The other day my wife Eleanor was reading a book on the psychology of decision making. The author rather gratuitously threw in the remark that Roosevelt's New Deal did not end the Great Depression. World War 2 did. We all hear this remark, usually from those who prefer governance by corporations rather than governments of, by, and for the people. This remark is both true and deceptively false.
It is true that Roosevelt's policies did not bring the economy back to the exceptionally high levels preceding the 1929 crash. We should be grateful that it did not because that economy was based on the speculation that led to the depression in the first place..The other day my wife Eleanor was reading a book on the psychology of decision making. The author rather gratuitously threw in the remark that Roosevelt's New Deal did not end the Great Depression. World War 2 did. We all hear this remark, usually from those who prefer governance by corporations rather than governments of, by, and for the people. This remark is both true and deceptively false.
It is true that Roosevelt's policies did not bring the economy back to the exceptionally high levels preceding the 1929 crash. We should be grateful that it did not because that economy was based on the speculation that led to the depression in the first place. However, his policies did bring the economy back about half way by 1935.
The argument is deceptively false because it is meant to imply that government did not bring back the economy. The economy of World War 2 was a government economy, par excellence and vitiates this old conservative argument completely.
The interesting question is, "Why does one form of government spending (war) work so much better than another (peace)?
Examining major economies victimized by the Great Depression, which was world wide, we find that war and the preparation for war, was the effective antidote to the depression. The German economy, which was far worse than ours due in part to the continuing reparations the World War 1 allies imposed, was brought back by Hitler's militarization program. The English by the need to rearm, the United States by the need to rearm, Japan came out of the Great Depression in 1932, perhaps, bcause it had been militarizing since militarism became a dominant feature of Japanese development with the Meiji Restoration of 1869. Its 1905 victory over Russia greatly enhanced its prestige, and culminated in Japan's aggressive colonialism, a hallmark of world powers at the time.
But why is war so much more effective than other efforts to reconvert from major economic downturns? Some would say that war affects everybody. This is to say that, short of war, not everybody is affected seriously by a depression. And this is to say that those least affected, the wealthy, are unwilling and not required to contribute to fight this kind of national calamity to the extent they are in war. I ask why not? The answer to that question, I believe, can be found in American economic mythology, namely, that anyone can be an economic success and if they are not it must be their own fault. My own father, a mechanic who was able to hold on to his job throughout the depression, although at meager pay, looked down on WPA workers who, by his definition, had gone on the dole. The rich have this myth working for them day and night. Poor people will blame each other for their economic plight rather than the wealthy who have caused the situation and continue to profit from it. This is the sad tale of American economic naiveté.
This line of reasoning is, I believe, prima facie evidence that it is the wealthy that insure that this level of societal effort is not launched against depressions. If we now look at some facts surrounding World War 2 that made it effective in finally ending the Great Depression the substance of this argument will be further vindicated.
For one, the federal tax rate on the wealthiest was 94%. It had even been 77% under Herbert Hover. Ronald Reagan dropped it from 70% to 28%. It is now 35% and Obama's effort to raise it to 40% is being labeled "socialist" by Republicans. One of the major reasons the 2nd World War brought back full employment was that the wealthy were required to pay their fair share of the cost of that war. This along with government planning and rationing of resources is the real meaning of World War 2 as an end to the depression. Everyone had to contribute their fair share. This is the democratic method of dealing with economic downturns once under way. Preventing or minimizing those downturns inherent in the capitalist system is a matter of vigilant, continuous regulation so that capitalism's ever present excesses are not allowed to create economic havoc.
One of the best metaphors for capitalism is fire. Capitalism should be viewed as a hazard similar to fire and should be controlled with the same diligence. Capitalism, like fire, can be useful, but also like fire it is very destructive when out of control. Like fire, it must be kept away from combustible fuel, i.e. excess profits that feed a frenzy of speculation; we must have mechanisms at hand when it bursts into flame, i.e. legal fire hoses; it must be subject to constant vigilance and checked on frequently by competent watchdogs. Capitalism is not good or bad, it simply is. We need a population not subject to the blandishments of speculation, but capable of placing capitalism in a place where it can do no harm. Children have been taught the need to protect our environment and it is paying off. Similarly they need to be taught the destructiveness of uncontrolled capitalism and the need and mechanisms for controlling it.
Bob Newhard
However, his policies did bring the economy back about half way by 1935.
The argument is deceptively false because it is meant to imply that government did not bring back the economy. The economy of World War 2 was a government economy, par excellence and vitiates this old conservative argument completely.
The interesting question is, "Why does one form of government spending (war) work so much better than another (peace)?
Examining major economies victimized by the Great Depression, which was world wide, we find that war and the preparation for war, was the effective antidote to the depression. The German economy, which was far worse than ours due in part to the continuing reparations the World War 1 allies imposed, was brought back by Hitler's militarization program. The English by the need to rearm, the United States by the need to rearm, Japan came out of the Great Depression in 1932, perhaps, bcause it had been militarizing since militarism became a dominant feature of Japanese development with the Meiji Restoration of 1869. Its 1905 victory over Russia greatly enhanced its prestige, and culminated in Japan's aggressive colonialism, a hallmark of world powers at the time.
But why is war so much more effective than other efforts to reconvert from major economic downturns? Some would say that war affects everybody. This is to say that, short of war, not everybody is affected seriously by a depression. And this is to say that those least affected, the wealthy, are unwilling and not required to contribute to fight this kind of national calamity to the extent they are in war. I ask why not? The answer to that question, I believe, can be found in American economic mythology, namely, that anyone can be an economic success and if they are not it must be their own fault. My own father, a mechanic who was able to hold on to his job throughout the depression, although at meager pay, looked down on WPA workers who, by his definition, had gone on the dole. The rich have this myth working for them day and night. Poor people will blame each other for their economic plight rather than the wealthy who have caused the situation and continue to profit from it. This is the sad tale of American economic naiveté.
This line of reasoning is, I believe, prima facie evidence that it is the wealthy that insure that this level of societal effort is not launched against depressions. If we now look at some facts surrounding World War 2 that made it effective in finally ending the Great Depression the substance of this argument will be further vindicated.
For one, the federal tax rate on the wealthiest was 94%. It had even been 77% under Herbert Hover. Ronald Reagan dropped it from 70% to 28%. It is now 35% and Obama's effort to raise it to 40% is being labeled "socialist" by Republicans. One of the major reasons the 2nd World War brought back full employment was that the wealthy were required to pay their fair share of the cost of that war. This along with government planning and rationing of resources is the real meaning of World War 2 as an end to the depression. Everyone had to contribute their fair share. This is the democratic method of dealing with economic downturns once under way. Preventing or minimizing those downturns inherent in the capitalist system is a matter of vigilant, continuous regulation so that capitalism's ever present excesses are not allowed to create economic havoc.
One of the best metaphors for capitalism is fire. Capitalism should be viewed as a hazard similar to fire and should be controlled with the same diligence. Capitalism, like fire, can be useful, but also like fire it is very destructive when out of control. Like fire, it must be kept away from combustible fuel, i.e. excess profits that feed a frenzy of speculation; we must have mechanisms at hand when it bursts into flame, i.e. legal fire hoses; it must be subject to constant vigilance and checked on frequently by competent watchdogs. Capitalism is not good or bad, it simply is. We need a population not subject to the blandishments of speculation, but capable of placing capitalism in a place where it can do no harm. Children have been taught the need to protect our environment and it is paying off. Similarly they need to be taught the destructiveness of uncontrolled capitalism and the need and mechanisms for controlling it.
Bob Newhard
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