Tuesday, December 02, 2008
Jim Lydecker Guest Blog: Recession and the Lessons of History
I'm gonna put up another of Jim's pieces this morning, since mine are serving mostly to draw fire from the Politically Correct, the humorless and the over-sensitive. This post is pretty calm and mainstream for Jim.
I have to start with an addendum. His opening quote is a variation of Santayana's "Those who cannot remember the past are condemned to repeat it." I like Santayana. On a Buddhist (?)note, he also said "There is no cure for birth and death save to enjoy the interval." Oh, and "Fanaticism consists of redoubling your efforts when you have forgotten your aim."
But I'll shut up now. Enjoy the piece.
“If we do not remember history, then we are destined to repeat it.”
Everyone has heard this oft-repeated quote and it fits in perfectly with today’s state of the economy and the choice of our next president.
Let me explain.
Recently I’ve finished a book by Stephen Duncombe and Andrew Mattson (“The Bobbed Hair bandit”) about the 1920s from the post-war recession in 1920 to the 1929 collapse. Remembering we had a severe recession beginning in 1990 that began to turn around in 1993, you can interchange the ‘20s with ‘90s below:
“By the end of 1923, things were looking a bit better in the working-class neighborhood areas. Production increased which meant more jobs and products to spend wages on.Outstripping the advances of workers’ wages was the striking increase in their material aspirations. Americans were buying into ‘the good life.’ The creation of this market was helped by the expansion of easy credit allowing the working class to live like the middle class, the middle class to ape the upper, and the upper class to inhabit the stratosphere.”
Duncombe and Mattson then say:
“‘Just Charge It!’ advised advertisements as credit was available for the smallest to largest consumer items … ‘Has our country gone installment mad?’ wondered the New York Herald in 1924, arguing that ‘buying on credit has gripped every class in proportion to income.’ With easy credit, American consumers, corporations and financial institutions were building fantastic lives on mountains of debt.”
Of course, we know what happened as the Roaring Twenties became the Great Depression. The ease for people to live beyond their means with easy credit was a significant cause.
FDR swept into office with a mandate. He called for change and beat Herbert Hoover who represented more of the same. In this sense 1932 was a blueprint for 2008. The biggest issue in both elections was the economy.
In the ‘20s, both the stock markets and finance industries were unregulated. This is the reason most economists attribute to the collapse. In his first cabinet meeting, Roosevelt spoke of placing regulations on the very businesses that ran amok under greed without control. Such regulatory agencies as Securities and Exchange Commission were born, which made FDR the scourge of businesses, banks and corporations.
However, since Reagan those very regulations put in place to prevent another depression have been under assault and removed from one administration to the next. “Let the buyer/consumer beware!” has been the mantra as markets have been allowed to police themselves. This was like getting rid of the watchdog and allowing the foxes into the hen house.
Another similarity from then is the huge disparity of wealth. The only time more wealth was concentrated in the hands of the upper class as it was during the ‘20s has been from 1996 on. We know what happened in the 20s with the massive transference of wealth to the upper class. The middle class was wiped out and America walked off an economic cliff.
History tells us how we got back on track.FDR insisted, was getting money back into the hands of the middle class by transferring it from the upper class. This was done through taxes that ran as high as 90 percent on those who made more than $1.5 million annually. The result of this made FDR the enemy of the Mellons, Carnegies, Rockefellers and other old-wealth families who felt this taxation was nothing more than the theft of their money.
And this brings us back to the presidential election of 2008.
Barack Obama made it an issue to bring back the regulatory agencies and the necessary regulations that were removed over the past 28 years. Obama will put teeth back in the watchdog. And while Obama campaigned promising to redistribute the wealth, John McCain promised to “not be that guy who is going to spread the wealth around.” My answer to McCain was always, who do you want to be? The guy who takes the remaining 20 percent controlled by the lower 90 percent of the population and transfers it to the upper 10 percent who now control 80 percent of the nation’s wealth? Do you want be the guy who continues to believe in trickle-down economics, a theory that most proponents now reject? The theory was first used in the ‘20s under Hoover and raised its head again under Reagan.
Our nation has always had a progressive tax structure and the rich need to pay more to help level the playing field. There are those who say the rich already pay over 50 percent of the taxes.
They should: They own much more than that of the nation’s wealth.
The wealthy will pay more taxes under Obama. This is definitely not the change they hoped for. What no one hopes for, however, is history to give us another Great Depression.