Epiphanyblog

All about ideas…

Replaying 1935

with 9 comments

After the GOP debate last night at the Reagan Library, it’s worthwhile to present a response.

Economic conditions – and the GOP – are very similar in 2011 to what they were in the early 1930s. The economy had been destroyed by speculation, over leveraging by banks, and too much debt in households and businesses. When that bubble burst, the country suffered a deep depression. By the time FDR assumed office in 1933, the Great Depression was already in its 3rd year. Unemployment was nearly 25%. Thousands of teenagers like my own father had left home and were riding the rails, looking for work. Millions had lost their homes, their businesses and their savings. Family groups moved in together: grandparents, children, great grandchildren, aunts and uncles all sharing a single household. Back yard gardens expanded to provide the families’ food. Fathers walking miles, endlessly searching for work. Breadlines and soup kitchens. Senior citizens jammed into what were euphemistically called “old folks homes.”

The GOP prescription for economic vitality proposed during the 1935 – ’36 campaign was the same one promoted by the GOP today: austerity, ending social security, reducing taxes on the wealthy. When FDR agreed to some of the GOP austerity plans in 1937, the economy – still enduring over 14% unemployment – dropped back into recession, causing unemployment to peak at 19%.

Why should anyone believe the same GOP ideas that failed to work in the 1930s would work now? FDR, as shown in this video, was right.

Advertisements

Written by Valerie Curl

September 8, 2011 at 8:44 AM

9 Responses

Subscribe to comments with RSS.

  1. The conditions today are vastly different than they were back then. The fault for our current woes is the government and its collectivist policies alone. While it’s true that there are some pretty sleazy bankers and Wall Street execs in this world, bankers as a whole are not a bunch of crooks, any more than any other group of professionals are, with the possible exception of lawyers ;-). In America, at the moment however, bankers are being denigrated as greedy parasites on a daily basis by politicians and the media. In fact it’s the politicians themselves, and their accomplices in the media who are to blame for our current dire financial position. Bankers are merely their current scapegoat, just as the major health insurance companies were during the fight over Obamacare.

    A dominant theme in our history over the last 100+ years, has been our government’s never ending attempts to regulate and control our once free market economy. History shows us clearly, that every single time government has interfered with our economy, their actions made things worse rather than better. What’s more, each and every time this has happened, capitalism took the blame. This is true from before the passage of the Sherman Antitrust Act in 1890 to today. The government’s antitrust case against Alcoa Aluminum, begun in 1937, is one of the best examples of this. While Alcoa had a virtual monopoly in the aluminum market, they got there through superb management, planning, marketing and highly efficient manufacturing. While they had no competition in the aluminum market, the company was still competing with steel, and wood etc. In fact Alcoa created the Aluminum market, and when it was broken up, the entire aluminum industry was only 1/6th the size of the shoe industry at the time.

    Shortly thereafter, as America began to gear up its aircraft production capabilities for WWII, we experienced a critical shortage of aluminum. Had the government not broken up Alcoa, and allowed it to keep expanding, this wouldn’t have happened. To add insult to injury, Alcoa was blamed for the shortage. In an essay published in 1966, Alan Greenspan wrote:

    “ALCOA is being condemned for being too successful, too efficient, and too good a competitor. Whatever damage the antitrust laws may have done to our economy, whatever distortions of the structure of the nation’s capital they may have created, these are less disastrous than the fact that the effective purpose, the hidden intent, and the actual practice of the antitrust laws in the United States have led to the condemnation of the productive and efficient members of our society because they are productive and efficient.”

    This pattern of stupid policies and propaganda actually started well before the Alcoa case. Perhaps the best known early example was the construction of our first coast to coast railways. There wasn’t sufficient traffic at the time to justify the huge costs involved in building those railroads, but the government interfered in the belief that a coast to coast railway system would enhance America’s prestige abroad. They did this by giving huge land grants adjacent to the rail routes to the builders of each railroad. As the nation’s economy grew, rail traffic grew exponentially, but the railroads proved unable to handle the traffic. The reason why was because they weren’t built to carry traffic. Instead they were built in the cheapest and most shoddy way in order to get the land grants. Anyone familiar with the term “Robber Barons” knows who got the blame for that failure.

    Now our government has announced that it’s filing suit against 17 of the biggest banks and financial institutions. It’s being done for the simple reason that Obama needs a scapegoat to blame the poor economy on, as his blame Bush strategy has become a bit tired at this point. But are these banks and financial institutions really to blame for the mess we’re in?

