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Are we reliving the mistakes of the
Great Depression?
2/3/2011 8:44:57 AM

Take in these statistics: 44% of banks failed. Unemployment was in double digits for 10 straight years, reaching a high of 25%. The NY Stock Exchange imploded and took 25 years to recover to the levels that were seen prior to the crash. Two presidential administrations with vastly different ideas tried in vain to turn the economy around. For twelve years, the Great Depression ravaged global economics, devalued anything of worth, and left people destitute. In many parts of the world, this led to protests in the streets. It spurred on radical agendas that clashed in a world war. It is not surprising. Desperate people will act accordingly in desperation.

As a small business owner, let me share something from my perspective on how things are going in our economy. Until there is a reason to produce, companies will not hire more workers. You cannot talk your way out of a recession. I am tired of cheap talk from politicians. I am sick to death of elitist economists declaring that the recession has ended when it is clear it has not. History is repeating itself with all of the platitudes and economic spin. Take a look at these quotes.

1. "There is no cause to worry. The high tide of prosperity will continue."

2. "The worst is over without a doubt."

3. "We have hit bottom and are on the upswing."

4. "The depression has ended."

Care to guess who made these grand prognostications? Quote #1 was spoken by Andrew Mellon, the Secretary of the Treasury in September 1929, one month before Black Tuesday (October 29, 1929) plunged the New York Stock Exchange into a tailspin it would not pull out of until 1954. We might be able to look past Mellon’s statement, since it was uttered prior to the start of the Great Depression. However, quote #2 and #3 were declared by James Davis, Secretary of Labor in the summer of 1930, eight months after the start of the recession. The problem was, unemployment was 8.9% in 1930. A year later, it was 16.3% and climbing. By the time Assistant Secretary of Commerce, Dr. Julius Klein, made his grandiose statement (quote #4) in 1931, the economy was heading to new lows, with unemployment continuing to climb to 24.1% in 1932. The point I am making here is that the economy does not heed the words of political rhetoric. And right now, our current administration and its minions are full of nothing but rhetoric. We need actions that create jobs.

But you might argue that the federal government does create jobs. Isn’t that what led us out of the Great Depression? Didn’t the New Deal put millions of people back to work by borrowing money and creating work programs like the Works Progress Administration (WPA)? The WPA was the nation’s largest employer during the Great Depression, employing 8 million workers and producing public work projects throughout the U.S. Creating government jobs was a key element of the New Deal politics. "Not only our future economic soundness but the very soundness of our democratic institutions depends on the determination of our government to give employment to idle men.,” stated FDR. Yet, during the Great Depression, the United States never had unemployment lower than 12% (1937.) That is about 1.5% higher than the worst jobless numbers that have come out of our current economic woes. In fact, New Deal labor laws and monetary policies killed a building recovery (1935-1937), creating a new recession and sending unemployment levels spiraling up to 19% in 1938. People became increasingly dependent upon the federal government to bail them out of joblessness. It did not work because it was not sustainable and it was not very productive. The WPA worker became a laughingstock in the American pop culture. (The WPA had several slang acronyms, including "We Poke Along” and "We Piddle Around.”*) These workers could not be fired, were given a prevailing wage and did not have to demonstrate they knew how to perform the work for which they had been hired. Projects that should have taken days were stretched into weeks, weeks into months, etc. What did put Americans back to work? A very real need: World War II. The demand for labor to produce war materials produced jobs based on free market economics. There was suddenly a demand that outstripped the gears of supply. Forget the WPA (it was dissolved in the midst of the war effort), these were real jobs.

So here we are in the midst of the Great Recession; the longest lasting economic downturn since the Great Depression and I hear our leaders sounding much like the leaders of the 1930s. Do you think we should raise taxes on those that create jobs? President Hoover tried it in 1932 and unemployment jumped from 16.3% to 24.1%. Do you think that the federal government should be borrowing on the future to pay for jobs right now? FDR tried it and unemployment never got any better than 12%. What will work? First, recognize the role of government is not to create jobs, but to improve the environment where jobs can be created. Deregulation and tax reform that led to tax cuts in the 1980s led us out of the last great recession. Government regulation of business is crippling. Dependence upon others for our debts is akin to slavery. Secondly, let business live or die by its own merit. Enough of the bailouts that have made indentured servants out of our banks, AIG, GM and a whole host of backbone industries. Let business come up with a solution without being chained to the government. And please, my elected representatives on all levels, please quit trying to convince me that the recession is over and I should be hiring (and to meet your quotas for certain types of workers.) You really don’t know how my business operates, so quit acting like you do. I will hire when the demand for production increases. You have a job to do and time is limited. So get out of my business, spend your time governing the affairs of our country, like defense and protecting our borders from terrorists and let me do my job.

____________________________________________
*To get a perspective on the attitudes towards the WPA, take a look at Harper Lee's classic novel To Kill a Mockingbird where the lazy Bob Ewell is satirized as the only man who had been fired by the WPA.

The Great Depression Timeline  http://www.shmoop.com/great-depression/timeline.html

 U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1957 (Washington, D.C., 1960), p.70

 Franklin D. Roosevelt. BrainyQuote.com, Xplore Inc, 2011. http://www.brainyquote.com/quotes/quotes/f/franklind403844.html

Unemployment Today vs. the Great Depression, By Catherine Rampell. NY Times online http://economix.blogs.nytimes.com/2010/01/28/unemployment-today-vs-the-great-depression           

Great Depression, by Gene Smiley. The Concise Encyclopedia of Economics http://www.econlib.org/library/Enc/GreatDepression.html

Photo by Steve Weinik
 

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