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March 27, 2014

There was a time and day when we practiced a brand of capitalism that worked for all and not just the few. Having survived the Great Depression and World War II, I didn’t understand at the time that this wasn’t the way it had always worked. I started working on an economics degree in the fall of 1946, having spent the previous two and one half years in several theaters of war, the first two terms of which were in the South Pacific. I learned quickly that our reaction to the Depression and war time years was an anomaly. I have since understood that the period of 1929 to (circa) 1974 was an anomaly as well.
I learned, for instance, that from the time of our independence until FDR’s New Deal we had been afflicted with periodic bank panics in which depositors made “bank runs” as banks closed and their deposits were lost. That ended with FDR’s New Deal FDIC; we have not had a “bank panic” since and no depositor has lost a penny of his/her bank deposits covered by the FDIC from the day this great Act became law. Socialism! -screamed the Republicans of that day. Really? Since when is it “socialism” to protect the public from back room money changers by insuring the deposits made by trusting depositors in their banks? Public trust in depositing their federally-insured funds was one of the best things that ever happened to banks – and to capitalism. Money under mattresses for fear of panic is not productive in any economy; this piece of New Deal legislation (socialism, capitalism or under whatever auspice or title) was good for banks, depositors, the economy, America, and yes, even capitalism.
The economic truism? Uncirculated money (other than as collateral for loans) is next to worthless. Another economic truism – the Republicans were wrong – this Act and its proven benefits define capitalism at its best as the under-the-mattress troves were brought back into the stream of commerce. We economics students argued the proposition that quantity of money was or was not more important to the economy than its velocity of exchange. I argued then and now that velocity of exchange is more important than money’s mere presence on a balance sheet or under a mattress. Bringing this view up to date, American multinational corporations are now holding as much as two trillion dollars in overseas accounts since the current tax code prevents taxation of such profits until repatriated, a Wall Street – negotiated goodie not available to you and me who must pay timely on our world-wide income – and guess what? These people who are not paying taxes even on income made years ago are the same ones who complain about our deficit. Tsk! Idea! Perhaps if they paid their taxes the deficit could be reduced.
I also learned that the idea of social insurance (social security) was an idea whose time had come. At the time Republicans screamed Communism! It became law in 1935 in the very midst of the Great Depression, a time when many hungry and unemployed Americans were on the verge of giving up hope and needed to know that someone cared for their future and that of their families. This New Deal gem has since become the best poverty-fighter we have had and for the most vulnerable segment of our population as well. A secondary benefit to our larger economy is that it is self-financed and the money it provides is spent in our ongoing economy, thus propping up aggregate demand and providing employment for those who provide goods and services for these recipients. Republicans were again wrong; this great piece of legislation was not an exercise in communism; it was rather the finest piece of social legislation the Congress has ever produced, bar none.
Contrary to cries of communism from Republicans in those Depression days, days in which we watched Movietone newsreels at the movie featuring marchers in New York City attired with swastikas and hammers and sickles on their uniforms, I learned that New Deal statutes such as these actually saved capitalism from a far worse system such as those then practiced in Nazi Germany or Communist Russia, one of which we might have adopted with the apparent failure of capitalism to serve this nation and its people. The New Deal featuring a human dimension to government thwarted any such impulse among the hungry and frustrated of America in those days. Capitalism (with all its excesses) was saved.
Unlike in those days, you would find few if any Democrats or Republicans who would sponsor a bill to repeal social security or abolish the FDIC these days, and there is a reason for that and it is this: These two pieces of legislation have worked well over the years; without them we may very well have been in a perpetual state of near-recession as (1) money that should have been stoking aggregate demand would find its way back under the mattress and be virtually worthless in economic effect, and (2) money that has gone to social security recipients has provided a stimulation in demand which in turn increases employment for those who provide goods and services for these recipients and, of course, money that goes to such recipients, especially the retired and disabled, has prevented a near-doubling of our poverty rate, already unacceptably high. Last but not least, the billions of dollars that flow to social security recipients monthly find their way into the coffers of merchants in America. Everyone wins.
Like in Depression days, we are hearing Republicans come up with cries of socialism (socialized medicine etc.) and impassioned pleas against raises in the minimum wages as invasions of government in what should be matters left to the exclusive province of “private enterprise.” We now know that the people decided that we are all in this together during the Depression, WW II and up to circa 1974, shared new wealth of productivity gains, and the result was economic growth in this country that has not been seen before or since, perhaps as a result of our brush with famine and fascism. Then came 1974. “Feel good” attitudes were captured by greed. The corporate and investment class decided to stop sharing any new wealth with labor based upon productivity increases and has since hogged all such new wealth to its bottom line. Result? Median family wages are either stagnant or declining (adjusted for inflation) and have been for some 20 years. A recent study shows that the recent average median family wages now is about 50,000 dollars, but that if we had kept the sharing regime we had before 1974, compared with the productivity increases we have enjoyed during the interim, it would be about 80,000 dollars. The era of “feel good” is no more; now the chase for profit on a global basis is relentless and unceasing, and the resistance to erasing wage inequality is one of many symptoms of the pure greed of today’s capitalists.
Against this background, I am still amazed at a statement made some years ago by Newt Gingrich that his reason for living was to totally and completely get rid of the New Deal, and this from a politician who has a PhD in History and is a former college professor. Maybe it’s left up to older lawyers like me to remind the professor that he might never have been Speaker of the House had there been no New Deal. By the time he was born and without a New Deal, we might well have had an unelected commissar form of government in which he would at best as a member of the proletariat have been picking peanuts on the former Carter peanut farm for the commune in his native Georgia. Given our near-recession of today, we need a renewal and not an end to New Deal-like strategies. Wake up, Newt! GERALD E

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One Comment
  1. You really, seriously, should find a publisher and get these essays into a book form. I’m serious. The historical information (much of it first hand) you bring to the discussion is something that is desperately needed in a social world where we have pundits 24/7 giving opinions on the various “news” programs that amount to virtually nothing. They speak of that which they no not of! I am so afraid that the wisdom born out of the dark days of the 1929-1945 period will be lost when people, like you, who LIVED it, are no longer around to share your experiences. It is way too valuable, way too important for your voice NOT to be heard by a larger audience who are, in my opinion, swimming in vast oceans of ignorance at the very least, drowning in stupidity and misinformation at worse. I am so thankful, selfishly speaking, that there are people like you who continue to hold up the light of reason, experience and wisdom for those willing to see.

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