Monday, November 22, 2010

How Republican Economic Cant Causes Depressions

 This is going to be a long post, and I hope some people will have the patience to read it, as it is by far the most important thing I have ever written.  It is going to consist largely of quotations, as I wouldn't expect anyone to take my word for what I am going to conclude.  The quotations below are from Arthur Schlesinger's The Crisis of the Old Order, which I heartily recommend, in conjunction with John Kenneth Galbraith's short book, The Great Crash, which lays out a similar scenario.  As you read this, I beg you to think about what has gone on in this country since the days of Reagan.

I will begin with a comment by Schlesinger about Andrew Mellon, Coolidge's Secretary of the Treasury, and one of the richest men in America:

 "The government is just a business," said Mellon, "and can and should be run on business principles."  The first necessity, accordingly, was to balance the budget, and the second to pay off the debt.  But Mellon's greater interest, it soon developed, was somewhat inconsistently in the reduction of tax rates, especially in the highest brackets...Mellon, ever tenacious, kept chipping away each year at rates in the upper brackets."

In fact, during the 1920's Republican administrations managed to cut the top tax bracket by 75 percent, at the same time endlessly whining about the budget deficit and the national debt.

"Mr. Mellon Homself," as George W. Norris of Nebraska observed of the Mellon bill of 1925, "gets a larger personal reduction than the aggregate of practially all the taxpayers in the state of Nebraska."

And what was the consequence of this largesse to the richest among us?  An increase in business development?  More jobs created by benevolent tycoons with their gigantic profits?

"...the Mellon penchant for tax reduction served to make more money available for speculation.  "A decrease of taxes," as Mellon said, "causes an inspiration to trade and commerce."   With this he injected a few more billion dollars into a boom which hardly needed to be further inspired."

And, of course, what would be the fun of a massive giveaway to the rich, without a gutting of the Federal regulatory structure?

"President Coolidge was prepared further to attest his trust in business leadership by weakening the instrumentalities through which past national governments had sought to regulate business.  The regulatory commissions, inherited from more suspicious days, were quickly infused with the new spirit of unity.  To the Tariff Commission, for example, were sent men who acted almost as open representatives of protected industries.  When the Commission's minority...began to object...Coolidge upbraided them for raising prudish scruples."

Schlesinger has this to say about W. T. Humphrey, appointed by Coolidge to the Federal Trade Commission:  

"...no longer, he said, would the Commission serve as a "publicity bureau to spread socialistic propaganda.  Where the FTC had been set up to discourage monopoly, it now espoused the cause of the self regulation of business..."

Overt forms of concentration thrived...Holding companies moved into the utility and transportation fields, chain stores into retail distribution; in all areas big firms swallowed small firms and merged wth other big ones.  By 1930, the two hundred largest nonbanking corporations controlled half the total corporate wealth of the country."

Does any of this sound familiar to you?

"The output per man-hour rose about 40 percent during the decade.  The central economic challenge was to distribute the gains of productivity in a manner that would maintain employment and prosperity.

By the rules of orthodox economics, the reduction in production costs should have brought about either a reduction in prices or a rise in wages, or both...Denied outlet in lower prices because of accumulating rigidities, the gains of technological efficiency were equally denied outlet in higher wages...because of the bargaining feebleness of the labor movement...As a result these gains were captured by the businessmen themselves in the form of profits.  Through the decade, profits rose 80 percent as a whole, or twice as much as productivity; the profits of financial institutions rose a fantastic 150 percent."

The increase in profits naturally pushed up the prices of corporate securities...As the twenties proceeded, the stock market sucked off an increasing share of the undistributed gains of industrial efficiency...the diversion of the gains of efficiency into profits was bound to result in a falling off of the capacity of the people as a whole to buy."

An exact parallel to the last few years.  I find it so painful to read things like this and realize how absolutely clear it was to anyone who cared, what the result of Reaganomics and of Bush corruption were inevitably going to be.

