Sunday, August 21, 2011

Then and Now

Then and Now

By Keith Bunn Jr.
August 21, 2011


We’ve all heard about the roaring 20’s and how for that decade, our country was at its peak in prosperity. It was at the end of World War I, the U.S.’s Gross Domestic Product (GDP) had doubled, and consumer spending had shot up buying cars, washers, and refrigerators. Radios then, were the equivalent of today’s TV and people were buying them up too. Jazz and dancing grew in popularity and it seemed that people couldn’t get enough of it. The movie industry blossomed and going to the movies for entertainment grew as well. It was a period of social, artistic, and cultural dynamism. So I was wondering, what happened back then that hasn’t happened since?
Well, believe it or not, it started with the government under the administration of President Warren Harding. President Harding took office in 1921. At that time, inflation was running rampant and unemployment was at 20%. In an attempt to make things right, Harding proposed to reduce the national debt, reduce taxes, protect farming interests, and cut back on immigration. Unfortunately, the president never saw any of those proposals pass Congress due to a fatal heart attack in 1923. It was those policies however, that led to what was known as the "Coolidge prosperity,".
  In President Calvin Coolidge’s inaugural address, he stated that the country had achieved “a state of contentment seldom before seen,” and swore to himself that he would maintain the status quo. In both Harding and the Coolidge administrations, the heavy taxes that were imposed on the wealthy (from 7% to 77%) to help fund WW I, were lifted. President Coolidge believed that that tax burden would slow down the economy and reduce tax revenues. He also prevented the government from interfering in private business. The management style of both Harding and Coolidge, caused an environment that would sustain economic growth throughout most of the 1920’s. But, as we all know, the prosperity that most of the country enjoyed, came to a screeching halt when the stock market crashed in 1929 at the beginning of the Great Depression.
Herbert Hoover became president at the beginning of the depression and announced to the country that he would keep the Federal budget balanced, cut taxes, and expand public works spending. He also stated that while the people should not suffer from being hungry or cold, the responsibilities for caring for those in need should fall onto the local and voluntary help. He also proposed to Congress a program that would Reconstruct Finance Corporation to help businesses, additional aid to farmers who were looking at foreclosures, reform banking, and loan money to the states to help feed the unemployed. Unfortunately, Congress considered him to be callous and a cruel president and he became the scapegoat for the depression and in 1932, Franklin D. Roosevelt defeated Hoover in a landslide victory.
By March 1933, there were 13,000,000 people unemployed in the U.S. and just about every bank was closed. It was around this time that a growing popular, 50 year old, British economist by the name of John Marynard Keynes, contacted FDR, first by letter and then later in a face to face meeting in Washington.
Without going into tons of economic details, Keynes’ theory (what is now known today as Keynesian Economics) was that full employment can be maintained only by government spending. The government must invest in public works, must hire the unemployed, and the government has to run up deficit spending during a slowing economy. Now I’m not trying to degrade or belittle anyone’s intelligence, but for those of you who don’t know what ‘deficit spending’ is, it means that the government is spending more than it brings in and is running up debt.
For 4 years, FDR didn’t buy into Keynes’ theory, but with very little recovery of the U.S.’s economy, FDR bought into Keynes’ theory in 1938 and FDR’s New Deal  program was born. In this program, the U.S. was taken off the gold standard, a huge work relief program was made for the unemployed, new controls over the banks and utilities were made, Social Security was formed, and the wealthy were loaded down with heavier taxes again.
By 1944, the Great Depression was starting to end, unemployment went from 25% to 1%, plus the U.S.’s GDP went from very bad to almost triple. So as history wrote this, FDR’s New Deal  and Keynesian Economics brought the U.S. out of the Great Depression. Unfortunately, that is not true.
Now before I go on, I want you to carefully look at the dates I told you, especially the last one, 1944. Years prior to 1944, the U.S. struggled to stay out of the conflict that was taking place in Europe. Sure, we were helping our allies with supplies and such, but that was about it. But as we all know on December 7, 1941, the Japanese boomed Pearl Harbor and the U.S. was thrust into a war with Japan and then later with Germany and it’s allies. So from 1938 to the end of 1941 (3 years), there was no where near enough time to see the outcome of any new national program. Plus, all our men either volunteered or were drafted to serve in the military and every able-bodied woman left here in the U.S. replaced the men in the work place, building, selling, whatever was needed to support the war or anything else that was needed for that matter. So it was World War II that ended the Great Depression and not the New Deal or Keynesian Economics.


Fast forwarding 63 years. In December 2007, we entered another recession that has been so bad, many economist and other world governments have compared it to the Great Depression. Affects of this recession included, a devaluing dollar, sub-prime mortgage crisis, rising oil prices, and a housing market correction.
In February 2008, a 5 year record of 63,000 jobs was lost. Now at the beginning of his second term in office, President George W. Bush, tried to fix the situation by signing a $170 billion stimulus package which he hoped would improve the economy by giving tax breaks to struggling business, and sending out tax rebate checks to many Americans.
In September 2008, the recession became much more serious when the government took over Fannie Mae and Freddie Mac, followed by the Lehman Brothers bank filing bankruptcy, and then a federal bailout of American International Group of $85 billion. By October 2008, because of increasing foreign and domestic spending, our national debt rose to $5.6 trillion. Most of that debt was from the ‘Bush tax cuts’ and an increase in national security spending. When Bush’s presidency was over, unemployment was at 7.2%.
In February 2009, newly elected, President Barack Obama, signed the American Recovery and Reinvestment Act of 2009. This $787 billion stimulus package would increase federal spending on infrastructure, various tax breaks and incentives, education, health care, and direct assistance to individuals. Later, the White House intervened with the hurting Detroit auto makers, healthcare reform, etc… I’m not going to get into too much detail with fairly current events.
The point of this blog is not to place blame or to point fingers at any one administration. It is to show what one wrong decision, repeated over a long period of time, can do to devastate your family, community, state, and country. What do you think would of happened if FDR waited just 3 more years. I know that sounds like a long time, but it is my opinion that our country wouldn’t have over $14 trillion of debt that we do today. As I said earlier, Keynesian Economics is still being taught today in college and it is the way a lot of economists think. The old economic way of thinking, the way it was in the 20’s, still works and that is proven by the way today’s Texas Governor, Rick Perry, is governing. His leadership style is similar to Harding and Coolidge’s style of not interfering with businesses, and keeping taxes low across the board. By doing so, he has created an environment where that state’s economy is thriving in one of the biggest recessions this country has seen in a long time.

“Those who cannot remember the past are condemned to repeat it.” – George Santayana –

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