Tag Archives: depression

When the Coronavirus Shutdown is over, will anyone blame their governments for the economic devastation they caused?

The State and Federal Governments’ Coronavirus Response Will Dwarf Economic Damage Done by FDR

depression-1 During the 1930s, FDR managed to prolong the depression he inherited for over a decade by unleashing a vast array of wrongheaded economic interventions on an economy trying to correct itself from the malinvestments that occurred during the 1920s.

Whenever a financial bubble pops, prices fall from their artificially high levels, seeking their true, market level. This is the market’s way of liquidating the malinvestments and imprudent debt that resulted from prior central bank monetary inflation, which artificially raised prices and lowered the cost of borrowing and investing.

Many of FDR’s New Deal interventions proceeded from the economically idiotic belief that preventing prices from falling would help. So, for example, he used taxpayer funds to pay farmers to produce less crops at the same time many were going hungry. By lowering the supply of crops, he hoped to raise their prices.

But he never ordered people to produce nothing at all.

Today, the federal and state governments are doing just that, albeit for supposed public health reasons rather than economic ones. State governments are in many cases ordering most of their populations to stop producing anything whatsoever, while the federal government promises to reimburse their losses.

Reimburse them with what money, you ask? Good question.

Regardless, the economic devastation that will result from this economy-wide shutdown will dwarf the damage FDR did during the so-called “Great Depression.” If simply limiting production caused a decade-long crisis (and it really didn’t end until after WWII), ceasing production altogether will obviously be worse. How much worse depends upon how long the insanity lasts.

As far as that is concerned, never underestimate a government.

>Obama and the Ghost of FDR

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>President-elect Barack Obama has not even taken office yet, and already the entire world seems to be celebrating the death of the last vestiges of capitalism. With the Democrats in control of both the executive and legislative branches of government, calls for a “new New Deal” are as commonplace today as the expression “it’s a free country” once was (you don’t seem to hear that much anymore. I wonder why?). It is not as if the “Change” Obama proposes to bring will be that radical. The United States has not practiced free market capitalism since at least before the last Great Depression, despite the ludicrous claims that capitalism is to blame for the next one. However, Obama will have to come up with something original if he is to leave an imprint upon history comparable to that of the original New Dealer. Not only did FDR turn the Hoover-created depression into the ten-year Great Depression, he has now actually reached from beyond the grave to take down the world’s largest automaker. Even apocryphal stories of the holy Obama walking on water pale in comparison to that.

It is nothing less than astounding that GM can fail so spectacularly as a direct consequence of the policies of the first FDR, while the entire world not only ignores the fact that the New Deal caused it, but actually demands another New Deal as the solution. Not even O. Henry gave us irony like this.

There is actually very little debate about what has caused the destruction of the American auto industry. Occasionally, a weak attempt is made to imply that the Big Three should not have concentrated on trucks and SUV’s while foreign competitors were making more energy-efficient vehicles. However, it is very easily demonstrated that the U.S. automakers had no choice but to concentrate on vehicles that had the necessary margins to cover their huge labor costs, both for current and retired workers. Decades of concessions to powerful labor unions have driven their costs so high that they are simply unable to make an automobile that competes with foreign imports.

There are those that argue that “unregulated capitalism” caused American manufacturing jobs to migrate overseas, where manufacturing labor was cheaper. However, this fallacy refutes itself. If “market forces” truly were in play, how did U.S. labor costs get so high? Did “greedy capitalists” simply abandon their profit ambitions and decide to pay their employees more than they could afford to? Surely, this would have required not merely irresponsibility but utter foolishness from the same crowd that MADE GM the largest automaker in the world. What caused this decades-long failure of basic business sense?

Of course, everyone knows the answers to these questions, but want to pretend that they don’t. The reason that manufacturers, especially the automakers, continually promised labor unions more than they could afford to pay was because government FORCED them to do so. It really is that simple. Under the euphemism “collective bargaining,” the government made it illegal for a manufacturer to refuse a demand from a union. An illusion of choice was sustained by merely requiring the employer to “make a reasonable counter-offer,” but the courts were there to see that “reasonable” meant that if the union asked for the moon and the stars, the employer would have to at least agree to a few planets. In the end, the employer could not choose freely as far as what to pay their employees or what benefits to offer. Without free choices, market forces are suspended.

