The Endless Fruits of Development

I was reading a book called "Deep Economy" and I came across a quote by FDR while he was running for president in 1932 and it relates perfectly to some of the debates going on today:

"Our industrial plant is built... our last frontier has long since been reached...our task now is not discovery, or exploitation of natural resources, or necessarily producing more goods. It is the soberer, less dramatic business of administering resources and plants already in hand... of adapting economic organizations to the service of the people."

I think this shows so many lessons that we can take from the Great Depression, the end of World War II and the rise of mass consumer culture at the start of the Cold War. Interestingly enough, during that campaign Hoover argued just the opposite of FDR: "we are yet on the frontiers of development, a thousand inventions in the lockers of science... which have not yet come to light."

As we all know FDR won the election by a commanding margin. To me, this points to the mentality of the Great Depression American who was fearful of overproduction and consumption. It also drastically differs from what political leaders were telling the public during the Cold War. Cold War era politicians were telling people, like Hoover did in 1932, to consume more and more and that the fruits of capitalism were endless.

Further, I think it shows how when the system is shown to be vulnerable, as it was from the Great Depression, a culture of saving is generated and even sold to the public. In contrast, during times of economic prosperity culture is shaped by consumption. The boom of the 1990s created a culture of Americans that were so caught up in spending money, which also spilled over into the early 2000s. Buying bigger and bigger houses while the size of families decreased, buying all the new expensive digital technology, Iphones, LCD TV's, bigger gas guzzling cars all defined the middle class American of the last twenty years. Once the economic crisis hit, the government started telling the people to be more careful with their money and getting into debt. This is typical of our country and its history. Most social and economic problems are not addressed until it becomes a huge problem. During times of prosperity the leaders who get elected are those who want to expand that prosperity by deregulating and ignoring any future consequences (Reagan, Bush, Clinton, Bush). In 2008, Obama was elected on a similar platform that FDR ran on in 1932. As a country, we need to be educated about the past and learn about the cycle of the economy, and how to assuage recessions. We also need to know how politicians of the past responded and understand that what we do in the present can have an incredible impact on the future. Jimmy Carter, although had several of his own failures, did warn the country about its excessive spending. He was really the first president since FDR to depart from encouraging mass consumption... and lost reelection to someone who supported complete unregulated capitalism and "advancement." The first president since low and behold Herbert Hoover to be defeated after one term.

Total growth and technological advancements are not always signs of progress. In fact, they often lead to distracted individuals, greater divisions and gaps between classes. It may provide better lives for the 1% on top, but that kind of thoughtless growth can ultimately depreciate the masses and causes the so-called middle class to be pushed out on to the streets.

The Middle Class Facade

American politicians always talk about the Middle Class. "We need to create jobs for the middle class" they will claim, talking as if their duty revolves around a middle class without acknowledging any class warfare. I believe our economic crisis is highlighting that the idea of a middle class is false. The Middle Class does not exist.

There was a report on the BBC about homelessness in the US having a new personality. These new homeless are people who lived in suburbia, what we'd all consider the middle class average American family. This is the new homeless. In a year people who we thought of as Middle Class are out on the streets. That is how volatile the economy is for the so called middle class. In reality, there is no such thing as a middle class. There are two classes, the owner class, and the worker class, akin to the Patricians and Plebeians of ancient Rome. The worker class, of all walks of life, work more and more and get less and less for their labor. This is a pattern across the country.

Class seems to be based on how much a person has, right? Wealth. But what is wealth? Wealth is based on labor. Labor is the only way to create real wealth. The so-called middle class had to labor at an obscene rate to be able to afford what we consider a "comfortable life." But a white collar worker, who works 80+ hours a week, maybe multiple jobs, is just as much in the lower class as a Taxi driver in Thailand working the same amount of time. This is a comfortable life? The white collar American and the taxi driver both do not have control over their own created wealth, their own labor. The only way to really get out of the working or lower class is to own your own land, or business. According to the American Chronicle, 80 percent of new businesses in the US fail. That was a report from 2006, I bet that number is much higher now. Since land is scarce and very expensive it would take many years of hard labor and frugal living to be able to become a significant landowner. This is no different from ancient Rome, or any other ancient civilizations that made it extremely difficult for the lower class to have any "real" wealth. Yet, we claim to be so much more advanced than any of these people because of our "middle class."

