Mitt Romney has shed the dark blue suit, white shirt, and pale blue tie of his 2008 campaign for an open-neck tattersall shirt with its sleeves rolled up. His sideburns are graying, and his eyes are lined, but he still sports a boyish grin and radiates the can-do enthusiasm of a man who is promising to turn the country around the way he once turned around the Salt Lake City Winter Olympics. This August morning, in the wake of the battle over raising the debt ceiling and Standard & Poor’s decision to downgrade America’s credit rating, he has come to Concord, New Hampshire, to speak to the local Chamber of Commerce. Beforehand, he agreed to answer a few questions from reporters.
In an opening statement, Romney blamed Standard & Poor’s decision on President Obama. The president’s spokespeople, he said, “would substitute Harry Truman’s ‘The buck stops here’ with a new motto: ‘The buck stops somewhere else.’ The truth is the buck stops at the president’s desk, and he needs to reassert the leadership necessary to restore America’s financial foundation.” To achieve such a foundation, Romney endorsed the congressional Republican plan, dubbed “cut, cap, and balance,” which would slash $111 billion from next year’s budget, reduce federal spending as a percentage of GDP from 22.5 to 19.7 percent in six years, and adopt a balanced budget amendment to the Constitution. The plan represents an attempt to achieve private-sector prosperity through public-sector austerity.
“Mr. Romney,” I said, after he had fielded several other questions, “I want to ask you something about history. You know, when Herbert Hoover had to face a financial crisis and then unemployment, his strategy was to balance the budget and cut spending, and that made things worse. When Roosevelt came in, unemployment was twenty-five and went to fourteen percent by 1937. With deficits. Aren’t you repeating the Hoover mistake?” Romney’s grin turned quizzical. “Do you really think so?” he asked me. “I do think so, but you go ahead,” I replied.
“Let’s go back to the Hoover days,” Romney began. “The issue in the Hoover years was what was happening in the budget that year. This year, we are spending $1.6 trillion more than we take in, and that would have made anyone in either party blush if they saw numbers like that. And the issue today is not just this year’s deficit, it’s deficits as far as the eyes can see. ... America has to rein in the excessive spending not just this year, but over the long period of time.”
I didn’t think it would be proper to turn Romney’s press conference into a debate about history, so I let his answer stand. But he seemed to be suggesting that the premise of my question was flawed because deficits are much larger today and will probably continue unabated. And they are larger—but that is because our GDP and government are also larger. Meanwhile, if our deficits stretch “as far as the eyes can see,” so did the deficits in Hoover’s day, which continued unabated for 16 years. Romney was insisting that there was nothing to be learned from Hoover’s response to the Great Depression. But, in fact, what happened in the United States and Europe in the ’30s is an excellent—perhaps, the best—guide to what is happening to us now.
Yet it’s not just Romney and the other Republican presidential candidates who seem oblivious to the lessons of the ’30s. From David Cameron to Angela Merkel to Japan’s new Prime Minister Yoshihiko Noda, many of the world’s leaders are convinced that austerity is the way to fix our broken economy. President Obama—at least judging by his recent jobs speech to Congress—seems to understand that this approach is leading to economic disaster; but he may have waited too long to begin making this case to the American people, and the odds that he can actually get any kind of massive spending bill through Congress, now or even after 2012, remain low.
During the next year of campaigning, we are going to hear lots of uplifting slogans about America’s can-do spirit and the bright prospects for our national future. That is the way politicians talk, and there is nothing wrong with that. But such optimistic rhetoric should not fool anyone about the underlying reality: Unless there is a fundamental—and difficult-to-imagine—change in the way our politics interacts with our economy, the United States and much of the world are headed for a very grim future.
TODAY’S RECESSION does not merely resemble the Great Depression; it is, to a real extent, a recurrence of it. It has the same unique causes and the same initial trajectory. Both downturns were triggered by a financial crisis coming on top of, and then deepening, a slowdown in industrial production and employment that had begun earlier and that was caused in part by rapid technological innovation. The 1920s saw the spread of electrification in industry; the 1990s saw the triumph of computerization in manufacturing and services. The recessions in 1926 and 2001 were both followed by “jobless recoveries.”
In each case, the financial crisis generated an overhang of consumer and business debt that—along with growing unemployment and underemployment, and the failure of real wages to rise—reduced effective demand to the point where the economy, without extensive government intervention, spun into a downward spiral of joblessness. The accumulation of debt also undermined the use of monetary policy to revive the economy. Even zero-percent interest rates could not induce private investment.
Finally, in contrast to the usual post-World War II recession, our current downturn, like the Great Depression, is global in character. Financial disturbances—aggravated by an unstable international monetary system—have spread globally. During the typical recession, a country suffering a downturn might hope to revive itself by cutting its spending. That might temporarily increase unemployment, but it would also depress wages and prices, simultaneously cutting the demand for imports and making a country’s exports more competitive against those of its rivals. But, when the recession is global, you get what John Maynard Keynes called the “paradox of thrift” writ large: As all nations cut their spending and attempt to devalue their currencies (which makes their exports cheaper), global demand shrinks still more, and the recession deepens.
