Posts Tagged ‘Great Depression’

Failing to learn from the Great Depression

July 30, 2015

The Great Depression of the 1930s was made worse than it needed to be because European governments prioritized balanced budgets and stable currencies over putting people back to work and putting money into circulation.

As Matthew Yglesias noted—

In Germany, for example, the [ruling socialist] SPD took the view, roughly speaking, that capitalism was an inherently flawed system and the Depression just proved that.  But short of a revolution and a total transformation of the political universe, there was just nothing to be done to alleviate unemployment.

Similarly, in 1929 Ramsay MacDonald’s Labour Party swept into power in the United Kingdom and proceeded to … enact spending cuts necessary to keep the country on the gold standard.  As this led to left-wing defections, MacDonald eventually made up lost ground by forming a coalition with Conservatives that eventually ended up being mostly backed by conservative MPs.

Sweden was an exception where the local social democrats took bold steps to bolster employment. But mostly it was left to other parties with less worthy overall agendas — Hitler, for example — to step in and say that if the rules of the game led to prolonged spells of mass unemployment then the rules of the game had to be changed.

via Vox.com.

Brad  DeLong, an economist at UC Berkeley, said that he used to joke that governments would never again make the mistakes that prolonged the Great Depression, but instead would make new mistakes.  Now he admits he was wrong.  Governments are making the same old mistakes.

austerity-depressionEurope’s governments are held back by fear of fiscal imbalance and undermining the Euro standard, just as they once were held back for fear of undermining the gold standard.  But, as in the 1930s, there are nationalist parties waiting in the wings to do the things that the mainstream parties fear to do.

The European public may well turn to parties such as the United Kingdom Independence Party, the National Front in France or the neo-Nazi Golden Dawn party in Greece.   As far as that goes, similar movements will arise in the United States if Democrats and Republicans fail to act.

LINKS

Depression’s Advocates by J. Bradford DeLong for Project Syndicate.

I don’t want to go back there by Matthew Yglesias for Vox.com.

Looking back on the real New Deal

September 25, 2012

I picked up a 1984 book, The Great Depression: America, 1929-1941 by Robert S. McIlvaine, at the Bookends used book store in hope that the history of the Great Depression might throw light on the current Great Recession.

The most significant result of the Great Depression, according to Robert S. McIlvaine, was a change from the historic American individualism to communitarianism.  The New Deal was a response to this change and not a cause of it, he wrote.

Americans historically have regarded themselves as individually responsible for their own destinies, and economic misfortune as their own fault.  But during the Great Depression, the vast majority of the people were in trouble, including individuals highly respected by their neighbors.  If everybody suffers the same fate, people cease to regard themselves as personally at fault, and they look for collective action rather than individual enterprise.

Herbert Hoover represented the old American individualism at its best, McIlvaine wrote.  A person of intelligence and integrity, Hoover could not bring himself to respond to what the American public demanded, because he thought such a response would threaten basic American values.  He came to be hated as few if any American Presidents have been, before or since.  Franklin D. Roosevelt, a less admirable individual but a brilliant politician, understood public opinion and responded to it.

McIlvaine wrote that the initial Roosevelt policy was not a populist program, but rather an attempt to forge a business-government partnership, much as President Obama has tried to do. But when corporate business leaders turned against Roosevelt, and the American people turned against big business, Roosevelt lost nothing by saying, “I welcome their hatred”.  It was to Roosevelt’s benefit, McIlvaine wrote, that conservatives depicted his program as more radical than it was.  Most Americans today disapprove of the Wall Street bailouts, but we have nothing like the anti-business sentiment that existed back then.

Roosevelt had sympathy for the underdog, shaped by his personal struggle with polio and the important influence of his wife Eleanor.  But the main reason for the New Deal was the need to respond to popular discontent.

McIlvaine said historians have classified pro-FDR radicals, such as the Progressive Party in Wisconsin, the Farmer-Labor Party in Minnesota, Upton Sinclair’s End Poverty in California movement and the CIO (Committee for Industrial Organization, later Congress of Industrial Organizations) as left-wing and liberal, and anti-FDR radicals, such as Huey Long of Louisiana, the political radio priest Father Coughlin, and Dr. Francis Townsend, author of the Townsend pension plan, as right-wing and fascistic.  Historians ignore the Communists, who were more influential in the labor movement than liberals like to remember. But all these movements were in fact more alike than they were different.  They all reflected popular discontent with the status quo, the rich and the corporate elite.  This discontent, however, fell short of support of socialism.  The majority of Americans wanted to correct abuses of the capitalist system, not overturn it.

