Call back four years. What do you remember; what have we
forgotten? An obliterated economy, giant financial institutions and America's
largest manufacturing sector, automotive, in
freefall! It was a financial destabilization on the precipice of total
collapse that called for extraordinary measures. Even so, there was an ongoing political,
rhetorical opposition and obstructive intransigence against those more noble
souls who would do what had to be done. An unrelenting, vociferous demagoguery would
dampen the spirits of many Americans, a negative force in play to stall economic
recovery.
Much has been written about how we got in the economic ditch.
But at that particular moment knowing the cause was less significance than the urgency
of keeping us out of another Great Depression. Many authors I have read make it
clear the cause goes back 30 to 40 years, beginning with the Carter administration
when some governmental controls were relaxed, continuing with a special
emphasis on deregulation through the Reagan years. "To the applause of liberal
Democrats and conservative Republicans alike, the New Deal system of regulation
was dismantled in one sector of the economy after another in the late 1970s and
1980s," writes Michael Lind. (Land of Promise) Increasingly through
the years, precipitously in the George W. Bush administration, it was in a cavalier,
an unrestrained free-market, the regulators gave deference and fealty to
business lords. Unfettered free-market ideology led government officials to
resist new regulations and enforce existing regulations lightly or not at all
in what became known as “the shadow banking system." Predatory mortgages,
bundled overrated securities (e.g. Collateralized Debt Obligations), blind-derivative
trading (e.g. Credit Default Swaps), and over-leveraged banking expedited sure
economic disaster. Laissez-faire!
In the Bush years there had been a general disregard for
governmental fiscal responsibility, when for the first time in American history we failed to oblige taxes to pay for
our wars. Not paying for the wars was not enough of a tax-free-ride to economic
doom, tax cutting in the name of trickle-down economics, in the face of unpaid Senior Drugs, left an even larger
debt. It was a perfect setup to an untenable
situation for economic recovery after the "big
fall" came. It was as if we burned down the Federal House with no
Fire Insurance, no cash reserve; thereby, necessitating a third mortgage to
rebuild. But rebuild we must!
So how did we begin the rebuilding? We took advice from a
past generation, per se, one Marriner Eccles, a Mormon Republican.
After the stock-market crash of 1929, in lingering, economic
devastation, the Herbert Hoover administration and others believed nothing
could be done except to balance the federal budget and pay down the debt.
"Economists and the leaders of business and Wall Street—including
financier Bernard Baruch; W. W. Atterbury, president of the Pennsylvania
Railroad; and Myron Taylor, chairman of the United States Steel
Corporation—sought to reassure the country that the market would correct itself
automatically, and that the government’s only responsibility was to balance the
federal budget." (Aftershock)
Marriner Eccles' father, an immigrate from Scotland, married
two women in Utah. Marriner was born 1890, and by age twenty-four he was a
millionaire; by forty he was a tycoon—director of railroad, hotel, and
insurance companies; head of a bank holding company controlling twenty-six
banks; and president of lumber, milk, sugar, and construction companies spanning
the Rockies to the Sierra Nevadas.
"When Eccles’s anxious bank depositors began demanding
their money, he called in loans and reduced credit in order to shore up the banks’
reserves. But the reduced lending caused further economic harm. Small
businesses couldn’t get the loans they needed to stay alive. In spite of his
actions, Eccles had nagging concerns that by tightening credit instead of
easing it, he and other bankers were saving their banks at the expense of
community—in 'seeking individual salvation, we were contributing to collective
ruin'.” (Aftershock) Marriner Eccles came to realize
Hooverism's conventional wisdom was insanity.
The debilitating economic struggle continued into the Franklin
D Roosevelt years, when even Roosevelt was not fully convinced we needed to go
deeper into debt to stimulate recovery.
"Eccles made his national public debut before the Senate
Finance Committee in February 1933, just weeks before Franklin D. Roosevelt was
sworn in as president. The committee was holding hearings on what, if anything,
should be done to deal with the ongoing economic crisis. Others had advised
reducing the national debt and balancing the federal budget, but Eccles had
different advice. Anticipating what British economist John Maynard Keynes would
counsel three years later in his famous General Theory of Employment, Interest
and Money, Eccles told the senators that the government had to go deeper into
debt in order to offset the lack of spending by consumers and businesses.
Eccles went further. He advised the senators on ways to get more money into the
hands of the beleaguered middle class." ..."His proposed program
included relief for the unemployed, government spending on public works,
government refinancing of mortgages, a federal minimum wage, federally
supported old-age pensions, and higher income taxes and inheritance taxes on
the wealthy in order to control capital accumulations and avoid excessive
speculation. Not until these recommendations were implemented, Eccles warned,
could the economy be fully restored." (Aftershock)
Much of what Eccles recommended was implemented for
Roosevelt's New Deal, the stimulus recovery. Eccles went on to be Roosevelt's
Feds Chairman, serving fourteen years, 1934 to 1948. The Eccles Building, named
for him, which houses The Federal Reserve Board stands on Constitution Avenue
in Washington, D.C. (Read the full story of Marriner
Eccles .)