"The Mellon tax policy, placing its emphasis on relief for millionaires rather than for consumers, made the maldistibution of income and oversaving even worse. By 1929, the 2.3 percent of the population with incomes over $10,000 were responsible for two thirds of the 15 billion dollars in savings."

And now, to me, the worst of all:

"Yet Wall Street and Washington had few qualms...The torrent of excess money pouring into the market, swept stock prices ever upward.  And the leaders of the business community, now heedless of caution in their passion for gain, promoted new investment trusts, devised new holding companies and manipulated new pools, always with the aim of floating new securities for the apparently insatiable market...

In time it would appear that even the leaders of business could not decipher the intricate financial structures they were erecting.   But for the moment everyone understood that here was an endless source of money and power, a roulette wheel at which no one lost...

Government officials meanwhile watched the speculative boom with affable approval."

(emphasis mine)  Yes, at every step of the way, the Republicans of the Reagan and Bush administrations deliberately recreated the exact conditions which caused the economy to spiral out of control and crash in 1929.  And there can be no claim that anyone was unaware of this.  The circumstances of Republican mishandling of the country in service to the rich, which caused the Great Depression, were clearly known to anyone with a basic knowledge of our country's economic history.  Yet Reagan and Bush, Gingrich, Armey, Delay, McConnell, Boehner and a hundred more Republican servants of the wealthy drove the economy over the same cliff again.

This is not mismanagement.  It constitutes the most massive deliberate crime ever committed against the American people, for which we will pay for decades; and it at the same time constitutes the worst subversion and betrayal of our country that we have ever seen.

And yet, being rich, they seem to be walking scot free.

16 comments:

Poll P. said...

Scary as hell. Now cheer me up by telling me how this story ended....

magpie said...

Mellon's idea was to let things go to hell. Hoover was on board for that.

The Great Depression and the total failure of conservative policy to deal with it gave FDR the White House and destroyed Republican control for decades. That's the political history the Right are frantic to avoid repeating, even as they are bent on letting things go to hell again.

When are an enduring majority of people going to wake up to this truth?: ruthless laissez faire is a discredited economic religion.

It does not work, it does not work, it does not work. Mellon thought it would work in 1930. It didn't.

The American Liberty League, who got on FDR's case, looked exactly like what they were: "economic royalists", to use FDR's term. They couldn't overcome that label, it being the obvious truth.

The manipulator's of today's Tea Party, on the other hand, are careful to disguise themselves as a grass-roots movement instead, for the most profitable lie the Right has ever been able to peddle is that they embody the common man in America.

mastercynic said...

destroy public education and keep them stupid - control the media and keep them scared. scared + stupid = republican voters.

Infidel753 said...

"The government is just a business," said Mellon, "and can and should be run on business principles."

It continues to amaze me that anyone can claim this. Among the dozens of problems with the idea is that a business exists to make a profit; whatever services it provides are a means to that end. The government exists to provide services; whatever revenues it collects are a means to that end. The whole concept and structure is different.

Denied outlet in lower prices because of accumulating rigidities, the gains of technological efficiency were equally denied outlet in higher wages...because of the bargaining feebleness of the labor movement...As a result these gains were captured by the businessmen themselves in the form of profits.

Obviously, available surpluses will be captured by those who have the most power to do so. Hence the lesser degree of inequality in countries like Germany, where unions are much stronger and the government takes a more active role in making sure wealth is spread around.

The colossi of Wall Street have little to lose by having things run this way. If a crash results, they're well positioned to survive it. The same can't be said of their teabag-besotted voting legions, who have no clue about what was going on in the 1920s or now.

Anonymous said...

http://answers.yahoo.com/question/index?qid=20081014191947AAjie6Z

TAO said...

Anon,

The idea that government benevolence was the cause for the financial meltdown would be fine if the percentage of homeowners had increased substantially from the mid 90's to 2008 but it did not.

If you believe in the concept of government benevolence as the root cause of a problem then you need to see who benefited...

