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.The Eternal American Battle - Humans V Money

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Friday, July 16, 2010

LETS MAKE A DEAL.

I have a few surprises for you. The Great Depression (October 1929 – 1935) was even worse than the history books say it was. The un-employement rate during the Great Depression is usually said to have been almost 25%. But farmers and farm workers were not considered unemployed until they had lost their farms. In 1933 the un-employement rate amongst non-farm wrokers was actually 37%.  By 1933 the average income of Amercian families had been cut by 40%, 9 million savings accounts had been completely wiped out, 60% of Americans lived below the poverty level, a quarter million had been evicted from their homes, and 2 million of those became migrant workers. By 1934 almost half of the banks in America had failed, corporate profits had fallen by 90%, home building had dropped by 80%, prices fell by 20% and industrial output had been reduced by almost half.
The New Deal did not end the Great Depression. It cut un-employment by half, but that still left one in five Americans looking for a job. In 1929 investments by individuals, corporations and governments, a practical display of faith in the future, had been $92 billion. By 1933 that faith in the future had fallen to $10 billion. Four years of the New Deal had returned that investment to $94 billion, but it was just then that the deficit hawks insisted that the government must now “balance its books”, “pay its bills” and “live within its means”. Federal budgets were slashed in 1937, and in 1938 investments dropped to $61 billion. This period is called “The Roosevelt Recession”. To quote from Wikipedia, “Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising…to more than 12 million in early 1938…Personal income in 1939 was almost at 1919 levels…”. High levels of unemployement remained until 1943, when war work reduced unemployement to just 2%.
World War Two was almost as expensive on the home front as it was on the front lines. In the first 18 months of U.S. involvement in World War Two, from December 7, 1941, to April 1, 1943, 12,123 Americans died in uniform. Over that same period 65,000 civilians died in industrial accidents all across America - 4 civilian deaths for every one military death. These civilian workers died while making artillery shells, machine gun bullets, building bombers and digging coal. Civilian deaths declined steeply over the last two years of the war, but with American combat deaths totaling about 300,000 for all four years, the final disparity was only about three to one.
Despite the drop in unemployment brought on by war production, poverty actually increased during the war years. According to a Congressional Committee, with unemployment close to just 2% during the war, 20 million Americans still went to bed hungry. One in four wage earners was making just 64 cents an hour. Part of that was capitalistic resistance to the "new" minimum wage laws, and part was the result of a massive influx of people into the job market. Three million teenagers dropped out of high school to work in war plants.
The war did not lead to inflation because it simply was not allowed to. In 1929 the top tax rate, applied to incomes over $100,000 a year ($16 million per year, today), was 24%. By the end of the war the top rate was 94%. In addition there was a “Victory Tax” of 5% tacked onto all income. You could avoid paying that tax on a portion of your income, by buying “War Bonds”. They earned only 2.9% interest, but more than half of all Americans bought them. This took $185.7 billion (about half the cost of the war) out of circulation for ten years, until the bonds reached maturity.
In economic terms, America’s Second World War was the New Deal on steroids. In 1948 President Harry Truman gave the final price tag for America’s war at $341 billion, ($4 trillion in modern currency). The most obvious expenses, such as tanks, airplanes, tents, military bases, aircraft carriers, artillery pieces and explosives, were items that had little if any peace time applications. After the war, aircraft went directly from the production lines, to the scrap yards. But those were, in fact, merely the most obvious expenses. Despite what conservative ditto thinkers might insist, by 1965 that enormous war debt had been repaid in full. The year before our entry into the war the national debt was 43% of the Gross Domestic Product. In 1946 it was 128%. In 1965, it was back to 45%.
The debt was repaid so quickly because we spent our way to prosperity, something the ditto thinkers still insist is an impossibility. New highways and rail lines, power plants, refineries and water systems, built to supply war plants and their workers, provided increased opportunities for profit in the post war years. More importantly, more than 7 million veterans went back to school, fully funded under public law 346, the “G.I. Bill”.  By 1951 this single piece of social legislation had educated 8 million veterans. One and a half million were given “on the job training”, two million went to two and four year colleges, including three American Presidents (including Ronald Regan) 14 Nobel Prize winners, and hundreds of thousands of teachers, doctors, nurses and businessmen. According to a 1988 Congressional Budget Office Study, for every dollar spent on the G.I. bill, $7 was repaid in increased earnings, consumer spending and taxes paid back into the government. And that does not include the result of a better educated workforce on production. The result for business was that the productivity of two man-hours in 1940 could be matched by just one man-hour in 1965.
If there is a lesson here for our current injured economy, it is that we should not be attempting to emulate the New Deal, but the Second World War. Goals must be set - sustainable energy independence, a smart power grid, rejuvinated transportation systems - goals that once met will generate new wealth. To meet those goals, sacrifices must to be required of all citizens. And limits need to be set, time limits and levels of  sacrifice to be required. On the other side of this sacrifice there must be a healthier, stronger nation.
At the core of this proposal is the idea that capitalism is not sustained by billionairs or even millionairs. If that were true the Kings and Queens of old should have produced capitalism eons earlier. Merely replacing the greed of the nobility with the greed of the smartest or the luckiest does not sustain an economy. Capitalism is  the product of a large, healthy middle class. And if the inequities of capitalism are justified by its advantages, then it must raise the standard of living and ambitions of the most people possible. The production of billionairs is merely a happy side effect.
Today the ratio of national debt to Gross Domestic Product is approaching 90%, equal to what it was at the end of World War Two. And during the most recent spending spree (the Bush era) we did not make the investment in the middle class required to provide for the future. In short, as surprisng as it might seem, time may be running out for capitalism. And it will have been killed by its most fanatic acolytes, the bankers and the CEO's.
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