To make this as plain as it can possibly made, this game is played like this: The union demands compensation beyond what the business model will support. The employer replies that they are unable to agree if they wish to stay in business. The government says, “Just give it to them or we’ll shoot.” Another “victory for the workers,” is won and the inevitable end draws nearer.

The entire union concession/cost escalation dynamic goes back to the National Labor Relations Act of 1935 and other New Deal legislation. It was these fundamental departures from capitalism that sowed the seeds of the eventual destruction of American manufacturing. What is honestly horrifying is that Americans can observe this government coercion of industry and seriously refer to it as “unregulated capitalism,” or to the series of concessions made by manufacturers at gunpoint as “market forces.” We are truly through the looking glass where a bull is stumbling through the china shop and the storekeeper is reprimanding the broken glass.

While it might seem unfair to blame a man that has been dead for over six decades for the failure of a company in 2008, one must consider the dominance that America enjoyed in the manufacturing sector to begin with. At one time, American manufacturers flooded the world with high-quality, low-cost goods, while still paying wages many times higher than their competitors overseas. There was no sector where America was more dominant than automobile manufacturing, an industry that America literally invented. It would not be brought to bankruptcy overnight. Year after year, decade after decade, the companies grew a little less profitable as government forced them to raise their labor costs IN OPPOSITION to market forces. It was not until decades later that those costs rose beyond the point where the companies could remain competitive.

However, the length of time it took for the disease to run its course does not change the nature of the virus that caused it. Indeed, the same reasoning could be applied not only to the entire manufacturing sector, but to other sectors of the American economy as well. The collapse we are experiencing is the result of an entire economy that has been rendered profoundly unproductive by systemic problems that all relate to government intervention into markets. We have still not found a cure for cancer or the New Deal. To be fair, the poisons we use to try to kill cancer before the they kill the patient are far less deadly and have a much higher rate of success than the medicine we are about to apply to our current economic crisis. The survival rates for many cancers continually improve. The survival rate for American businesses might not be significant enough to measure.

So, Obama will have to be creative to achieve staying power comparable to FDR’s. While Obama’s stated economic policies are terribly destructive, there is not much left of the American productive structure to destroy. More than likely, his interventionist and redistributive policies will merely apply the coup de grace to an economy that at this point merely retains the superficial façade of its former capitalist glory. In order to truly emerge from the shadow of the Ghost of FDR, Obama will have to find a completely new, original way to rend the fabric of our once-free society. One can only dread what that might be.

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>Our Last Emperor

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>Within hours of his historic victory, the official story of Barack Obama’s presidency began to be written by the corporate media machine. The general consensus of all of the coverage is that Obama is inheriting huge problems in the economy and foreign policy of the United States, and that he alone will have to solve them. Associated Press writer Jennifer Loven’s article of this morning, carried the headline, “Great Expectations: Obama will have to deliver.” The New York Times featured an article called “For Obama, A Towering Economic To Do List.” Perhaps most ominously, an article from Bloomberg contained this passage,

“The Democratic president-elect has much more on his agenda, amounting to what may be the broadest overhaul of the U.S. economy since Franklin D. Roosevelt’s New Deal. Beyond job creation and big investments in public works, Obama intends to shift the tax burden back toward the wealthy, roll back a quarter-century of deregulation, extend health-care coverage to all Americans and reassess the U.S. government’s pursuit of free- trade deals.”

Fate has not been kind to Barack Obama. His task is not monumentally difficult – it is impossible. An entire nation and, to some extent, an entire world, is looking to this relatively young man to bring back to life an American Empire that is beyond resuscitation. We are presently witnessing the spectacular failure of an ideology that has dominated the world for the past century. Like his predecessor, Obama brings terribly bad (although superficially different) ideas to the White House. Like his predecessor, Obama will make a bad situation a lot worse, albeit with different tools out of the same toolbox. However, the end of the Empire that will occur on his watch is inescapable, no matter who occupies the White House. The Empire is ending because, like all empires, it is unsustainable.