As usual, Mr. Judis' analyses are deep and provocative. The notion that political actions follow doctrine helps explain the semi-myopic statements and policies that abound these days. Still, it is important to note that the parallel between 1931 and 2011 is far from exact. In 1931, gross federal debt stood at 22% of GDP, whereas it stands at 103% today, leaving less headroom for vigorous expansion. Furthermore, off-the-books future commitments to social security and medicare did not exist in 1931 whereas today they dwarf the formal debt numbers. Thus, if increased federal spending is essential it may have to be coupled with substantially higher taxes on everyone.
As usual, Mr. Judis' analyses are deep and provocative. The notion that political actions follow doctrine helps explain the semi-myopic statements and policies that abound these days. Still, it is important to note that the parallel between 1931 and 2011 is far from exact. In 1931, gross federal debt stood at 22% of GDP, whereas it stands at 103% today, leaving less headroom for vigorous expansion. Furthermore, off-the-books future commitments to social security and medicare did not exist in 1931 whereas today they dwarf the formal debt numbers. Thus, if increased federal spending is essential it may have to be coupled with substantially higher taxes on everyone.
Well, would that our candidates and politicians possessed an education in basic and historical macroeconomics. I mean, they want to run the erstwhile hegemon but have no understanding of how government spending works or why free market policies (with limits) were re-adopted following World War II.
And for those politicians that do know of these things, woe to them for not being able to convince their brethren to speak sense on the matters and take principled positions that weren't predicated on muddying the discourse to try to win an election.
Well, would that our candidates and politicians possessed an education in basic and historical macroeconomics. I mean, they want to run the erstwhile hegemon but have no understanding of how government spending works or why free market policies (with limits) were re-adopted following World War II.
And for those politicians that do know of these things, woe to them for not being able to convince their brethren to speak sense on the matters and take principled positions that weren't predicated on muddying the discourse to try to win an election.
"chaitless?" Oh man, don't rub it in, brother (or sister)... Who were you before then?
Anyway, I take issue with Mr. Judis' claim that sane action "now or even after 2012, remain low." If we maintain control over the Executive Branch (as I suspect we will) after 2012, then I think Congress will be, at least to some extent, on the ropes. I think that far more will be acomplishable (is that a word?) once the House is resigned to the fact that the teabaggers were not sufficiently successful in unseating the President.
"chaitless?" Oh man, don't rub it in, brother (or sister)... Who were you before then?
Anyway, I take issue with Mr. Judis' claim that sane action "now or even after 2012, remain low." If we maintain control over the Executive Branch (as I suspect we will) after 2012, then I think Congress will be, at least to some extent, on the ropes. I think that far more will be acomplishable (is that a word?) once the House is resigned to the fact that the teabaggers were not sufficiently successful in unseating the President.
You are absolutely right. What is amazing is the neocon zionist war machine and its tool AIPAC orchestrated the wars in the Middle East that have cost us over $5 trillion (Prof. Stieglitz estimate) and counting, based on lies and not a single one of them has been hanged for treason. Wall Street, the primary funding source of AIPAC has cost us tens of trillions of dollars to cover up their fraud and ponzi scheme and not a single one of the bankers is in jail (in fact they walk away with hundreds of million $s each). This depression could have been easily avoided. Americans are realizing what happened to them. They will stand up to get justice.
You are absolutely right. What is amazing is the neocon zionist war machine and its tool AIPAC orchestrated the wars in the Middle East that have cost us over $5 trillion (Prof. Stieglitz estimate) and counting, based on lies and not a single one of them has been hanged for treason. Wall Street, the primary funding source of AIPAC has cost us tens of trillions of dollars to cover up their fraud and ponzi scheme and not a single one of the bankers is in jail (in fact they walk away with hundreds of million $s each). This depression could have been easily avoided. Americans are realizing what happened to them. They will stand up to get justice.
Judis' three factors for policy makers adhering to a failing, and failed, economic policy are good, but I think he underestimates the influence of wealth (his first factor). Given the concentration of today's wealth in bonds, in particular US government bonds, the policy preference of bond holders has an outsized influence. And what do bond holders fear more than anything? Inflation, which erodes the value of their investment. Paul Volcker has an op/ed in today's NYT discouraging the Fed from tolerating not just inflation but any level of inflation, saying that opening the door to a little inflation will result in a floodgate of more inflation and referring to the inflation of the 1970s ... view full comment
Judis' three factors for policy makers adhering to a failing, and failed, economic policy are good, but I think he underestimates the influence of wealth (his first factor). Given the concentration of today's wealth in bonds, in particular US government bonds, the policy preference of bond holders has an outsized influence. And what do bond holders fear more than anything? Inflation, which erodes the value of their investment. Paul Volcker has an op/ed in today's NYT discouraging the Fed from tolerating not just inflation but any level of inflation, saying that opening the door to a little inflation will result in a floodgate of more inflation and referring to the inflation of the 1970s as both his guide and his evidence. Well, today's economic conditions couldn't be more different than in the 1970s (when the nation and world were suffering the aftershocks of the oil embargo, business inventory systems were still primitive (and slow to react to changes in demand), unemployment was low, and wages were indeed sticky). Taming the inflation of the 1970s was a great accomplishment, but Volcker is like those generals who, having had such success in fighting the last war, want to keep fighting the same one. Which is the fourth factor that Judis doesn't list, namely that policy makers and the experts who advise them base their decisions and advice on historical experience, what worked for them, I say for them, in the past must work today (this is an extension of Judis' third factor). The problem, of course, is that no policy maker or advisor alive today has personal experience (i.e., success) in the type of world-wide depression that prevails today. It's human nature to fall back on what may in the past have provided personal and professional success and acclaim, no matter how different the present circumstances. [And I wouldn't single out just Volcker but Geithner (examples are endless), whose handling of one economic crisis with aplomb led him to believe the same strategy would work in the next crisis though circumstances were very different.]
