I am not an economist, and do not purport to have expertise in the field. I offer this post based on the claims of Paul Krugman and Barack Obama that the fiscal crisis facing the United States and its citizens today is more comparable to the conditions of the Great Depression than any other crisis faced since then. If that is true, no wonder I find the details of whiz-kid tax evader Tim Geithner's newly renamed Financial Stability Act personally depressing. So, by the way, does Wall Street.
Treasury Secretary Timothy F. Geithner announced a vast new rescue plan
for the financial sector. Stocks plunged following the unveiling of the program to use $1.5 trillion or more in public and private funds to bail out banks and financial institutions and thaw frozen credit markets. The plan would create a $500 billion fund to buy up toxic bank assets such as bad real estate loans and commit up to $1 trillion to reopen lending markets for consumer, student, small business, auto and
commercial loans.
The Dow Jones industrial average was down 383 points in afternoon trading. The tech-heavy Nasdaq plummeted 63 points, and the Standard
& Poor's 500-stock index dropped 43 points.
(source)
Here are the highlights of the Geithner plan, according to The New York Times:
Now, read these excerpts from an overview of the Hoover administration's approach to the Great Depression, which set in 6 to 8 years before Franklin Delano Roosevelt was first elected.
A) "The slump in automobile sales was
paralleled by the decline in the construction of new housing, causing
unemployment in the building trades. Fewer suburban houses meant fewer
markets for appliances, wall coverings, and other activities related to
home building."
B) "The economy was in trouble but people, dazzled by a surging stock market, ignored it.
The consumer economy was
slowing as incomes skewed to the rich. In 1929, the richest 10% of
families received 39% of disposal personal income while the bottom 10%
only got 2%."
C) "People seemed to be forgetting that capitalism needs to expand, that demand for housing, clothes, automobiles, stoves, and
many other consumer goods generates demand in other sectors of the economy. But mass production necessitates mass consumption.
Mass consumption necessitates an income distribution that allows consumers to buy. Without the appropriate
income distribution, warehouses will burst at their seams and production lines will clog."
D) "Many of the wealthy, as well as
others, joined the speculative stock market sending stock prices to
greater and greater without
regard to company performance; In October, 1929, the bubble burst. The
crash meant the tremendous loss of capital as prices declined $74
billion from 1929 to 1932 and the repatriation
of much of US investment abroad."
E) "As historians Peter N. Carroll
and David W. Noble note, Hoover feared that the collapse of the large
corporations would bring down the entire US capitalist system. After
all, one percent of the banks held 50% of banking assets. Three
corporations—Ford, Chrysler, General Motors—manufactured 85% of the
automobiles sold in the US. Chain stores dominated retail sales and
their difficulties had national repercussions.
Business and industry met the
crisis as they had always done—they cut production, lowered wages,
reduced working hours, and fired workers. Unemployment rose from 1.5
million in 1929 to 13 million in 1933, a figure which represented 25%
of the labor force. Even such a high percentage hid the dimensions of
the problem because it did not what percentage had been forced the
part-time work. Industrial wages fell from $425 a week to $17 a week, a
decline of 32%."
F) "To help the situation, the Hoover
administration sept close to a billion dollars in public works programs
but he would not go further. Nor would he argue for direct relief to
the unemployed and starving because he feared that doing so would
corrupt them."G) "Hoover and the Republicans saw
aid to corporations as being different. Whereas they believed that
helping the individual citizen weather the Depression would corrupt him
or her, aiding corporations and other business was different. To many,
it appeared that the Republicans were only interested in the rich. The
newly-created Reconstruction Finance Corporation
aided only the large corporations.
Hoover broke precedent because
the national government assumed some responsibility for what happens
during an economic depression but he was not willing to go far enough.
He believed that the depression was part of the normal business cycle
and had been caused by international factors and not US ones. to him, 'prosperity was just around the corner.' The best thing for the country
to do would be to wait the crisis out."
I am in no position to know just how deeply or robustly FDR's New Deal reforms have insulated us from a new Great Depression. But with a Nobel Laureate and the President of the United States telling me that we are in a state of disaster, I find it depressing that the Treasury Secretary's plan sounds much more Hooverian than FDR-like.
I know the economy is not going to do an about face on a dime. I do not need Secretary Geithner or President Obama to tell me that. But with trillions of dollars going to banking corporations and relatively little aid going to those who are rapidly falling into more dire straits than they imagined possible, I cannot help but feel as so many of us did when George W. Bush whisked us into war in Iraq. In the words of author Anne Lamott: "I don't know who on the left can lead us away from the craziness and the barbarity: I've very confused now."
Lamott wrote those words when she was criticizing George W. Bush for deceiving the American people. Sauce for Bush should be sauce for Obama. One problem with the Geithner plan is "lack of transparency". Deception: a post-partisan kind of thing.