Forward
to January 2009 when the economy was losing 800,000 jobs monthly, and Keynesian Stimulus was
being considered: "The official $478 billion Republican alternative
consisted entirely of tax cuts and an extension of unemployment benefits. But
the GOP also crafted a second
$715 billion substitute that included far more traditional infrastructure than
the supposedly lavish Democratic bill. That way, moderates like Cao and Castle
who couldn’t back the right-wing alternative could vote yes on something other
than the actual bill. Republicans never bothered to explain how $ 715 billion
could be good public policy while $ 815 billion was freedom-crushing socialism.
In the minority, they didn’t have to." .. "But the Republican
argument was never about logic. It was about creating the impression of a mess.
Republican leaders argued that the Recovery Act was too slow to be stimulus,
but also that it needed more infrastructure projects, which would make it
slower. They argued that it would expand the deficit, but also that it needed
permanent tax cuts, which would expand the deficit even more." (The New New Deal)
In the end, the good-news package, $787B was the New New Deal, not a "cure all" by
any means, but a stimulus that addresses a farsighted recovery, a groundwork
for competition in a globalized economy, as we traverse the third industrial revolution, information/Internet/
computer technology.
While Marriner Eccles knew what had to be done in the Great
Depression era, leaders at the helm of a thousand-times-over, larger economy
knew that Keynesian Economics was absolutely essential, to save an economy from
the abyss-pit. But unlike the 1930s, we were in a new era of mobility and
transition, it had to be applied differently: e.g. building roads no longer
required thousands of people; modern machinery only required a few people to
pave many miles of roads or build other infrastructure.
The New New Deal
was not about building new parks or digging holes and refilling them; it was essentially
a multiple-track plan: Tax cuts: biggest middle-class tax cuts
since the Reagan era (A
limited stimulus, but has allowed savings and private debt to be reduced.); State
governments financials shored up, aid to states to prevent layoffs, real-time; Real-time stimulus, roads,
infrastructure, and YES, food stamps to
prevent seven million people from falling behind the poverty line, money into
people’s pockets;
Research
and Development: Health IT, digitized
medical records, 90 billion for Clean Energy, ----
Race to the Top which is the biggest education program in decades.
Most people know so little about the Recovery Act. They have
only heard the voluminous, pessimistic spin, i.e. Solyndra's failure. Michael Grunwald gives a brief critique
of the Recovery Act
in this video. His book, The New New Deal is an eye-opener for
the critics.
To Marriner Eccles the most critical thing, about economic
recovery, was to get money in the hands of the middleclass. It was the same principle
of the Recovery Act, except that in this new transitional epoch it would
require a longer time-span. When for many years a disproportionate flow of
income has gone to the top 1%, the importance of getting money in hands of the middleclass
and less privileged is brought to clear focus by Grunwald's analysis: "The percentage of the increase in
disposable income that went to the top 1 percent of US households fell from 22–
23 percent in 1929 to a low of 8– 9 percent in the 1970s, before rising to a remarkable
73 percent during the two terms of George W. Bush." (Land of Promise) Over the last many years, this
imbalance effectively took from the middleclass, enhanced the very top
capitalist, and increased personal debt.
As it turned out World War II was the "mother of all
economic stimulus." Everybody had a job; everybody sacrificed; the U. S.
National Debt went way beyond GDP. The postwar economy was the longest and
fastest growth period in history, even while the wealthy and large corporations
paid their share, the highest tax rates in U. S. history.
Since the late 70s, reduced taxes, tax credits, government
subsidies and corporate welfare has resulted in brazen, untrustworthy tax-collections
to build a mountainous national debt. Above the usual hypocrisy and disingenuousness, there is a
galling, egregious rhetoric from those who claim or imply the 16-trillion
national debt as Obama's alone. It is a debt most assuredly compounded by the
Reagan and Bush eras of negligent, fiscal management; it's debt-causation necessitating
an even higher debt (stimulus and tax reliefs to prime the economy); it is the dismantling
of government controls by Republicans and Democrats which were capitalist-protection
policies put in place by the New Deal. Had the Mormon Republican, Marriner
Eccles, lived through the afore mentioned period, could we safely say? "He
would have been dumbfound by such government callousness."
Maybe, we are now winding
our way around the fiscal irresponsibility and ineptitude to a brighter day for
economic recovery. Fareed
Zakaria writes, "And yet, when looking out over the next four years —
the next presidential term — the IMF (International Monetary Fund) projects
that the United States will be the strongest of the world’s rich economies.
U.S. growth is forecast to average 3 percent, much stronger than that of
Germany or France (1.2 percent) or even Canada (2.3 percent). Increasingly, the
evidence suggests that the United States has come out of the financial crisis
of 2008 in better shape than its peers — because of the actions of its
government."
Marriner Eccles' heritage as a businessman and economist may
be forgotten by most but his political-business acumen lives on. Our current-day
Keynesian leaders took a page from his playbook, and we have both to thank.
From somewhere in the Heavens, a Mormon Republican may be
saying to another Mormon Republican, "How 'bane' thou art!"
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