been in power for such a long time. The Democrats gained control of the House of Representatives, but the Republicans held on to the U. S. Senate.
As the economy worsened in 1931, Hoover tried to do more, including various kinds of aid for the unemployed and new public works projects, but Congress was not cooperating. Remember that they still did not know they were in anything but an ordinary recession. The Democrats in Congress were not New Deal Democrats. Many were segregationists from the South; many represented conservative business interests. The Democrats had little reason to cooperate with Hoover, and the most conservative Republicans, who saw Hoover as a flaming liberal, did not want to spend any taxpayer money on relief for those suffering from the recession.
In early 1932 the Reconstruction Finance Corporation was formed, but Congress underfunded it. It would later become the cornerstone of the New Deal.
In simplistic histories, especially those written by liberal academics, Hoover is said to have been a conservative, do nothing President. Certainly in the Presidential election of 1932 the Democrats and Franklin Delano Roosevelt blamed the nation's economic troubles on the Republicans and Herbert Hoover. That is what partisan politicians do.
Will we see history repeat itself this year? Apparently the public at large is really mad about the plan to restore the credit markets. The Press and certain politicians have characterized it as a bailout of Wall Street. I am not for giving money to the rich, but I don't see restoring credit markets as a giveaway program.
Many institutions are in place now that were not there when the Great Depression got underway in late 1932. We have Social Security and Unemployment Insurance, both of which allow many people to spend money during recessions.
The main negative difference, and where the danger lies, is that in 1928 the U.S. had almost no national debt. Right now we have a national debt that makes me wonder at the folly of people who are buying U.S. Treasury bonds as if they are a truly safe haven in times of distress. Failure of the U.S. government to pay its obligations is no longer unthinkable.
So let's not go there. The crisis should be a lesson to all of us (and businesses in particular): don't get into debt you can't do without. We have seen again that the adage, "A banker is a guy who will lend you an umbrella when it is sunny and ask for it back when it is raining," is just the nature of things.
Like him or not (I don't) George W. Bush is President, and that means his administration is charged with dealing with the crisis. Sabotaging Bush in this situation, because he is disliked for other reasons, is appallingly stupid. In a few months he's history. Let's hope when a new President takes office the economy is still functioning.
If there is a serious recession getting underway, it will be interesting to watch the blame game. It is funny to see House Republicans pretend they are suddenly all against Wall Street, but then I guess that, too, is what politicians do.
Now, on top of all that, there is the distinct possibility that George W. Bush will be tarred with an economic recession serious enough to be called a Depression. A serious recession may still be averted, but it is not unreasonable to contemplate Herbert Hoover at this time.
Hoover was Secretary of Commerce in the early 1920's and was elected President in 1928 by a landslide. He was an impressive guy. His background was humble. He became an engineer. Then while working in that capacity in China he was fated to deal with a humanitarian situation. After that he was frequently tapped to deal with large scale humanitarian food crises. He was probably the best-known humanitarian of his times. Because the Republican Party had become synonymous with economic prosperity in the 1920's and because he was personally popular, in the 1928 election Herbert Hoover carried every state in the Union except Rhode Island, Massachusetts, and 6 states in the Democrat-dominated racist Deep South.
When the stock market "crashed" in October 1929, no one thought that much about it. I once went back and read Wall Street Journal from that era, and no one said "Hey, this could be the start of a Great Depression." It was a market correction; everyone knew that stock prices were in a bubble, just like the Internet bubble that burst in 2001. Herbert Hoover did not burst the stock market bubble of 1929. George W. Bush did not burst the Internet bubble; he just happened to be President when enough people realized the party was over.
1930 was not a particularly bad year for the economy, just an ordinary recession year. So neither Hoover nor Congress did anything extraordinary. In the Congressional elections in the Fall of 1930 the Democratic Party did well, partly because of the recession and partly because the Republican Party had been in power for such a long time. The Democrats gained control of the House of Representatives, but the Republicans held on to the U. S. Senate.
As the economy worsened in 1931, Hoover tried to do more, including various kinds of aid for the unemployed and new public works projects, but Congress was not cooperating. Remember that they still did not know they were in anything but an ordinary recession. The Democrats in Congress were not New Deal Democrats. Many were segregationists from the South; many represented conservative business interests. The Democrats had little reason to cooperate with Hoover, and the most conservative Republicans, who saw Hoover as a flaming liberal, did not want to spend any taxpayer money on relief for those suffering from the recession.
In early 1932 the Reconstruction Finance Corporation was formed, but Congress underfunded it. It would later become the cornerstone of the New Deal.
In simplistic histories, especially those written by liberal academics, Hoover is said to have been a conservative, do nothing President. Certainly in the Presidential election of 1932 the Democrats and Franklin Delano Roosevelt blamed the nation's economic troubles on the Republicans and Herbert Hoover. That is what partisan politicians do.
Will we see history repeat itself this year? Apparently the public at large is really mad about the plan to restore the credit markets. The Press and certain politicians have characterized it as a bailout of Wall Street. I am not for giving money to the rich, but I don't see restoring credit markets as a giveaway program.