During the Great Depression era, it was the developed world that "made" all the "stuff." That's no longer the case, which is why this time is very different.
During the Great Depression era, it was the developed world that "made" all the "stuff." That's no longer the case, which is why this time is very different.
Swell, just like in the 1930's we have somebody blaming the Jews for our problems, causing wars and depressions.
My worst nightmares - depression, war and Nazis - are coming to life.
Swell, just like in the 1930's we have somebody blaming the Jews for our problems, causing wars and depressions.
My worst nightmares - depression, war and Nazis - are coming to life.
Very good post. We are totally fucked.
Very good post. We are totally fucked.
Soph - you left out Jewish responsibility for global warming. I await with bated breath MSA70's take on how the zionists are depriving innocent polar bears of a homeland.
Soph - you left out Jewish responsibility for global warming. I await with bated breath MSA70's take on how the zionists are depriving innocent polar bears of a homeland.
In your US example you note Hoover cut federal spending AND raised taxes. In Britain you note that Macdonald also cut spending AND raised taxes. Ditto for your Bruning in Germany example.
The 'just say no' Republicans think they are finessing their response by cutting spending and NOT raising taxes.
In your US example you note Hoover cut federal spending AND raised taxes. In Britain you note that Macdonald also cut spending AND raised taxes. Ditto for your Bruning in Germany example.
The 'just say no' Republicans think they are finessing their response by cutting spending and NOT raising taxes.
Apologies to Tristan for neglecting our malign influence on polar bears! Anyway - what difference does it make who creates the jobs? And who says things like the Post Office have to run at a profit or even, break even? The government is not a household and it is not a business. It is US.
Imagine the US without the Post Office. It would be terrible! We count on that. And, what will happen to the postal workers? Seriously. Somebody please tell me. Besides, what will happen when they stop spending money and paying taxes? That's just one example. Meanwhile, roads and bridges crumble, people are dying for work, we want to make a contribution, we are bursting with ideas and good will and ... view full comment
Apologies to Tristan for neglecting our malign influence on polar bears! Anyway - what difference does it make who creates the jobs? And who says things like the Post Office have to run at a profit or even, break even? The government is not a household and it is not a business. It is US.
Imagine the US without the Post Office. It would be terrible! We count on that. And, what will happen to the postal workers? Seriously. Somebody please tell me. Besides, what will happen when they stop spending money and paying taxes? That's just one example. Meanwhile, roads and bridges crumble, people are dying for work, we want to make a contribution, we are bursting with ideas and good will and creativity. So?
Thanks a lot. Now I'm thoroughly bummed out.
Thanks a lot. Now I'm thoroughly bummed out.
While I would leave off the anti-semitic edge, I do wonder what the game plan is with respect to our 2.5 wars (or however many we are currently fighting or will be fighting). I'm not sure how we can recover economically without stopping this massive level of expenditure, and I'm not sure how the recovery could develop if we eliminate that source of spending within our economy (i.e., defense seems to be a major area of growth). Please don't say we need a war with Iran or China to generate a real recovery.
While I would leave off the anti-semitic edge, I do wonder what the game plan is with respect to our 2.5 wars (or however many we are currently fighting or will be fighting). I'm not sure how we can recover economically without stopping this massive level of expenditure, and I'm not sure how the recovery could develop if we eliminate that source of spending within our economy (i.e., defense seems to be a major area of growth). Please don't say we need a war with Iran or China to generate a real recovery.
"It was as if he had never made the connection before between his deep-seated cultural assumptions about government and the fate of his own business"”and by extension that of other businesses."
Pretty much. My current theory is that conservatives compartmentalize their thinking to such a high degree that they have difficulty making inferences from all the information around them. Rather, for each issue they have a collection of ideas. Some ideas overlap with the ideas in other categories but others are contradictory.
The businessman quoted in the article seems to have contradictory ideas regarding public spending: he knows that his fortunes rest to a significant degree on public spending (cat ... view full comment
"It was as if he had never made the connection before between his deep-seated cultural assumptions about government and the fate of his own business"”and by extension that of other businesses."
Pretty much. My current theory is that conservatives compartmentalize their thinking to such a high degree that they have difficulty making inferences from all the information around them. Rather, for each issue they have a collection of ideas. Some ideas overlap with the ideas in other categories but others are contradictory.
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