Make no mistake, Obama’s policies will make things much worse. For an economy that has never really recovered from the original New Deal, the policies described in the Bloomberg passage alone should be enough to put America’s “mixed economy” out of its misery. Following the example of past American emperors, particularly from the (in past decades) more socialist Democratic party, Obama may do damage in one term that another president might take two to do. Nevertheless, this collapse is not going to be remotely his fault, although he may take much of the blame.

As I’ve written here, we are experiencing the deflation of the mother of all bubbles, the socialism bubble. America’s problems are not the result of the mistakes of specific leaders or of the failures of specific policies. America’s problems are systemic. They are the result of building the edifice of our society and economy around the idea of central planning and an all-powerful federal government. The media ludicrously portrays the welfare state, the worldwide military force, the central economic planning via the Federal Reserve and alphabet soup regulatory agencies, etc. as failing because they have been poorly managed. Sometimes they have. The Bush Administration jumps to mind. However, it is crucial to realize that there is no way to successfully manage them. They are part and parcel of an ideology that is doomed to fail regardless of the skill of its execution. When America has prospered in past decades, it has been in spite of these institutions, not because they have been managed well. Until Americans realize this, the “change” they seek will never come.

The real tragedy is that neither the majority of Americans nor Obama himself understand this. So, all look to Obama to take some action, although most really can’t say what it is. Each time I hear Obama or one of his followers dutifully mouth his one word slogan, “Change,” I am haunted by Charlotte Iserbyt’s insightful question/retort, “From what, to what?” I have occasionally asked an Obama supporter this question. Despite long, uncomfortable silences on each occasion, I have yet to hear a reply. They do not know what they mean. They just want government to make their lives better. They do not realize that government, by its very nature, does not have the power to do so.

Not long ago, I stumbled upon Mel Gibson’s Apocalypto while channel surfing just before going to sleep. It is not a movie for the faint of heart. It depicts life at the end of the Mayan empire, complete with human sacrifice in state-of-the-art digital clarity. I was struck by the words of the sacrificer to the maniacally cheering crowd. He mentions a short list of afflictions of the people – poor crops, disease, drought – and then goes on to say,

“They say this strife has made us weak. That we have become empty. They say that we rot. I say we are strong. Great people of the banner of the sun, I say we are strong. We are a people of destiny. Destined to be the masters of time. Destined to be nearest to the gods…”

He then goes on to brutally murder two captives in order to appease the gods and renew the land.

On Tuesday night, I was reminded of this scene while watching Barack Obama’s victory speech in Chicago. The similarities were more striking than one might at first think. As in the film, tens of thousands were gathered to implore their government to save them. As in the film, Senator Obama reviewed the list of problems afflicting his people (two wars, the financial crisis, healthcare costs, etc.). As in the film, President-elect Obama’s proposed solutions will do nothing to relieve the suffering of his people. As in the film, the tens of thousands gathered erupted into wild applause and adulation at each meaningless pronouncement. I am not sure what I found more horrifying: the sight of thousands of people cheering a brutal murder, or the sight of the citizens of the so-called “land of the free” worshipping their government. Each is an outward indication of systemic societal flaws within.

Perhaps President Obama’s legacy will find some luck. The great majority of Americans still believe that FDR resolved the Great Depression, when in fact he caused it. Perhaps Obama will get some credit for the eventual recovery in America, even though it will happen in spite of his policies rather than because of them. Unfortunately for him, it would be better if Americans finally saw their present form of government clearly for what it is.

After the end of the Empire, there will still be a United States of America, just as there is still an Italy, France, Spain, and England. However, this moment in American history is different. In the past, the productivity of the American economy has eventually been able to overcome the disastrous policies of an FDR or an LBJ. That is no longer the case. The accumulated effects of government intervention and government-created systemic problems that have been built into the American economy have finally destroyed that productivity. The parasite has killed the host. This crisis is going to force some substantive change, whether for better or for worse.

The real question confronting America is what will come next. None of the empires of the past were succeeded by freer societies for their people. Will America take a different path? No nation in history has achieved the liberty of its people that the United States did during its freest, most prosperous period. It is possible that this spirit of liberty is not completely extinct. Following the reign of this our last emperor, we will have the opportunity to truly remake the United States. Instead of repeating the mistakes of history, we can make history once again. After the fall of our empire, we will have the opportunity to restore our republic and reclaim our freedom. That is the real change that we need.

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