I have a few surprises for you. The Great Depression, which began in 1929, was even worse than the history books say it was. The unemployment 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 unemployment rate amongst non-farm workers was actually 37%.
By 1933 the average income of American families had been cut by 40%, Nine million savings accounts had been completely wiped out. Sixty per cent of Americans were living below the poverty level. One in four Americans had been evicted from their homes. And 2 million Americans were reduced to working as migrants.
By 1934 almost half of the banks in America had failed. Corporate profits had fallen by 90%. New home construction had dropped by 80%. Between 1930 and 1933, prices had fallen by 20%, and industrial output had been reduced by almost half.
The New Deal did not end the Great Depression. It cut unemployment by half, but that still left one in five Americans looking for a job, any 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.
However, 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 unemployment remained until 1943, when war work finally reduced unemployment 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 remained about three civilian dead for every one dead soldier in uniform.
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 to avoid the Victory Tax. This took $185.7 billion (about half the cost of the war) out of circulation for ten years, until the bonds reached maturity. The sacrifices required were shared by all Americans, as were the benefits of victory.
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. By the last few months of 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, what with all that New Deal deficit spending, 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 ultra conservatives 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 Regean) 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, healthier 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. And yet the number of employed more than increased to match the population growth.
If there is a lesson here for our current hobbled economy, it is that we should not be attempting to emulate the New Deal, but the Second World War. We must declare war on our own fear, bigotry, ignorance and greed. Goals must be set - sustainable energy, a smart power grids, rejuvenated transportation systems, universal health care, and lifelong free education - goals which once met will generate new wealth. To meet those goals, limits must be set, such as limits to the level of sacrifice required from each economic group. On the other side of any sacrifice there must be a demonstrable healthier, stronger democracy, and not just another handful of billionaires.
At the core of this proposal is the fundamental truth that capitalism is not sustained by a wealthy few. 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 richest 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 fuel the ambitions of the most people possible. The production of billionaires is merely a happy side effect of capitalism, it cannot be a justification for the greed and selfishness which capitalism rewards. .
Today the ratio of national debt to Gross Domestic Product exceeds 200% - twice what it was in at the end of World War Two. That is because, during the most recent spending spree (The Republican tax cut of 2018, in particular) we made no investment in the middle class, no investment to provide for future wealth. And then came the Covid-19 pandemic. In short, time is running out for capitalism. And if it dies, it will be suicide. The golden goose will have been killed by its most fanatic acolytes, the bankers and the CEO's, the hedge fund managers - those addicted to greed and stupidity. And the first step in curing any addict, is to cut them off from their drug of choice.
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