FDR saved capitalism from the capitalists: time to do it again?

Posted on July 30th, 2008 in Culture,Economy,General,History by Robert Miller

According to Aurthur M. Schlesinger,jr. , in his book "Crisis of the Old Order," he points out that before the New Deal of FDR, the United States experienced a severe depression about every twenty years, including 1819, 1837, 1857, 1873, 1893, 1907 and 1929. But in the seventy plus years since then, there have been no major depressions. But wait you say, what about the Savings and Loan Scandal in the 1980s during the Reagan administration? According to Arthur Levitt, the former chairman of the SEC, as he addressed Congress, he said, "what has failed is nothing less than the system for overseeing our capital markets." The system failed because the regulatory commissions were too often taken over by the very business interests they were supposed to regulate. This has been one of the great gifts of Reaganism and Bushism, to put control of the regulatory commissions into the hands of the very people who detest regulation and whose business concerns and business colleagues benefitted from their absence. But the Democrats, the modern ones, are not without complicity in this transition to an unregulated business economy and environment.

John Kenneth Galbraith, in his famous book, "The Great Crash" (regarded by many as the most authoritative account of the 1929 crash) remarked that "the memory of the financial mind lasts about ten years," meaning that it only takes a short time before the financially minded who have political interests want to once again pursue the very kinds of business models that produced the previous depression. Before and during WW I, progressive liberals imagined a world in which business would serve the public needs and not the private interests of a few. There was broad discussion of nationalizing important industries like electric power and the train system which was put under government regulation during WW I. This progressive movement was stirred by the great social workers, like Jane Addams of Hull-House in Chicago and other centers like Henry Street in New York, staffed by women who were powerful forces in drawing national attention to conditions of poverty and homelessness. National disgust with poor pay, childhood labor, substandard housing and the writings of muckrakers like Sinclair Lewis, all converged onto political leadership who listened to these stirrings and responded by shaping new political movements. Great progressive liberals like Robert La Follette of Wisconsin, Charles Evans Hughes of New York, Hiram Johnson of California were all notable progressive governors who emphasized government’s responsibility to elevate and protect the middle class. La Follette was unflinching in his commitment to a democratic form of socialism. In Wisconsin he established the first modern income tax law, the first effective workmen’s compensation law, modern labor legislation, He talked of increased inheritance taxes, excess profits tax, public ownership of railroads and water power and abolition of all labor injunctions. He even wanted Congress to enact legislation to overturn Supreme Court rulings that went against a more progressive viewpoint about government. The greatest of them all in terms of visibility and action was Theodore Roosevelt of New York, who was steadfastly committed to conservation, in addition to reducing the dominance of corporate America. The idea that business should function to serve people rather than exploit them was new and flourished right up until the time that Russia pulled out of WW I and the war ended. Up until that event, the threat of communism was not taken very seriously, even though it alarmed some lawmakers. But, for an imperial country like Russia and an ally against the Axis to boot, to be subdued by the Bolsheviks seemed more threatening to business America than any ofther force imagineable. So we invaded Russia and fought on the side of the White Russians, killing thousands of poor Russians who were rising up against the conditions that led to massive public starvation and deprivation. For the American business model makers, the revolution in Russia elevated communism from a nuisance to a palpable threat. It was that event, more seismic than any other, which changed the progressive liberal talk of nationalization of key industries into perceived threats from the "Bolsheviks of America." As a result, the business model for America seemed like a safer bet as it began to emerge and dominate as it had never done before. The old suspicions about business motivations began to fade away. The 1920s saw a complete reversal of fortune for the progressive liberal party and the stunning defeat of Al Smith by Herbert Hoover in the 1928 election seemed to seal the fate of the progressive liberal movement as irrelevant, going the way of the dodo bird.

Herbert Hoover, as he celebrated the business model in his campagin of 1928, with the stock market booming, exclaimed that "Given a chance to go forward with the policies of the last eight years [when Harding and then Coolidge were the serial presidents], we shall soon with the help of God be in sight of the day when poverty will be banished from this nation." The business economy presidents of Hoover’s time believed that an unfettered business model would produce a new national generosity that would solve all the ills of society that the liberals were talking about. It merely depended on the "Christianization of business." But what none of the business model leaders knew, was that businessmen would not share their wealth with the lower classes, but instead hoard the profits, using them to drive the stock market values ever higher, well in advance of the inflationary rate. Great gains in worker’s productivity did not go into significant increased worker compensation, or reduction of the labor hours or improvements in working conditions. Instead the profits from productivity gains were used primarily as profits to the companies to drive ever higher the value of the stocks and hyperbolically enhance their personal wealth derived from highly inflated stock values. The model used the create the crash of 1929 is the same as the model used to create our current sub-prime mortgage dilemma. If we are fortunate enough to avoid this problem spreading to depress the entire economy, rather than have the worst recession since the "Big Crash" it will be because some people still remember how to manage and regulate our business affairs so that the giant snowball in front of us doesn’t evolve into an avalanche. We can’t just leave this encroaching menace up to the ski patrol. We must demand what La Follette wanted and finally admit that the free market economy, or Friedmanism or Reaganism or Bushism is a one way paved super highway for the wealthy and a dark bumpy road for the rest of us.

Tomorrow I will send you a note about Costa Rica, a country that has no military, spends about 1/4 of its national income on education and has one of the highest literacy rates in the World. That is why American high tech companies are locating here to generate software and other high tech innovations. There is something truly invigorating about a society that spends most of its resources trying to get everyone up to speed.


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