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May 21, 2012




1938 was an important year for America. At age 11 and after having suffered years of poverty as one of three sons of a coal mining father, I knew next to nothing about the economic affairs of the day. I had no way of knowing that a depression was not a permanent fixture for America in the scheme of things. It was all I had ever known. I hoped but had little confidence that my family would survive and perhaps even prosper like those people I read about in the paper and heard on the radio (when our power was not turned off for failure to pay the bill), some of whom earned $150 or even $200 a month! That buys a lot of tomatoes at 50 cents per (rounded) bushel, which we raised and sold to try to stay afloat during the Thirties. We picked and sold blackberries at 10 cents a gallon. Green beans were 35 cents a bushel; sweet corn was 15 cents a dozen or “two for a quarter.” Few of our neighbors had the money to buy our produce. I learned the value of a straw hat while hoeing in the heat of the day, picking berries and the like. Depressions are brutal, and I can give firsthand testimony to that, unlike many (relatively) coddled Americans today. Depressions are to be avoided all costs, even if some have to give up ideological positions set in concrete in re deficit financing by government, restraint of certain business practices and the like. Much like in war, both you and your country are at stake!

I didn’t know that 1938 was (relatively speaking) a high point in the recovery orchestrated by my all-time favorite president, FDR. His New Deal deficit (Keynesian) spending was working; money (and thus demand) was getting out into the hands of ordinary people. With a pickup in aggregate demand, the economy was on the mend. The Glass-Steagall Act (which prevented bankers from mixing commercial banking with investment) was five years old – and already working well to rein in the bankers’ excesses of the so-called “Roaring Twenties.” The New Deal- inspired FDIC came into being to give depositors new confidence that banks were on the up and up; bank holidays were a distant memory. I didn’t know it at the time, but the demand for coal was picking up as well, meaning that my father would be going back to work at a union-negotiated wage of $4.25 a day. Things were looking up. Then what happened?

My idol, FDR, made a bad mistake. He caved to congressional republican demands that he end or severely restrict such Keynesian deficit “spending.” Result? We plunged back into a double dip recession. WW II war clouds were on the horizon, and many republicans today say that (rather than FDR’s deficit spending) it was “the war” that “brought us out of the Depression.” They are wrong. We were on the cusp of coming out of the Depression when FDR gave in to their incessant harping for austerity (much as they are harping today). Greed rather than reason still seems to be their hallmark, while American suffers. On the edge of a looming double dip, the republicans are today demanding tax cuts for those who don’t need them, which is bad enough; but perhaps worse is the decrease such a fleshed-out policy would have on aggregate demand (the only “job creator” and indeed our only hope to come out of this self- imposed malaise).  It is exactly the wrong approach to solution of our budget and employment woes and will guarantee a further descent into recession – or worse (with which I am intimately familiar – see above). It is akin (as a matter of economic suicide) to cutting both our wrists.

We are hearing reverberations of 1938 in Europe today, both for those in the Euro Zone and some outside it. Britain, for instance, (who kept the pound and rejected the euro) has slipped into recession due to austerity provisions adopted by the Tory government. They are headed for further slippage due to their fundamental misunderstanding of the pivotal role of AGGREGATE DEMAND in their and all market-based economies. They (and their republican soul mates in America) who are into such austerity measures are applying exactly the wrong measures to bring their respective economies back to prosperity – or at least equilibrium. Austerity is the opposite of deficit spending needed to enhance aggregate demand, without which we will continue the current death spiral of cutting taxes, cutting employment (goodbye, demand in the marketplace), cutting taxes, cutting employment ad infinitum. This is insanity. It is even a misnomer to cite it as “policy.” It would be more accurate to label it by its real name: Plunder.

This blog is destined to be too long for one outing. I will blog a Part II which will discuss the basket and near basket cases in Europe, all victims of austerity (mismanagement contributed), an austerity imposed from without by Merkel in the Euro Zone’s treaty array of sovereign (?) states. I will also propose solutions to such problems both here and abroad. Stay tuned.  GERALD E

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