    Since the economic collapse began with the sub-prime fiasco, we have to look closely at the real culprit, the CRA (The Community Reinvestment Act of 1977). The CRA was motivated by do-gooders on the far left who sought a way to clean up America’s inner city slums. They figured that if the people living in those squalid homes actually owned them rather than paying rent to slumlords (like Valerie Jarrett and Tony Rezko), that they’d take pride in their homes and clean up those ghettos themselves. Of course this seemed like a noble idea at the time. The problem however was that the people they targeted didn’t have sufficient credit to qualify for the mortgages they needed to buy those properties. The CRA fixed that by requiring banks and mortgage companies to put out a certain percentage of their loans, to people who weren’t creditworthy, i.e., to the poor in the areas where they did business. The banks had no choice but to comply for 2 reasons. The first was that the government threatened to pull their membership in the FDIC, which would make it almost impossible for the banks to attract depositors. The second reason was that after writing those “sub-prime” mortgages, they were able to sell them (most of them going eventually to Fanny and Freddy).

    The banks of course are privately owned businesses, and the executives who run them bear their primary responsibility to their shareholders. So their choices were rather limited. Either comply and make lots of money in fee income (from points charged when mortgages are written), or refuse, in which case they’d likely go bankrupt. Of course they did what they had to do in order to survive, and one of the ways they came up with to sell off the paper they couldn’t sell to Fanny or Freddie, was to package them in bundles and sell them as securities, with insurance (AIG) to investors. Blaming the banks & Wall St. for the sub prime fiasco, is like blaming a wild animal for biting someone. The bankers were only doing what they had to do in order to survive in a hostile world, just like wild animals do when cornered.

    Our current financial mess of course, is a lot more complicated than the individual problems caused by the railroads, the Alcoa’s, and the banks. The reason why is that the after effects of all of those years of interference unfortunately are cumulative, and when added to all of the ways that the government has screwed around with our business community over the last century and a half, you get an America that’s so deeply in debt, that any of several different events could have been the straw that broke the camel’s back. That it turned out to be the artificial government created housing bubble, shouldn’t be surprising to economic historians, due to the enormous effect that a slowdown in the home construction industry has on so many other industries that supply both products and services to the construction industry.

    The cause of the problem is easy to see for anyone with an objective and rational mind. The leftist, liberal and progressive elements of our government, in their effort to achieve power at any cost, have killed the golden goose of American business. We’re only barely surviving right now, because there’s still a bit of seed corn left for them to consume, but at the rate they’re eating it (borrowing) the entire thing will likely collapse within the next few years, and I’m not talking about America only, as the death throes of the European Union take place before our very eyes.

    Swemson

    September 8, 2011 at 12:46 PM

  2. Swemson replies to historical fact with current right wing fiction, which he/she believe with a zealots single devotion allowed by faith in a creed. The left is not free from the sin of similar singular minded zeal, but the fact remains that when such disproportionate levels of GDP/ capital are tied up with so few people there is no liquidity available to the masses to allow for economic recovery. The solutions are prolonged depression, or a manufactured war (fascism). Laissez-faire corpratism has always been a key factor in leading to past great depressions, never the solution.

    Read “This Time is Different” by Reinhart and Rogoff. What you will get is carefully researched history, not the revisionist stuff put out by the various neo-con talking point manufacturers that Swemson is either too deeply feeding on, or (possibly) an astro-turffing shill for.

    Ken Ballweg

    September 13, 2011 at 8:08 AM

  3. Ken Ballweg replies to my original comment, saying I’m responding to facts with “right wing fiction”

    Every single thing I said in my original comment is a true fact. In typical left wing fashion, since Mr. Ballweg cannot refute a single thing I said, he calls me a liar. In fact it is Mr. Ballweg who spouts fiction. He clearly has no understanding of history or economics. Like the progressives, all he can do is loudly proclaim how much he hates corporations and the wealthy.

    fs

    Swemson

    September 13, 2011 at 5:34 PM

  4. All I can say is “Wow” that was some rebuttal. You’ve refined this to an art, haven’t you fs? And you are so “right” I have to bow down to you.

    1. I didn’t call you a liar, but I will call you a liar for saying I called you a liar. Carl Rove would be so damn proud of your technique.

    2. It’s not the “The leftist, liberal and progressive elements of our government, in their effort to achieve power at any cost, have killed the golden goose of American business.” It’s the corporations. The people you champion are the ones who are doing what you attribute to the left. America has shifted so far to the right that people like you think you are espousing the middle way. And there is no arguing with you. You are Luther nailing your thesis to the door, only not quite so well informed, but every bit as passionate in your beliefs. Convincing you that your beliefs are constructs of your own mind is not possible. So, take what comfort you can from them, and thanks for your part in destroying the nation by supporting the plutocrats.

    Ken Ballweg

    September 13, 2011 at 7:12 PM

  5. Swemson, I do believe you’ve been feeding too much on right wing propaganda. Democrats – aka known as the left wing – are not haters of business or free markets. Would you consider Brin (Google) or El Erian (PIMCO) or Zuckerberg (Facebook) or Buffet (Berkshire Hathaway) left wing business haters?

    Having a social conscience – believing in the generations old concept of the commonweal that made America great – does not imply a hatred of business, but rather that business has a responsibility to the commons.

