We are in the Locust Years, a phrase descriptive of “The years that the locust hath eaten.”
As we approach the 5th anniversary of the beginning of the Great Recession, for Europe and England it is time to take note that austerity has been an abject failure.
America has shown improvement in its economy but growth has been slow, and unemployment still remains high, little thanks to the obstructionists.
For some a Great Depression has been avoided but for countries like Spain, unemployment is at depression levels. Unemployment among the young, between the ages of 18-30, is astronomical. Hope and despair have risen and revolution could be in their future.
Five years is a long time and especially in Europe having a growth policy is barely mentioned, while the negative effects of austerity continue to haunt the present with echoes of the past, forgotten.
History does repeat itself, although the facts are always different, we are seeing a repeat of what has happened many times before, when balancing the budget and the fears of inflation blot out our historical memory and bad times continue as a result.
England had its locust years in the early 1930’s with Prime Ministers Baldwin and MacDonald, when austerity ruled, and balancing the budget and fighting inflation ruled the day.
Governing is not like sitting around a table figuring out the family budget. Government provides services that otherwise can not be provided and when you have layoffs in both the private sector and public sectors you have what I call downward momentum. The more people you lay off the more the debt increases because people are not working, and tax revenue decreases. The more the revenue decreases the more you feel the need to lay off more people and so forth.
The definition of insanity is doing the same thing over and over again and expecting different results. So what do Herbert Hoover, Baldwin and MacDonald have in common, they all worked on using austerity and balancing the budget with the same result taking place which was higher deficits and higher unemployment?
Is this not insanity?
The Great Recession has leaders of Europe fearful of high inflation which is what Hoover was worried about. We, in the United States, have been extremely lucky in having a strong Federal Reserve Board chairman, Bernanke, who studied the Great Depression and realized that once again we were on the precipice of a Great Depression and deflation was the threat and not inflation. He and the FED have infused a lot of money into the system attempting to reflate the currency and stimulate the economy at the same time. The United States has not experienced inflation and we have brought down the rate of unemployment, through the efforts of the FED and as a result of the Stimulus package that Congress passed in the first year of President Obama’s administration. Europe has had mixed results, with countries like Germany doing well, while, Spain, Portugal, Italy, Greece and Ireland suffer and stagnate.
The amount of direct stimulation in the United States was too little due to weak kneed politicians and also due to the fact that states needed financial assistance to stay above water. Many states mandate a balanced budget. The impact of the stimulation was positive but it was not enough to turn things around.
Before, Franklin Roosevelt’s inaugural, the then still President Hoover, sent a letter to the incoming President, in it he stated,” It would steady the country greatly if there could be prompt assurance that there will no tampering or inflation of the currency; that the budget will be unquestionably balanced even if further taxation is necessary; that the Government credit will be maintained by refusal to exhaust it in the issue of securities.”
This came from a President who saw an ever increasing unemployment rate, which rose increasingly from 8.9% in 1930, to 15.9% in 1931, to 23.6 in 1932 and to 24.9% in 1933. Roosevelt was elected and took office in 1933 but one can not expect an incoming President to affect the numbers immediately.
During the Roosevelt years, from 1934 until outbreak of the war, the numbers went down each year with the exception of a lapse in FDR’s strategy, that took place in 1937, when he, too, became concerned about the budget and unemployment rose once again that year.
Keynesian economics works, a growth policy works and even though it is counterintuitive, the numbers have shown its success. You stimulate in bad times, like priming a pump, and decrease expenditures in good times when you can afford to do so.
The WPA for example, which started in 1935, employed 8 million Americans during its existence. It was disbanded in 1943 when there was a labor shortage due to the war. We still see the results from those who worked for the WPA, which succeeded in building new roads, open new parks and construct new buildings. Post Offices show the artistry of the artists who worked on those buildings.
World War II, is the greatest example of the success of the idea of stimulus when 23.6% of GDP was spent on putting America to work. We supplied the allies with the arms necessary to defend our way of life, and as a result unemployment was down to 4.7% in 1943.
Germany is understandably sensitive to inflation because in their collective memories they remember hyper inflation. But now we face the danger of deflation. In the 1930’s America saw the cost of production be greater than what they could sell their goods for, and their was a race to the bottom in order to try to sell their goods. If our wages decline to the point where we make less than what the cost of producing them is, than we won’t be able to buy things unless the costs are lowered. Inflating the currency and higher wages are necessary in order for us to prevent a recurrence of deflation, a condition that is almost impossible to solve.
Meanwhile a growth policy is needed for Europe and England, not austerity.
America got into trouble for several reasons, greed was allowed to flourish. The United States went to war in two countries while for the first time, lowering taxes during wartime thus refusing to pay for the wars they were engaged in. Medicare part D was passed and not funded. These were policies that were ripe for disaster.
Herbert Hoover in contrast to popular opinion was not all bad, he suggested having a permanent WPA, as he viewed economic downturns as being inevitable. He passed the Reconstruction Finance Corporation which Franklin Roosevelt took advantage of and streamlined it. Those programs worked quite well and perhaps ideas that have a place in todays world. A permanently funded WPA is an idea whose time has arrived, especially with the level of high unemployment among construction workers. Idle hands are indeed the devils workshop.
The Reconstruction Finance Corporation got money directly from the Treasury and acted like a bank of last resort, in that it provided money to small businesses and small farmers. Those loans helped to keep them going.
One does not have to go back too far in history to remember when banks refused to loan money no matter how good ones credit rating was. Businesses and farmers need to borrow money often, whether it is to buy seed or new equipment, and a bank like the Reconstruction Finance Corp. can be a bank of last resort in hard times. That government program, the Reconstruction Finance Corporation, also managed to save 80% of the homes in danger of foreclosure during the Great Depression.
The point is, people are suffering, and our economies are not providing for the jobs that we need to keep people working, and that is so important, for not only their self esteem but for their families and for the betterment of our towns and for our nation. Let us end the locust years and end the insanity and have a life worth living for ourselves and for humanity.