We tend to think we have a middle class because we have a lot of people that can afford I-phones, and computers, and cars. But the only reason that these things are affordable are so those on the top can profit. The people have to labor longer and harder in order to buy these things, and if they still cannot they go into what we call debt. The so-called Middle Class is the Debt Class. Most of this debt is not from frivolous spending as those with all of the wealth would like us to think. It's for things like a home, a car (with the main purpose of commuting to work!), education, health costs, things that should be considered necessities for all people of our society. That is why people are in debt, because they can't afford those necessities, despite all of their labor. This is pure economic slavery, and to think otherwise denies the true nature of credit. Credit and loans are ways for banks to make money without contributing anything to society. In fact, what they do is take those necessities away from people. It is a facade to say we have a middle class, when the gap between the "poor" and the "middle" is like the difference between a D- and a D in school, while the gap between the "middle" and the "upper" class is like the difference between a D and an A+.

If You Won't Get Rid Of Our Economic Enslavement, At Least Reform It

As the country is divided on and debating the health care bill in congress, little attention has been given to the real problem of our country. “It is not about whether the government is too little, or too big, it is about if government works,” Barack Obama cleverly put it during his inauguration speech in January. I completely agree, but unfortunately our government cannot work unless we rid money from politics. It is possible, but would take a huge grassroots effort. Nonetheless, money in politics is not the prime focus here. In my wonderful world where money is eliminated from politics, and the laws are not given to favor big corporations, banks and insurance executives we could not only have a functional public health care system for all, but also a banking system for all that would simplify our economy and create more time for social and as well as scientific progress.

This may come off as being incredibly Marxist, but the whole idea of banks, loans and interest is absurd. Banks make a profit off of collecting interest. This contributes absolutely no wealth in real terms to the economy: Nothing is produced, nothing is bought or sold. It does not take very much research to understand how the banking system has caused, or exacerbated recessions and depressions. In fact, our entire financial system was at the heart of last year’s economic meltdown. Maybe it is the result of greedy individuals trying to manipulate the system, but if we are all inherently greedy in some ways how could this crucial aspect of our economy ever be a function of social good?

Maybe capitalism is the root of the problem. I am personally not prepared to go that deep. I suppose I take a strict Keynesian approach to this issue and will suggest that there are certain functions of our economy and society that should be run by the public. This is not to propose that the federal government run our banking system. Instead, I believe local public institutions can effectively provide the essential services that banks do. In this way, people who need loans and have decent credit can get loans from these public institutions without any interest and a reasonable payment plan. This would allow people to spend their money on other things, which would in turn stimulate the entire economy.

One of the biggest reasons the United States got into so much trouble last year were subprime loans. These were loans given to people who had horrible credit, but given to them with enormous interest rates that they would never be able to pay off. A public banking system would prevent loans to people who have such bad credit, but would allow room to improve easily. Therefore, we would be smart with the treasury stored for these loans, and also set up some support for those with bad credit. Since it would also boost the entire economy, those with bad credit would have more opportunity to build up their funds and improve their credit situation.

Furthermore, a public system would help create a less volatile economy. It would lessen the effects of big recessions. For instance, India’s Congress party, which had previously denounced their public banking system, praised the institution and said that nationalization was one of its greatest achievements. Congress president Sonia Gandhi argued “Public sector financial institutions have given our economy the stability and resilience we are now witnessing in the face of the economic slowdown.” (http://www.stwr.org/india-china-asia/the-importance-of-public-banking.html) Banking, and the entire financial institution for that matter has become an increasingly complex sector that as a private profit seeker does not serve any practical use for society. All it does is further our enslavement to the current economic system.

Where would the money for this program come from? Well our federal government recently gave the private banks over $750 billion dollars because they were about to collapse (from their own incompetency I might add!). Thus, we can assume that with a public system, there would be an elimination of a middle man and there would be little need to increase taxes.

Our economic system is large and complicated, but most of it is needlessly intricate. The financial institution is one of those structures in our society that only benefits the few who have been in charge for a long time. I write this to merely provoke some thought. Many people have protested the bank bailouts. In fact, most people on the left and right opposed the bailouts in some way. Yet, they continued, under the guise of “too big to fail” Indeed, they might be too big to fail. So why should we continue placating a system that in the end screws over the mass population? I don’t think we should, I think we need to drastically reformat that system. Unfortunately, if we do not get money out of politics we won’t be able to successfully reform anything.