The New Deal era accomplished far-reaching reforms—Social Security, unemployment insurance, the Securities and Exchange Commission, the Tennessee Valley Authority and other big hydroelectric projects, legislation recognizing labor’s right to organize and bargain collectively—until the Republican-Southern Democratic alliance crystallized after 1938, after which further change was blocked.  Over the next 30 or 40 years, the Republican Party absorbed its conservative Southern Democratic allies, and became more internally consistent and more disciplined.  President Obama faced the equivalent of FDR’s post-1938 opposition from the day he took office.

The most interesting chapters were about popular culture and public attitudes.  In the movies, rich people were often criticized not for being rich, but for being out of touch with American life.  An heiress would become involved with a penniless newspaper reporter, or a playboy with a chorus girl, and learn the true meaning of life.  Gangster movies were often implied criticisms of society.  Movie gangsters were depicted as victims of society or as examples of ruthless amoral greed.  But there was rarely if ever any questioning of the capitalist system itself.

McIlvaine thought the changes in attitudes brought about by the Great Depression were more significant than the actual reforms of the New Deal.  He saw the Ronald Reagan administration as an attempt to restore pre-1929 individualism and mistakenly thought this attempt had run its course in 1984.  Instead the Reagan administration was the beginning of a reversal of attitudes which has continued to this day, and which the Obama administration accepts as political reality.

The lesson of McIlvaine’s book for the present day is that if you want progressive change, it is not enough to pin your hopes on a charismatic leader.   During the 1930s, the labor union movement was a strong force that did not did depend for its strength on either of the two political parties.  There were third-party movements with the potential to draw votes away from the two major parties, and progressive reformers within both political parties.  Progressive change is not handed down from above.  It has to be demanded from below.

Did the New Deal work?

January 30, 2012

Currently a strong effort is being made to discredit the New Deal by opponents of public works, unemployment insurance and other government programs to revive the economy in recession.

The case against the New Deal is that unemployment never fell to pre-1929 levels until the coming of World War Two.  But by other economic measures, the New Deal was in fact a success.  The top chart above measures Gross Domestic Product in terms of by what percentage it was higher than its low point in March 1933.  The bottom chart above measures industrial production by what percentage it was higher or lower than in October 1929 when the Great Depression began.

The two charts showed that economic recovery began when President Roosevelt took office, and faltered only in 1937 when he decided that his economic recovery program had achieved its goal and did not need to be continued.  Full recovery came in the run-up to World War Two.

Now it is impossible to be certain to what degree recovery was due to the New Deal and to what degree it was due to the natural swing of the economic cycle.   The only way you could have proof one way or the other would be to have two timelines, one with a New Deal and one without, which is impossible outside science fiction.   The case for the New Deal is that economic recovery started to falter in 1937 with President Franklin Roosevelt started to curtail government spending and return to a balanced budget.  The only way you could convince me that the New Deal was futile would be to show me a nation that brought about economic recovery through economic austerity.

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Historical amnesia and the Great Depression

September 1, 2011

I was born in 1936, too late to have any memory of the Great Depression, but my thinking has been shaped by my parents’ stories of life in the 1930s.  Very few Americans have living memories of that era, and the number is dwindling of those who, like me, have second-hand memories.

It is lack of historical memory that makes our President and Congress so willing to dispense with the firewalls and safety nets that were created in the 1930s and 1940s to buffer against another Great Depression.   It is lack of historical memory that makes we the people so undisturbed by the recreation of the conditions that led up to the Great Depression—irresponsible financial speculation, rising debt, concentration of wealth in a few hands.

I don’t think there will be another Great Depression exactly like the first.  But there is a saying attributed to the philosopher Hegel:  Whatever has happened, can happen.  The Great Depression happened.  There is nothing to stop another one from happening except human action.

Nouriel Roubini asks: Is capitalism doomed?

August 23, 2011

Nouriel Roubini is a professor of economics at New York University’s Stern School of Business, and chair of Roubini Global Economics, a financial consulting firm.  He was nicknamed “Dr. Doom” for his predictions that the booming financial and real estate markets were going to crash.  But he proved to be right.  Now he is saying that the capitalist system itself is in crisis.  Here is what he wrote last week in his syndicated newspaper column.

Nouriel Roubini

Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proved wrong).  Firms are cutting jobs because there is not enough final demand.  But cutting jobs reduces labor income, increases inequality, and reduces final demand.

Recent popular demonstrations, from the Middle East to Israel to the United Kingdom, and rising popular anger in China—and soon enough in other advanced economies and emerging markets—are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness.  Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

Unless governments act, he wrote, the world could be on the brink of another depression as bad as the Great Depression of the 1930s.

Over time, advanced economies will need to invest in human capital, skills, and social safety nets to increase productivity and enable workers to compete, be flexible, and thrive in a globalized economy.  The alternative is—like in the 1930s—unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

via Slate Magazine.

All this seems obvious to me.  Why is it not obvious to our political and business leaders?  It is partly because of the excessive power and influence of the wealthy elite, but I think it is also because of the excessive power and influence of financial institutions compared to goods-producing companies.

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