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ECONOMIC HISTORY IN TRANSITION

July 7, 2017

ECONOMIC HISTORY IN TRANSITION

Some economists still argue that it was innovation and the sudden efficiency in farm machinery during the post WW I era that caused the exodus from the farms to the cities, an exodus that has continued to this day. Their reasoning is that there are only so many of such internal migrants needed in the cities to  build reapers and gang plows and that such excess labor and consequent massive unemployment  caused The Great Depression. In short, they believe that the mismatch between labor needs and labor availability was too much for the economy to bear so suddenly, and that that in addition to a not unexpected plunge in demand was the economic culprit; that we became victims of the only thing worse than runaway inflation, i.e., runaway deflation.

The majority view and one I embrace is that The Great Depression was caused by the near-felonious antics of Wall Street where investors engaged in wild paper trading without any oversight as three successive Republican presidents with their laissez faire policies refused to become involved in policing such financiers. There was yet to be such agencies as the SEC and others and there were none proposed; the government had no business in regulating private enterprise. The prevailing view was that the markets could be trusted to allocate risk and did not need government interference in this process.

We saw the effects of such ho-hum policies with a deflationary and devastating spiral of The Great Depression that lasted for years afterwards, one that, inexplicably, almost repeated itself with the laissez faire policies of Bush which led to Bush’s Great Recession as Wall Street banks, unleashed by repeal of the Glass-Steagall Act of 1933, engaged in reckless trading of credit derivatives and other such esoteric instruments, mortgage fraud etc., all winding up in $800 billion in bailouts for such banks (and even their insurers, vendors and shareholders) you and I provided and $22 trillion in lost equity in home foreclosures accompanied by massive unemployment as demand cratered and we were on the cusp of international depression.

One would have thought after receiving such largesse from you and me that the Wall Street banks would (as did the chastened prodigal son in biblical lore) ask for forgiveness and thank us and come back home chastened by their wrongdoing and promising to do better. One would be wrong. They are back to their old tricks with their trading of credit derivatives, emasculating Dodd-Frank (a law passed to correct their Great Recession antics), and have once again managed with intense lobbying to have the Republicans granting right to use our FDIC-insured funds as backups to investment, reckless or otherwise, among other such amendments designed to render Dodd-Frank toothless.

I do not believe that history repeats itself because it can’t, always due to the effects of intervening events. I believe it is linear. However, I may have to modify such a view because Trump is now saying that entities such as Wall Street banks need hundreds of billions more in tax cuts and less regulation (an echo of the Bush and Hoover days that helped bring us to near catastrophe). What! How can anybody with a straight face contend that a finance sector drowning in profits in a 20,000 Dow setting whose “too big to fail” status protects it from bankruptcy because we will bail them out and with millions of Americans working at minimum wage assert that such is in the public interest?

How about protecting those millions of Americans who lost their homes due to mortgage foreclosure from bankruptcy by legislating a living wage for a minimum wage? Wouldn’t the great increase in demand occasioned by such a long-delayed increase in the minimum wage be in the public interest? How does giving away our money to the superrich do anything for demand, the ultimate arbiter of success in a market economy? Could it be because the banks and libertarian interests (see Kochs and Mercers) pay for the privilege through, uh, “campaign contributions aka bribes?” Nah, perish the thought! No one would stoop that low, especially in broad daylight or, as politically emboldened, would they?

Much is rightly made that we are an economy in transition, from the Industrial Age to an Information Age, and with all the misalignments that come with it, such as the exodus from farm to city as above noted. Much is also made that we live in a global economy, that we have to look out for ourselves in matters such as trade agreements and the like, and I do not deny the obvious. However, these are false externalities and should not be considered in turning a deaf ear to allowing one sector of our domestic economy to hog the income and wealth provided by our real economy, one composed not only of financiers but of consumers, workers, small businesses and others who have a stake in this economy.  Where are their guarantees to a fair sharing of the income and wealth of the economy?

So we are in economic transition? Yes, but so what? We are always in economic transition. It’s only when there is a lurch in such transition that we take note and not the day to day glacial movements. What Trump is proposing with his giveaway to banks and corporate America and refusal to support living wages for the rest of us is a lurch in an already underperforming economy and could be the straw that breaks the camel’s back as such policies dry up demand, cause unemployment (or employment at slave wage levels), and all the while Wall Street bankers and their corporate brethren are laughing all the way to the (Swiss) banks with their unearned troves. Recession for the rest of us is good public policy?

As you have guessed by now, I oppose such policies of feeding one sector of the economy while starving another and reject the trickledown theory that lowered taxes on the rich means they will open up new factories as we all skip gaily down the Yellow Brick Road of fantasy. Trickledown never has and never will work, so let’s get back to reality. The reality is that not only will new factories not be built but that existing ones will be closed as demand collapses due to wage inequlity and we find the figure behind the Oz curtain is just a bewildered and doddering old man, much like Trump and his laissez faire predecessors in many respects, Hoover and Bush, who had no clue of just how economies work, or in their cases, don’t work.    GERALD      E

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