Lessons from the Great Depression

I decided my first post should be this essay I wrote about the Great Depression and our current economic crisis. It's very broad, but it touches upon a lot of ideas that I will most likely write about more thoroughly at a later date. Enjoy:

In understanding the current economic downturn, many pundits, reporters, and average citizens have looked at the Great Depression to calculate the severity of today’s crisis. Many have claimed that the world, particularly the United States, had lost its historical perspective and no one was able to predict the unfortunate events of 2008 that left the world economy in a tangled mess. In actuality there were many, such as New York University’s economics professor Nouriel Roubini, who did predict the housing bust, the trouble of sub-prime loans, the decline of consumer confidence, and the ensuing recession. Nevertheless, these predictions went unnoticed due to the large sum of quick cash being made around the world. Therefore, in trying to develop a recovery plan for a situation that increasingly looks more and more like the Great Depression, there needs to be a careful understanding of the Great Depression, its causes, and finally its recovery.

The most important thing to note about the Great Depression, as well as this crisis, is that there was no one single cause. Both affairs occurred due to many factors occurring under adverse circumstances. Even then, some may try to pinpoint “main” causes, but historians continue to dispute what factors should be emphasized when evaluating the causes of the Great Depression. Likewise, it is impossible to identify a prime cause for the current economic situation, especially since it is still unfolding. In mainstream thought, the Great Depression began after the stock market crash of 1929. This is dangerously short-sighted. If this were the only cause, we would be in an even more vulnerable position now because the stock market is considerably larger than it was in 1929. Thankfully, that was not the only cause of the Great Depression. Some historians may suggest that the origins of the Great Depression began during the industrialization of the late nineteenth century, but for our purposes we will begin immediately after World War I.

Just like our current economic crisis, there were those who predicted the Great Depression, but were ultimately ignored. John Maynard Keynes was one of those disregarded prophets. In The Economic Consequences of Peace, Keynes warns that the harsh penalties given to Germany after World War I would negatively affect the rest of the world economy. He writes, “If the European Civil War is to end with France and Italy abusing their momentary victorious power to destroy Germany… they invite their own destruction, being so deeply and inextricably intertwined with their victims by hidden psychic and economic bonds.” Unfortunately, the leaders of Europe did not listen to Keynes and the deep economic ties were exposed due to the harsh demands on Germany and Austria-Hungary. Similarly, all of the warning signs for our sharp economic downturn were ignored, despite several economists’ predictions. Furthermore, what Keynes recognized was that the world economy was too integrated for nationalism to have any sort of positive effect on the financial system. For the current crisis, there was no major war that exposed economic globalization; the profound global economic ties were known, but simply overlooked.

The economic ties of the 1920s, just like today, were essentially based on loans. After World War I the United States was considered the world creditor. They had loaned England so much money during the war, and England loaned so much money to France, Italy, Russia, and other allies. However, since all of these economies, except the United States, were devastated by the war, they looked for German reparations to help pay back Britain and the United States. To further confuse this economic mess, the German economy was in utter chaos, so the United States loaned Germany money to ease their incredible inflation and to help pay back the allied powers. This intergovernmental debt left the world economy in an unstable house of cards, waiting for one card to fall. The cards certainly began to fall rather quickly, and nearly simultaneously. From what is known about the current crisis, there is a similar intergovernmental credit disaster. In fact, it is even more complex than the one that led to the Great Depression. The private financial institutions of today devised a complex scheme of packaging loans and trading bad assets. It is commonly thought that this begins with the so called sub-prime loans that were packaged and traded by financial insurance companies. Since these companies are so global this mess has not only affected the United States; it has caused financial disaster to most of the world. In terms of overall national debt, in our current crisis, the players are reversed. It is the United States that is in enormous debt, and now it is Germany and China that are giving credit. In American thought, it is usually considered that the Great Depression was a product of the United States. This is clearly a fallacy, and one of the most important things we can learn from the Great Depression is that it was a global crisis, caused by global affairs.

