The Slow Economic Recover
It has been five years now. In case you have recently woken up from a coma, five years ago a deregulated Wall Street (yes, it is already obvious to tell where this is going. We deregulated Wall Street as if we thought they cared about the livelihood of the American people, and might actually act ethically) bundled together some ridiculous, high risk loans and sold then to investors around the world in order to make a profit on the booming American housing market. Investors thought it was a win-win to buy in on the flaming hot real estate enterprise, not knowing that the banks had bundled together the most dangerous assets to sell them. In many cases this was illegal, and in every case this was unethical, but now it is what it is. So during your coma the political sphere has been endlessly bickering like spoiled homecoming royalty about how to rebuild our economy. Buckle up, because for all the energy and attention given we are recovering at great depression speeds! Five years later we still have 44 out of 50 states with rising unemployment. Likewise, consumer confidence is barely above 60%; that is a good number for a president’s approval rating; in fact, if that was his approval rating, I would probably not need to write this article, but for consumer confidence, that number is disparaging.
If you ask Republicans, it is all President Obama’s fault; his business policies have made it impossible to do business, and nobody finds it profitable to hire. If you ask Democrats, it is all Republicans fault because they continuously gridlock Congress and will not give President Obama freedom to do anything. Both are right. There is a lot of evidence that uncertainty is keeping banks from loaning to companies, and keeping companies from hiring new employees. President Obama passed a health care law that regulates health care and is difficult for business–especially small business–and has had negative ramifications. Republicans also claim that regulations are stifling business. While Republicans are certainly gridlocking Congress and stopping President Obama’s ideas, he has gotten a large part of what he wanted. His first stimulus passed, and then failed. It did not provide any measurable relief; however, it did give money to outsourcers and overseas companies. He got his health care bill, and he got his debt limit raised. He has also been bypassing Congress and making laws himself through executive order. Yes, during your coma it became acceptable for a President to make his own laws; we are now paying Congress with our tax dollars for…apparently nothing. No, the Constitution has not been altered, it still specifies that it is the role of Congress to make laws; it is just that nobody has bothered to challenge them when President Obama has made them himself.
No one person or political party can be blamed; neither can anyone law or regulation. Likewise, no one political party is blameless. In fact, America as a whole can take a load of the blame. Here is why:
Many people think the Great depression was caused by the stock market crash, and the run on the banks. Historians and economists generally disagree. These were symptoms, not causes. The major causes were three fold. First was the international debt. After WWI there was major debt in Europe, creating a cycle of payments. The United States shoveled money at Germany to help with reparations, who then threw the money to England to pay the reparations, who then gave it back to the United States to pay for weapons and equipment bought during the war. This payment system got nowhere, and the international debt remained unresolved until the entire system was scrapped when it was seen to be useless.
The second cause of the great depression was a lack of economic diversification. Almost the entire economy in the United States was based on the automobile. For the first time in history one could travel quickly and regularly. Before Henry Ford Americans had two options: the farm or the city. There was no middle ground because living 20 or 30 miles outside the city meant an all day trip just to get there. With a car, it could be done in about an hour, less after the interstates were built. This new freedom and capability brought by the car was as exciting for early 20th century consumers as a new IPhone is to a 13 year old girl. Neighborhoods and suburbs began exploding all over the country, fortifying the building and real estate industry. Everyone wanted a new car. New cars meant demand in the steel, rubber, glass, and petroleum industries. Accessories like the radio also cashed in on the sale of cars; the entire American economy became what was known as the roaring 20’s. Then, toward the end of the decade the auto industry got T-boned…hard. Everyone already had a car; therefore the demand for new cars fell. Companies failed to predict and prepare for this, so when the sale of new cars decelerated from breakneck speeds all of these industries took major hits as well. We do not need an economist to tell us that many major industries taking a major hit at the same time equals “uh oh”.
The last factor leading to the great depression was the distribution of wealth. In the roaring 20’s America became a society of the haves and the have nots. Now, whether or not that is fundamentally right or wrong is meaningless to Patriotslog. In this case we are only concerned with evidence and logic. Leading up to the great depression, the richest .1% of America controlled 34% of savings, and the same amount of money as the entire bottom 42%! Though not as extreme as today, these are eerily similar patterns. Logic also tells us this is not sustainable. Presumably the richest in society have something to offer in order to gain their wealth; at least they have historically, before the Paris Hilton, Kim Kardashian, rich-spoiled-diva-era-that-does-nothing-for-society era. Be it a product, service, or consulting, the rich have something to offer. The problem with a top heavy distribution is that if there is not enough money in the middle class then there is nobody to buy what the rich are offering. There are never enough rich people at any given time to sustain the economy alone; the middle class sustains the economy. If the middle class has no money then the buying power of the country falls. If things are not bought, things are not made, if things are not made, people are not employed. So no matter the cause, misdistribution of wealth by its nature hurts our economy. The trickledown effect has never worked. People deserve to be rich. If a person has earned their money we ought to admire them for their accomplishment; being successful is not a problem, it is part of the American dream. However, if the middle class do not have enough money to be considered successful as well, it is a bad egg for our economy.
The slow economic recovery can be explained in terms of the great depression because we are in a similar state. Europe is near failing with their debt crisis; most of the American economy is based on the banking system (though thankfully not nearly as heavily as the economy depended on the auto industry in the 20’s); and the top 10% of our earners control about 2/3 of the wealth. No matter what Democrats or Republicans or Mitt Romney and President Obama say, the economic recovery is not slow because of any one person. It is a systematic problem. Deregulating the banks at this point would give them the freedom to make more greedy decisions, as they have in the past, to gain a huge profit. Unfortunately, history shows us this usually leads to a crash. Should the banks crash again while we are $16 trillion in debt, we cannot and should not bail them out. If they crash while we are still ailing from their first crash, the recipe may be right for another great depression. Deregulating the banks seems to make sense, but history can be a wise teacher. It has shown us that a bank deregulation is like leaven in bread: quick to rise, even doubling in size, but any jostle and the dough will fall flat. As long as we have a systematic problem, especially with consumer confidence so low, the recovery will continue to drag along.
30 Aug, 2012
Posted on September 4, 2012, in Patriotslog Articles, Poverty and Welfare and tagged auto industry, business, causes of the great depression, current-events, debt crisis, deregulating the banks, distribution of wealth, economic diversification, economy, government, government debt, great depression, politics, recession, regulations, slow economic recovery economic recovery, transportation, underemployment, unemployment, work force. Bookmark the permalink. Leave a comment.