Sunday, November 25, 2007

Dejavu All Over Again? Or When Will We Stop Believing with Herbert Hoover that "The Economy is Fundamentally Sound"?

This will be a short commentary, since I am in a rush, but I was struck
by an article in the _New York Times_ Week in Review Section titled,"
Recession? Trying to Guess What Happens Next." Peter Goodman, the
article's author, was generally non-committal, repeating contemporary
conventional wisdoms, without much insight. But what struck me as an
historian was how reactionary the contemporary wisdoms had become.
Goodman, citing contemporary economists, made the point that an economic
crisis might lead Americans to start saving again, "living within their
means." At the beginning of the depression, economists and conservative
politicians(including Treasury Secretary Andrew Mellon, whose detaxation
and anti-regulation policies contributed to the severity of the crisis)
contended that the depression(which they kept on underestimating in both
its severity and length) wasn't such a bad thing. It would encourage
Americans to live more frugally, avoid reckless investments, live within
their means. Unfortunately, such contentions only strengthened the do
nothing attitudes of those in power, as things went from bad to worse to
very worse.

Frankly, the U.S. economy has been geared to the general population
living well beyond their means through most of the postwar period. The
Installment Plan is about that. Recessions/Depressions mean declining
purchasing power, rising unemployment, and ensuing real wage reductions
for those who keep jobs, producing a vicious cycle. The last thing it
produces is increased savings, I remember a man listening to a speech
from a government official in the early 1930s imploring him to "buy and
buy now" to fight the depression, answering "buy with what?" The short
answer to Goodman today would be "save with what" given the mountain of
consumer debt already hanging over the American people.

Restructuring that debt in the interest of the people, reducing the
usurious rates millions pay(perhaps, nationalizing the banking system)
and of course, restructuring imports and exports as part of an
industrial policy aimed at producing and protecting jobs and mass
purchasing power is real(and of course, socialist) solution to the
questions that Goodman and economic conventional wisdom he cites
raise. The New Deal government, which was not of course socialist, did
raise questions about longterm reforms through a much higher level of
regulation, fiscal policies aimed at sustaining purchasing power by
protecting labor, and public employment for the unemployed. That of
course only took place after the severity of the depression and mass
resistance led by the left and the Communist party made it possible.
Hopefully, labor and the left will be able to act long before the crisis
reaches the magnitude that it did in the early 1930s.
Norman Markowitz


No comments: