Apropos of the discussion joined in by Bill, Marty....
Ted Morgan
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Subject: ZNet Commentary / Doug Dowd / The New Economy? / Jan 31
Date: Tue, 30 Jan 2001 18:40:18 -0800
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THE NEW ERA OF THE 1920s AND THE NEW ECONOMY OF TODAY: BIRDS OF A
FEATHER?
by Doug Dowd
The New Era began poorly, as did our New Economy (dating its take-off as
the
1990s). In 1919 there was a short recession, then a sharp inflation and
unsteady good times and a very sharp recession, 1921-22; then began the
so-called "prosperity decade," pulled up short only six years later. The
1990s also began with recession; bouyancy began in 1993, mounting toward
2000. As the two periods are now compared further, many similarities and
contrasts with the present will jump off the page.
"The times they are a changin'" fit the Twenties as much as it did the
Sixties. The hoopla taking us into World War I had sent emotions
singing;
war's realities produced economic stimuli, but just as much
disillusionment
and decadence: changes rocked thrugh science and tehnology and the
economy,
and on into haute and popular culture and social mores (including the
first
major cracks in the nuclear family); and politics, always wolfish,
became
more so, requiring and producing the new art of public relations.
Much of that was both facilitated and concealed because the Twenties
were
also the first hype decade -- hype about everything: entertainment,
sports,
fashion, politics, celebrities, free enterprise, and what would become
consumerism: Hail the New Era!
As in our own time, the hype paid little attention to the underside of
what
was celebrated: 1) the modern U.S. drug culture had its beginnings in
the
Twenties, tightly intertwined with jazzing nightclubs and the boozing
and
gangsterism of the time, the latter an outgrowth chiefly of the
illegalization of booze (1919; repealed in 1933); 2) the rat-a-tat-tat
of
exploding mergers and acquisitions; 3) political corruption, always well
dug
in, plumbed new depths in the 1920s, from the White House on down (or
up, as
H.L. Mencken then put it); 4) soaring real estate and stock markets were
matched by rising and spreading urban and rural poverty, alongside 5-10
percent unemployment, 1921-29. Notwithstanding, the economy was seen in
1928
by the then leading economist (Irving Fisher) as "on a high and rising
plateau." (That make you shiver a little?)
A serious look around the world would have shown that the U.S. economy
was
not on a plateau but an island in a stormy sea.
The much-vaunted "integrated world economy" of the 19th century was in a
shambles in the 1920s: the UK averaged 10 percent unemployment for the
entire decade; Germany had raging inflation (prices rising 4 trillion
times,
1914-1924) and associated political instability; the rest of Europe was
also
struggling with intractable economic problems, and with both revolution
and
counter-revolution; Latin American economies were sliding badly (as Wall
St.
called in loans, in favor of speculation at home); China's civil war had
begun. Global chaos was king.
Meanwhile, as both cause and result, lurking over the horizon was the
worst
depression in history, followed closely by the worst war. Given the
gifts of
nature, location and its other accidents of birth, the USA was going to
be
Numero Uno soon, no matter what; that we became so just when we did was
an
inexorable outcome of World War II and its aftermath. Strength and power
are
relative: before 1914, the gap between the U.S. and European economies
was
growing; the war, as beneficial to our economy as it was destructive to
theirs, widened the gap to a Grand Canyon.
The benefits of the war persisted well after 1918, due to substantial
postwar pent-up demand for both consumer and investment goods and their
new -- largely war-originating -- technologies, yielding the great
expansion
of the motor vehicle and other durable consumer goods industries. Though
sustained for a while by the purchasing power enhanced by consumer debt
and
the roaring stock market -- sound familiar? --the key sectors
(construction
and autos) were already soft by 1926.
...................................
What about now? As with the World War I, War II was again a major boon
for
the USA, both during and after; indeed, it was more than a "boon." Of
all
the industrial nations, ours was politically the most stable, and our
economy the healthiest, strongest and technologically most advanced as
the
war ended, poised to become considerably more so; all the others, friend
or
foe, had been flattened.
And then Providence, with a large boost from Uncle Sam, provided the
Cold
War, just in time to soften and end the recession of 1949. Cold War and
hot
war (first in Korea) combined to provide renewed expansion in the USA,
creating or assisting the major bases for rising consumption and real
investment. In addition, and at least as important, the Cold War was the
foundation for the renewal of the European and Japanese economies, thus
(given exploitation) bringing back to life and health the sine qua non
of
capitalism: an expanding global economy.
The most striking contrast between the Twenties and today is found in
that
global economy. It was crumbling in the Twenties; whatever its recent
troubles, it continues to thrive, always more integrated and expansive.