    Your Ayn Rand libertarian philosophy does not accept that business has a role to play in the commons. Moreover, it’s doubtful you even understand the history of the GOP philosophy.

    A few months ago, I read a very revealing treatise on big business Republican ideology from the early 20th Century. What struck me most was their lack of regulatory fear: they believed that any regulation could be overcome or used to their benefit to distort and protect their businesses.

    We don’t have a free market economy when a large business or business entity, i.e. chamber of commerce, can distort the market place or prevent newcomers or competition into the marketplace. Yet, that is exactly what big businesses, through their wealth and power, do each and every day. Event he new Patent Regulation bill reveals the power of lobbying and lobbying money to protect the most powerful corporations at the expense of market disruptive newcomers.

    Finally, your advocacy for Wall St. rings hollow to most American voters who saw much of their lives go up in smoke as a result of self-absorbed, self-centered traders who thought nothing about lying to their customers, as long as they made vast amounts of money for themselves. That’s not what banking is supposed to be about. Banking is supposed to be aligned with the economy, business, and act as a lender for economic growth. Since the early 1980s, Wall St has transitioned from it’s historic role as a lender and analyst for economic growth to a self-absorbed engine of internal company profits.

    I don’t indict Wall St per se. I indict the people who came to lead the various organizations who chose their own wealth, power and internal company profits over their fiscal and advisory duties to their clients. Today, the opaque derivatives market is estimated at something like $164 Trillion – more than the entire world’s GDP. Yet, no one knows how safe it is or if it will lead to an apocalyptic financial crash. As El Erain wrote a few weeks ago, financial markets need good rules of the road because without them some drivers will cross over into other lanes, causing crashes, or speed into barriers.

    Government’s role in business is to prevent those crashes and to allow fair, even competition that causes market disruption and creative destruction while protecting average consumers and smaller businesses from being taken advantage of in harmful ways. Government should be the sheriff on the beat which, generally, is what Democrats and liberals want: a marketplace where everyone with a good idea can compete on an equal footing, can gain access to capital through their banks to start up or grow their businesses, and won’t be shut of the market place by rules and regs written by huge companies that limit or exclude them from competition.

    A new report recently published shows the number of small/new businesses in the US has decreased to levels below Europe and other developing countries. In addition, this nation’s innovativeness has decreased significantly. Those results can be directly correlated to the dominance of big business that buy regulations to protect themselves. Innovation requires competition and, believe it or not, sometimes regulations spurs innovation and new businesses…if, and only if, the financial markets are functioning properly as they historically should be. Additionally, without some regulation, big businesses have a free rein to destroy small market disruptive competitors as well as ruin the “commons”. Without some rules of the road, how does a society prevent a bad actor from crashing the economy, or destroying a market segment, or preventing creative destruction?

    TR’s legislation was not meant to inhibit growth but to advance it by allowing greater competition. Knowing as he did the power of big business to buy favorable legislation, he sought to break up anti-competitive practices that inhibited growth and innovation. Do you think we’d have cell phones and smart phones today if ATT had not been broken up in the ’80s? Breaking up ATT’s monopoly opened up competition and thus innovation.

    As a result, I’d say your arguments tend to be specious and ideological rather logical and open market oriented. If you were really interested in open markets wherein everyone with a good idea could compete on a level playing ground, you’d join with liberals and Democrats to ensure the rules of the road favored no particular company or industry but opened the market place to creative disruption and innovation while protecting consumers and businesses (the commons) from being deceived and abused.

    Valerie Curl

    September 13, 2011 at 7:32 PM

  6. Like Ballweg, you make statements that are not backed up by any facts or evidence. Perhaps when Atlas Shruggs, you’ll see what your ideology has brought us.

    Swemson

    September 13, 2011 at 8:10 PM

    • Nonsense. Your ideology is a complete failure which is why no advanced society has adopted it. The only societies that adhere to a Randian philosophy are countries in chaos like Somalia. Her ideology is not only irresponsible, it’s also unworkable in a civilized society…and always has been going back to Sumeria.

      Your beating a dead horse that has been rejected over and over again by all civilized societies.

      Valerie Curl

      September 13, 2011 at 8:34 PM

  7. And look at the pickle all your “civilized” societies are in right now.

    The only time that my ideology was tried was in the development of America. It created the greatest explosion of wealth and prosperity ever seen in history. And then the looters started to eat away at it, and it’s taken them over 100 years to bring America to its knees.

    As I said previously, perhaps when Atlas Shruggs, you’ll see what your ideology has brought us.

    Swemson

    September 13, 2011 at 9:48 PM

  8. Good post and a pleasant summation of the problem. My only problem with the analysis is given that much of the population joined the chorus of deregulatory mythology, given vested interest is inclined toward perpetuation of the current system and given a lack of a popular cheerleader for your arguments, I’m not seeing much in the way of change.

    Merkur casino online

    October 4, 2011 at 8:57 AM


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: