The last fortnight has definitely not been accompanied by fourteen happy days.
Apart from the falling stock market, which appears to be a worldwide condition, public opinion is trending to concern that America may be headed for a new recession. The anticipated decline is not particularly the fault of American banks or irresponsible lending policies, although unsound business practices have weakened the economy. European nations as well appear to have spent more than they have, and the result of their overspending has undermined the euro and threatens the economies of other countries in the zone.
The allegedly offending nations are Portugal, Ireland, Greece and Spain. As luck would have it, the acronym for the quartet is PIGS. The problem of spending is however global. It results from people's natural desire to enjoy goods and services which they cannot afford to purchase with their current earnings, which come from jobs that may or may not exist next year. The issue of debt affects individuals, families, small and large businesses, and governments on the municipal, state and national levels.
Karl Marx is said to have written "Democracy is a form of government that cannot long survive, for as soon as the people learn that they have a voice in the fiscal policies of the government, they will move to vote for themselves all the money in the treasury, and bankrupt the nation." (There is uncertainty as to the provenance of that observation. Wikiquotes lists alternate sources here.)
Our democracy has served us for 235 years, and the United States has not yet been bankrupted. The country has weathered wars, panics, recessions and depressions. Individuals have been wiped out financially, and too many are today unable to find work. Yet America moves forward, with its people enjoying a generally high standard of living by comparison with other countries. If he made it, Karl Marx was clearly wrong in his doomsday prediction, as he was in other pronouncements that have not exactly worked out.
Nonetheless, with our unemployment rate stubbornly above nine per cent, and with many additional millions of people underemployed, or so discouraged that they have left the labor market, the economic state of the nation is not healthy for more than twenty million Americans. The rate may be 9%, but if you are one of the 9%, the rate is 100%.
Some problems are fairly obvious. If goods can be manufactured or assembled in China or in any number of third world countries, at a far lower cost of production than in the United States or most European nations, why should any business organized to earn a profit for its shareholders and wealth for its officers manufacture products anywhere else? The decline and fall of tariff barriers in international trade has generally been regarded by moderates as a good thing. Its effect was supposed to be to increased wages and improved working conditions in the poorer countries, without adverse effects on the wealthier nations.
Unfortunately, political and economic issues sometimes work out in ways that were not expected. We do not have the ability or expertise to tell at what level, if any, tariffs should be imposed. We were told in school that the Smoot-Hawley Tariff led to the Great Depression of the thirties. Yet that tariff was signed by President Hoover on June 17, 1930, while the stock market had crashed on October 29, 1929, the day known historically as Black Tuesday, when the Dow Jones Industrial Average fell 38 points to 260, or l2.8%. The next day, October 30, the Dow fell another 30 points, to 230, over 11%.
The tariffs imposed the following spring by Congress seem to be a reaction to the crash rather than the direct cause of it. They certainly did not help the market as the Dow continued to fall, hitting an all time low of 41.22 on July 8, 1932. But who knew it would peak at 14,164.53 on October 9, 2007? Unfortunately, record highs and lows only become known after the fact.
1932 was the year Hoover ran for re-election and was defeated by Franklin D. Roosevelt, with the Democrats capturing both houses of Congress, electing 311 Representatives to 117 Republicans and 5 members of the Farmer Labor Party, which was centered in Minnesota. That was the public reaction to hard economic times.
More recently, President Obama's actions to turn the economic tide have been ridiculed by his political opponents, who have directed a constant stream of attacks on whatever he does or says. This is comparable in some ways to the Democrats' assault on George W. Bush. Obama has been scorned by both the right and the far left, although with the Congress as it was in 2009, it is not clear what more Obama could have accomplished.
Rule 46 comes to mind while we discuss this situation today. "Do not mention rope in the home of one who has been hanged." It has been traced to a 16th century maxim: "A man ought not to make mention of a halter in the house of a man that was hanged." The saying was reported by John Minscheu in England in 1599 (We previously cited it, in relation to Andrew Cuomo, in 2007).
One thing we have learned by living through enough business cycles is that, in general, the result of repeated rises and falls is a rise in the indexes. That is not true of specific stocks, bonds or real or personal property, which may become worthless as time goes by. Although present economic conditions will eventually improve, possibly sooner than later, a great deal of damage will have been done to people who will not be in a position to benefit from the recovery.
When he came to office in January 2009, in the wake of the collapse of Lehman Brothers in September and the forced sale in March of Bear Stearns to J.P.Morgan for $10 a share (it had sold for $133.20 within a year before) Obama and his new cabinet were faced with the risk of a rapidly deteriorating economy. President Bush and Treasury Secretary Henry Paulsen (former head of Goldman Sachs) had secured the first bailout legislation from Congress, which Bush signed on October 3, 2008.
When asked why he supported and signed the bailout when all his life he had been a supporter of free enterprise and generally opposed to government intervention (interference is the pejorative synonym), the 43rd President replied that he did not want to go down in history as the President who watched the economy go to pieces and did nothing about it. Bush did not want to be perceived as either a Herbert Hoover or a James Buchanan.
On September 19, he said: "The risk of doing nothing far outweighs the risk of the package. ... Over time, we are going to get a lot of the money back." His prediction proved correct.
Are the federal remedies for unemployment and the credit freeze working today? Certainly not as well as we would like. Is there anything more that could be done? The idea that keeps recurring is putting the unemployed to work on the infrastructure, as President Roosevelt and Secretary of the Interior Harold Ickes and WPA Administrator Harry Hopkins did during the Great Depression with the Works Progress Administration (Hopkins) and the Public Works Administration (Ickes).
Unbelievable as it may seem today, at one time in the '30s there were 1800 architects and engineers working for the New York City Parks Department under Commissioner Robert Moses paid by the federal government. They built or renovated over six hundred parks, playgrounds, swimming pools and beaches
Part of my underlying liberalism is the opinion that people who are capable and willing to work hard should have the opportunity to do so, perhaps not in the field or at the level they prefer, but they should be enabled to support themselves and their families. How to do this within a free enterprise system is a challenge. Many Republicans say the best way to reach this goal is by diminishing the size and scope of government, which they see as the enemy.
My view is quite different. The problem is that, human nature being what it is and what it will be, the tyranny of the bosses is likely to be replaced by the tyranny of the state and its bureaucrats. It took forty-three years to get from "The Jungle" (Upton Sinclair, 1906) to "1984" (George Orwell, 1949).
The problem is complicated by the presence of social issues (abortion, capital punishment, gays, guns and God, immigration, marijuana) as elements that influence voters as part of the electoral process. People may or may not vote their economic interests if they believe social issues are more important. And their economic interests may be adverse to the social order - if one group of individuals, workers, managers, oil barons, subsidized agribusiness, bureaucrats, landlords, heirs and heiresses, the nomenklatura, is extracting from society more than they should and contributing less - the public interests may well be served by limiting that group's authority or influence. Of course, one can expect the elites to use its electoral influence to prevent that outcome from taking place.
The economic situation today is unsatisfactory for tens of millions of Americans. The President is likely to be judged on how he deals with the economy. But little as he may have been able to do, his political opponents offer less equity and new innovation.
The idea that everything will get better if it is made easier for people to exploit the less fortunate is hard to believe and not supported by evidence or experience. We will see how it resonates with the American people. In 2010 they voted by a substantial margin to replace incumbents. Who will they blame if conditions do not improve by 2012?
These are the views of a self-proclaimed liberal with sanity. Some may challenge that characterization, but these are the differences in opinion to which, as part of their certain inalienable rights, all men and women are entitled, dare one say, by their Creator.
StarQuest #774 8.22.2011 1683 words