Even
so, there is a hard core of disturbing similarity today: in the
Twenties,
the USA was the only "healthy" economy in an otherwise sick world; in
recent
years we have been the healthy base upon which all other economies have
depended. But a closer look shows that such "health" as we have depends
upon
the economic equivalent of addictive drugs.
The USA sits at the center of a world in which the key factor for
maintaining economic buoyancy for both major and minor economies is
rising
exports. The latter function in a complicated web whose strength or
weakness
is fully dependent upon the USA: "the consumer of last resort." U.S.
consumption of the world's exports in the 1990s (and earlier) has been
on an
always rising trend; it must continue to be so, or the web will collapse
for
one and all. As this is written, consumption has begun to level off in
the
USA; even if that is the worst of what is on its way (which is
unlikely), it
must be remembered that continuous expansion in world trade is
essential.
Now some relevant data.
IN 1980, the USA was the world's (and history's) largest creditor
nation;
ten years later, wwe the world's and history's largest debtor nation:
our
foreign debt now exceeds $3 trillion, and it rises at annual rate of
$350
billion. It must continue to do so; I know of no economists who think it
can. That could signify nothing worse than a slowdown and moderate
recession
at some point. But it doesn't, for what has made the rise possible is
not
only foreign debt (which can be pulled back in a trice), but mountains
of
domestic debt.
Thus: It is acknowledged that not only U.S. imports, but our
consumption,
productive investment and financial markets depend upon always rising
and
already astronomical debt; and, to repeat, that rise must continue if
collapse is to be averted. The situation was worrisome enough in 1999 to
cause Business Week (11-20-99) to ask, in its feature essay, "Is the
United
States Building a Debt Bomb?" -- and to answer "Yes." In analyzing all
the
debt areas noted above, they found that 1) consumer debt (excluding
mortgages) now runs at over 100 percent of disposable income (as
compared
with 62 percent about 20 years ago); 2) non-financial corporate debt as
a
share of corporate output rose from 60 to 80 percent in those same
years; 3)
corporate debt, rising to finance buybacks of shares more than to
finance
productive investment, now equals 46 percent of GDP, compared with 38
percent 6 years ago (NYT, 7-7-00); 4) financial debt as a share of GDP
more
than quadrupled, from under 20 to over 80 percent; financial companies
are
heavily into "repackaging" loans already made and selling them as bonds
and
notes (that is, borrowing on them), in amounts that rose from $2.4 to $7
trillion, 1989-99 -- an amount greater than household debt and twice
that of
nonfinancial debt
There are some nerve-wracking interdependencies whizzing around behind
those
numbers: the U.S. economy is now driven by consumption; consumption
depends
upon rising debt and the great Bull Market; an increasing percentage of
stock purchases is done on margin; a significant percentage of those
purchases depends upon credit cards and borrowing on home equities; the
relative weakness of other economies and the atrractiveness of U.S.
stocks
and bonds has made it possible for our trade deficit to be fianced by an
always rising inflow of foreign capital.
Any slowdown in the USA -- and one has already begun -- will soon cause
slowdown in most or all other economies -- to the degree that they are
dependent upon our purchases (and our investments there); in turn that
cannot be lead to a withdrawal from the USA of foreign capital, and....;
and
then, hold on to your hats.
It is a commonplace that we lefties nourish a secret hope for another
Big
One. That may feel good; however.... Although (as Gramsci once put it)
an
economic crisis creates "a more favorable terrain" for our kind of
analyses
and politics, the following must be kept in mind:
1) those hurt most by recessions/depressions are in the bottom 80
percent of
incomes, the poorest most of all; the rich are hurt least, if at all;
2) the 1930s depression pushed no nation to the Left, except for a
while. In
the USA, FDR adopted center/right policies 1933- 1935 (the Nazis sent a
delegation to study the NRA in 1934); the "Second" New Deal (1935-38)
was
pushed into place more from the bottom up than from the top down; and
there
were still 10 percent unemployed on Pearl Harbor Day;
3) were there to be a serious recession soon, and that is more likely
than
not, we could expect worse than nothing from the Bush Administration and
the
largely conservative Congress, whose position on such matters is one of
the
larger similarities between the Twenties and now; and Europe too has
been
moving from center/left to center/right. (And Japan, 2nd largest economy
in
the world, has been mired in recession now for 10 years, its government
paralyzed by ignorance and fear.)
So, as always, the chances for a better rather than a worse society
depend
squarely on persistent hard and good work by all those left of center.
It is
not idle to suppose that there are many millions -- 5-10? -- in the USA
who
do or easily might think "left of center," and more than that if WE put
in
more of our time and effort to that end.
So let's do it, already.
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