The interconnectedness of the global economy was a main reason why the depression was so vast in scope, but historians have calculated many other causes for the downturn, and these causes are very comparable to today’s crisis. Four main factors that are considered are: consumption, investments, net exports, and government policies. The main argument for the “underconsumption” cause is that during the 1920s, labor production grew rapidly as a result of technological advances, but this increase was not reflected in rising real wages. Therefore, as productivity increased and more products were put out into the market, but people no longer had the means to purchase the products, there became a waste of capital and production. This argument for a Great Depression cause is very much comparable to today’s crisis. A study by the New York Times showed that real wages were at their lowest share of G.D.P. on record in 2006, while corporate profits were at their highest share since the 1960s. This disparity between real wages and corporate profits is significant, but certainly not the only cause of either economic downturn.

Like the current economic situation, the Great Depression had some roots in the housing market. Investment began to decline as early as 1926 following a housing boom. As Attack and Passall point out, this decrease in the housing market was in part caused by the slowing of immigration and the fewer number of families. Although the current crisis has much to do with the housing market, where it differs from the Great Depression is that this housing bubble burst due to the complicated and risky behavior of financial institutions. Another factor discussed by Attack and Passall is net exports. This factor more than any other shows how interconnected the Depression was. The United States had been the world’s leading industrial exporter, but after the war, the European market drastically declined. One way of addressing this problem would be for the United States to import more from Europe, but this was unrealistic because of the simple fact that the there were no European products that the United States wanted. After all, the United States was the leading industrial producer of the time, so there was no incentive for Americans to import from Europe. As mentioned earlier, the United States’ role is currently reversed. The problem of net exports is now that the United States is in the position of Europe. The United States has not been an exporter nation for many years, but in order to get out of their debt, like Germany needed in the 1920s, is to receive capital through exports. The problem is still the same, but reversed, with China in the United States’ prior role. There are no products that the United States could export to China, which would help America pay back their current massive debt.

As mentioned earlier, the Great Depression was not solely provoked by the stock market crash of 1929. These other factors allowed the crash to be so devastating, but it did not end there. The government understood that there was a significant recession and that they needed to take some action to ease the economic downturn. Unfortunately, the model that was used was the recession of 1920, which was very short and not exceptionally damaging. The thought at the time was that the 1929 recession would be very similar and the same policies would relieve the situation. Like other explanations for the depression there are contending views. Usually this falls into two different camps: the government did too much, or the government did too little. Under President Hoover, there were indeed public works projects and other government spending to try and offset decline in private consumption. In addition the government cut taxes to help stimulate the economy. These measures may have alleviated the situation at first, but by cutting taxes while spending, the government loses revenue. This led to a budget deficit of $2.7 billion in 1932. The solution to the deficit was to raise taxes, and to raise taxes in a time of recession ultimately makes the recession worse. According to this view, the failure of governmental policy exacerbated what might have been a less sever recession.

Since the current crisis is still uncertain, it is practically impossible to fully compare the eventual recovery of the Great Depression with today, especially since this is indeed only a comparison and not a suggestion that we are heading toward another Great Depression. However, the attempts that are being taken today to solve our economic problems certainly resemble the measures that were taken during the 1930s. The Obama stimulus plan, which is inevitably political, has taken measures to funnel money into education, environmental and energy issues, public works, and other spending that parallels the New Deal. Some of the New Deal spending is what created much of the infrastructure that we have today. The biggest lesson to learn from this is that the United States needs to maintain its infrastructure and continue to make innovations in areas such as transportation, construction, and energy sources.

Economics ultimately ends up being political. The current economic crisis is very much at the whim of how the United States responds. It is a global affair, but the United States has such a significant economy, but has also been slower to respond to the dilemma. This has been in large part due to a deep ideology and a trepidation about anything that might be considered “socialist.” The biggest lesson we can learn from the Great Depression is that we need to cut these deep rooted ideological ties and act in a pragmatic way to solve the current situation. Every economic crisis is different, and thus the responses should be made by understanding the situation and developing policies that are suitable to the problem. What worked for the Great Depression, most likely will not work today. In fact, what is considered the biggest factor that led the world out of the Depression was the military industry and World War II. Today, the United States spends more money than any other nation on the military. In fact out of every tax dollar, 37 cents is used for the military. Therefore, this crisis needs to be treated carefully and new ideas need to be allowed into political economic thought. History does not repeat itself, but what we can learn from the past is that every action we have today will drastically affect the future in ways we need to take very seriously. We can either look at the Great Depression as a looming potential reality for the future, or use it to learn the complexities of not only the economy, but also of human and political actions.