In the case of the mortgage meltdown it was not homeowners...

TAO said...

While I have found the Republican "economic" policy to be absurd since Reagan's time I also have to admit that the Democrats seem to have accepted the logic as their policy also.

Larry Sommers and Tim Geitner pretty much would agree with Mellon....

Green Eagle said...

Anonymous:

One liar repeating the claims of another liar does not make them true.

For anyone interested in the veracity of Bruce Anderson, I recommend the following amusing article:

"Liar Unlimited...The lurid history of Bruce Anderson and the Anderson Valley Advertiser"

It can be found here: http://www.liarunlimited.com/

Now, as to the veracity of your sick, racist claims about the cause of the real estate collapse, why don't you try Paul Krugman:

"That’s a claim that has been refuted over and over again...The Community Reinvestment Act of 1977 was irrelevant to the subprime boom, which was overwhelmingly driven by loan originators not subject to the Act."

Krugman's article, complete with actual evidence,can be found here:

http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-knows/

It took me about five minutes with Google to find this information. Research-you should try it some time.

Les Carpenter said...

Mellon was right;

"The government is just a business," said Mellon, "and can and should be run on business principles." The first necessity, accordingly, was to balance the budget, and the second to pay off the debt."

Of course to balance the budget requires either tax increases (since the government produces nothing) or budget cuts or the combination of both.

Seems reasonable that to pay off debt requires as a prerequisite having a bit of a budget surplus.

Guess we are screwed for the forseeable future.

magpie said...

“The Government’s business is in sound condition.”
- Andrew W. Mellon, U.S. Secretary of the Treasury December 5, 1929

"I see nothing in the present situation that is either menacing or warrants pessimism… I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress.”
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"There is nothing in the situation to be disturbed about."
- Andrew W. Mellon, U.S. Secretary of the Treasury February, 1930

Oh I dunno... I don't think he was all that right about that...

Green Eagle said...

Les, if Mellon was right, and the primary responsibility of government was to turn a profit, the appropriate response to Hitler would have been to form an alliance with him, thus saving the country from th crushing debt burden of World War II, and opening up new markets for our products.

Funny, by the way, that Clinton didn't need much to balance the budget. If your hero Bush hadn't started a multi-trillion dollar war and given trillions to the rich, our national debt would be paid off by now, and people like you wouldn't have anything to whine about except a black guy in the White House.

Now, here is my suggestion to balance the budget:

1. In 1950, corporate taxes amounted to 40% of all tax revenues. They are now barely above 10%. The period when corporate taxes were highest was also the period of our greatest growth. Let's raise corporate taxes until they amount to, say, 20% of tax revenues, and if companies leave the country to avoid paying their share, hit their products with punitive tariffs.

2. We currently pay an absurd half of all military expenditures in the world, and have gotten essentially nothing in the way of security in return. Let's cut our military budget by half, and spend part of the money in an effort to raise wages in third world countries, primarily by promoting unionization there, in order to decrease unfair economic competition.

These two things would be sufficient, I think, to restore our economic strength.

Green Eagle said...

By the way, great quotes, Magpie.

Anonymous said...

the problem with Obama is he thinks he thinks he use what he learned in a faculty room instead of where he should be in a Board Room.

Anonymous said...

'A government big enough to give you everything you want is big enough to take everything you have"

If you can understand that,thank a conservative.

Green Eagle said...

"the problem with Obama is he thinks he thinks he use what he learned in a faculty room instead of where he should be in a Board Room."

Like George W. Bush, huh? There's boardroom thinking for you.

"'A government big enough to give you everything you want is big enough to take everything you have"

If you can understand that,thank a conservative."

Well, I'm not sure that 'thank' is quite the right word, but I agree that it took conservatives to teach us how fast government could take everything away from us.

Infidel753 said...

Funny how the right-wing trolls respond to arguments and logic with canned slogans. It's like trying to debate one of those dolls that just plays back a recorded phrases each time you pull the string on its back.