Apropos of the discussion joined in by Bill, Marty....
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Subject: ZNet Commentary / Doug Dowd / The New Economy? / Jan 31
Date: Tue, 30 Jan 2001 18:40:18 -0800
From: "Michael Albert" <firstname.lastname@example.org>
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THE NEW ERA OF THE 1920s AND THE NEW ECONOMY OF TODAY: BIRDS OF A
by Doug Dowd
The New Era began poorly, as did our New Economy (dating its take-off as
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
war's realities produced economic stimuli, but just as much
and decadence: changes rocked thrugh science and tehnology and the
and on into haute and popular culture and social mores (including the
major cracks in the nuclear family); and politics, always wolfish,
more so, requiring and producing the new art of public relations.
Much of that was both facilitated and concealed because the Twenties
also the first hype decade -- hype about everything: entertainment,
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
was celebrated: 1) the modern U.S. drug culture had its beginnings in
Twenties, tightly intertwined with jazzing nightclubs and the boozing
gangsterism of the time, the latter an outgrowth chiefly of the
illegalization of booze (1919; repealed in 1933); 2) the rat-a-tat-tat
exploding mergers and acquisitions; 3) political corruption, always well
in, plumbed new depths in the 1920s, from the White House on down (or
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
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
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
1914-1924) and associated political instability; the rest of Europe was
struggling with intractable economic problems, and with both revolution
counter-revolution; Latin American economies were sliding badly (as Wall
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
depression in history, followed closely by the worst war. Given the
nature, location and its other accidents of birth, the USA was going to
Numero Uno soon, no matter what; that we became so just when we did was
inexorable outcome of World War II and its aftermath. Strength and power
relative: before 1914, the gap between the U.S. and European economies
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
of the motor vehicle and other durable consumer goods industries. Though
sustained for a while by the purchasing power enhanced by consumer debt
the roaring stock market -- sound familiar? --the key sectors
and autos) were already soft by 1926.
What about now? As with the World War I, War II was again a major boon
the USA, both during and after; indeed, it was more than a "boon." Of
the industrial nations, ours was politically the most stable, and our
economy the healthiest, strongest and technologically most advanced as
war ended, poised to become considerably more so; all the others, friend
foe, had been flattened.
And then Providence, with a large boost from Uncle Sam, provided the
War, just in time to soften and end the recession of 1949. Cold War and
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
capitalism: an expanding global economy.
The most striking contrast between the Twenties and today is found in
global economy. It was crumbling in the Twenties; whatever its recent
troubles, it continues to thrive, always more integrated and expansive.
so, there is a hard core of disturbing similarity today: in the
the USA was the only "healthy" economy in an otherwise sick world; in
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
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
exports. The latter function in a complicated web whose strength or
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
always rising trend; it must continue to be so, or the web will collapse
one and all. As this is written, consumption has begun to level off in
USA; even if that is the worst of what is on its way (which is
must be remembered that continuous expansion in world trade is
Now some relevant data.
IN 1980, the USA was the world's (and history's) largest creditor
ten years later, wwe the world's and history's largest debtor nation:
foreign debt now exceeds $3 trillion, and it rises at annual rate of
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
at some point. But it doesn't, for what has made the rise possible is
only foreign debt (which can be pulled back in a trice), but mountains
Thus: It is acknowledged that not only U.S. imports, but our
productive investment and financial markets depend upon always rising
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
States Building a Debt Bomb?" -- and to answer "Yes." In analyzing all
debt areas noted above, they found that 1) consumer debt (excluding
mortgages) now runs at over 100 percent of disposable income (as
with 62 percent about 20 years ago); 2) non-financial corporate debt as
share of corporate output rose from 60 to 80 percent in those same
corporate debt, rising to finance buybacks of shares more than to
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
than quadrupled, from under 20 to over 80 percent; financial companies
heavily into "repackaging" loans already made and selling them as bonds
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
There are some nerve-wracking interdependencies whizzing around behind
numbers: the U.S. economy is now driven by consumption; consumption
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.
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....;
then, hold on to your hats.
It is a commonplace that we lefties nourish a secret hope for another
One. That may feel good; however.... Although (as Gramsci once put it)
economic crisis creates "a more favorable terrain" for our kind of
and politics, the following must be kept in mind:
1) those hurt most by recessions/depressions are in the bottom 80
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
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)
pushed into place more from the bottom up than from the top down; and
were still 10 percent unemployed on Pearl Harbor Day;
3) were there to be a serious recession soon, and that is more likely
not, we could expect worse than nothing from the Bush Administration and
largely conservative Congress, whose position on such matters is one of
larger similarities between the Twenties and now; and Europe too has
moving from center/left to center/right. (And Japan, 2nd largest economy
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
squarely on persistent hard and good work by all those left of center.
not idle to suppose that there are many millions -- 5-10? -- in the USA
do or easily might think "left of center," and more than that if WE put
more of our time and effort to that end.
So let's do it, already.
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