Many institutions are in place now that were not there when the Great Depression got underway in late 1932. We have Social Security and Unemployment Insurance, both of which allow many people to spend money during recessions.
The main negative difference, and where the danger lies, is that in 1928 the U.S. had almost no national debt. Right now we have a national debt that makes me wonder at the folly of people who are buying U.S. Treasury bonds as if they are a truly safe haven in times of distress. Failure of the U.S. government to pay its obligations is no longer unthinkable.
So let's not go there. The crisis should be a lesson to all of us (and businesses in particular): don't get into debt you can't do without. We have seen again that the adage, "A banker is a guy who will lend you an umbrella when it is sunny and ask for it back when it is raining," is just the nature of things.
Like him or not (I don't) George W. Bush is President, and that means his administration is charged with dealing with the crisis. Sabotaging Bush in this situation, because he is disliked for other reasons, is appallingly stupid. In a few months he's history. Let's hope when a new President takes office the economy is still functioning.
If there is a serious recession getting underway, it will be interesting to watch the blame game. It is funny to see House Republicans pretend they are suddenly all against Wall Street, but then I guess that, too, is what politicians do.
Tuesday, September 9, 2008
Remembering Ronald Reagan
I have mentioned former President of the United States Ronald Reagan in passing a number of times in my blogs. Today I gave him his own President Ronald Reagan page at IIIPublishing.com, where I will have a list of pages that mention him. Ronald Reagan was an important American President who held office when I was just starting to practice political science. Here I am going to give some of my impressions and memories from the Reagan era without trying to be objective or even fact-check to see if my memory serves me correctly. Which is probably appropriate for writing about a President who probably suffered from the early stages of Alzheimer's disease while in office.
I considered myself a leftist revolutionary back in 1980, although I was involved in no leftist organizing that year (I was writing a novel that would never be published). Although the 1970's were not as turbulent as the 1960's, there were still a lot of Americans attracted to revolutionary ideas. Living near Berkeley, California, talking to people in People's Park, I knew Ronald Reagan had ordered the police to shoot at a crowd of protestors, resulting in the death of James Rector on May 15, 1969. I thought of former Governor Reagan as a sort of fascist, a potential Mussolini or Hitler.
I moved to New York City in 1981, in time to see the results of the Reagan Revolution. The streets filled up with homeless people. They were of three sorts (not including the homeless who had already been there). Some were the normal economic casualties of the 1982 recession, which took place because the Federal Reserve raised interest rates to extraordinary levels to try to stop inflation. Unemployment was over 10%. In addition many factories in the midwest closed down; families of people in cars would show up in New York City, and across the nation, looking for work. The third class of people in the streets were mental patients. Ronald Reagan cut federal funding for the mentally ill. Hospitals responded by dumping them into the streets.
Needless to say, I did not have a high opinion of Ronald Reagan. His 1981 tax cuts (passed, of course, with the support of the Democratic Party as well as the Republican Party), did not help me, and I saw no reason to lower taxes on the rich.
But I have to say this for Ronald Reagan: he was no fascist. Anyone with a lot of power may seem to be a fascist at times, but on the whole Reagan was a man who reduced the control of society by government. This did lead to the rich having more power and income, and the workers having less power and income, but it was not centralized or totalitarian in character.
The closest America has come to a fascist regime was under President-For-Life Franklin D. Roosevelt. I'll write more on that in a later essay.
Within the central portion of the spectrum of American politics (and keeping in mind that my true position is well to the left of that center), Ronald Reagan provided an antidote to an unnecessarily large, bureaucratic national government. Unfortunately he did that in a way that favored the most privileged members of U.S. society, which I opposed and still oppose.
In retrospect Ronald Reagan looks better to me mainly because things have gotten so much worse since that era. Much as President Richard Nixon seemed to be on the ultra-right at the time, but now would probably be denounced by even middle-of-the-road Republicans as a Communist, Ronald Reagan seems like a mild-mannered reformer. He did not get the U.S. into any big wars. He did spend on lot of money on the U.S. military that could have been invested domestically; I am not saying I agree with much of his policy. I am just saying that compared to the current crop of right-wing jackasses running for high office (yes, I am including Barack Obama as a right-wing jackass), he seems not so bad.
I'll go over the Reagan Era in more detail as time goes by. During the Reagan era I listened to Punk Rock, hung out with anarchists and organized against Reagan policies including the placement of Cruise and Pershing Missiles in Germany, worked as a paralegal and legal secretary, and lived my life basically unmolested by the U.S. government except when I was engaging in civil disobedience. We worried about the destruction of the ozone layer in the 1980's, but very few people were worried about global warming. About the time Ronald Reagan left office the old Marxist left in the United States went into near total collapse, allowing the anarchist trend to come to the forefront. Anarchism is about true freedom, not the freedom-for-the-rich of men like Ronald Reagan. So far it has not had much impact on modern America, but hopefully it will some time soon.
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