I have been studying the Great Depression intensely lately to gauge the similarities in conservative narratives at that time in relation to what we have to put up with now. Several so-called conservative historians have in the recent crisis endeavoured to reinvent history. The problem for conservatives is that the lessons of history are firmly supportive of the view that when non-government spending growth lapses, growth can be engendered with an increased contribution from government net spending. It is a proposition that is glaringly obvious in concept and stands the test of time. The conservatives hate that reality. So instead, they have only one recourse to attempting to match the facts with their erroneous theories about fiscal policy. They have to reconstruct the facts – a process that includes leaving important facts out and focusing on irrelevant correlations; fabricating facts; using definitions that no-one else would consider reasonable and then blurring the definition – and more. It is really quite pitiful.



I have mentioned Thomas Frank’s book “Pity the Billionaire” previously. I recommend it.

In Chapter 8, he talks about the song – Brother, Can You Spare a Dime? – which he said “was the so-called anthem of the Depression, a transcendent expression—if such a thing is possible—of the hopeless disillusionment of the 1930s.”

The lLyrics are memorable:

They used to tell me I was building a dream, and so I followed the mob,

When there was earth to plow, or guns to bear, I was always there right on the job.

They used to tell me I was building a dream, with peace and glory ahead,

Why should I be standing in line, just waiting for bread? Once I built a railroad, I made it run, made it race against time.

Once I built a railroad; now it’s done. Brother, can you spare a dime?

Once I built a tower, up to the sun, brick, and rivet, and lime;

Once I built a tower, now it’s done. Brother, can you spare a dime? Once in khaki suits, gee we looked swell,

Full of that Yankee Doodly Dum,

Half a million boots went slogging through Hell,

And I was the kid with the drum! Say, don’t you remember, they called me Al; it was Al all the time.

Why don’t you remember, I’m your pal? Buddy, can you spare a dime? Once in khaki suits, gee we looked swell,

Full of that Yankee Doodly Dum,

Half a million boots went slogging through Hell,

And I was the kid with the drum! Say, don’t you remember, they called me Al; it was Al all the time.

Say, don’t you remember, I’m your pal? Buddy, can you spare a dime?

Before we go on – enjoy the original Bing Crosby version (10″ 75rpm version released on November 19, 1932 and was number 1 in the charts for 2 weeks) – its Friday, after all – the weekend beckons – but remember for all the unemployed workers victimised by the state terrorism of austerity – there is no weekend because there is no week.

Perhaps you could just put the work tools down for a moment and sing-a-along.

And if Bing isn’t your thing, have a listen to the great version by Tom Waits.

The song is about the unemployed men during the Great Depression who “built the nation” etc and are now without work – abandoned by the state which they built and defended.

I think of Marx when I listen to this song. In his rejection of the Classical arguments put by J.B. Say and David Ricardo that there could not be an overproduction crisis (that is, deficient aggregate demand leaving unsold goods and services), Marx said that at times of aggregate demand failure as inventories rise the workers are:

… less than ever supplied with grain, shoes, etc., to say nothing of wine and furniture.

Here Marx makes a crucial distinction that resonates into the modern debate. Overproduction has nothing much to do with absolute needs. The debate is not about whether production can outstrip needs. It is only needs with capacity to pay that count! And when aggregate demand falls short, firms lay off workers and the unemployed who “made the stuff” no longer have access to it because they lose their incomes.

Thomas Frank notes that in 2009 “someone posted Rudy Vallee’s recording” of the song on YouTube and:

… immediately people began to share their reactions to that wrenching bit of Depresssiana ..

He gives some examples of the comments which included:

This song speaks to the failures of Keynesian Economics. Public spending on infrastructure to stimulate the slowing economy – it has never worked and never will. It turns recessions into depressions like it did in the 30’s, and like it is doing now … Call your reps and tell them NO to the proposed “stimulus”.

The lyricist (Yip Harburg) was a socialist and blacklisted by the McCarthy purges.

But now, as Thomas Frank observes – in this period of conservative revisionism:

… it is evidently possible to listen to …. [the song] … and hear it as a call for a purified form of free-market economics, as a warning against public works projects, maybe as an endorsement of the Hoover administration, even … That conservatives are the rightful heirs to Depression culture. That the songs and books and movies of the thirties abound with lessons on the wisdom of markets and the follow of government … The thirties, as we know them in the Internet age, are very different from the thirties we know from the canonical literature of the time or the standard histories of the period. To Google nearly any aspect of the first two Roosevelt administrations is to encounter almost immediately the obsessive loathing for the New Deal felt by conservative entertainers and liberatarian economists.

He cites a growing literature which claims that it provers “over and over again that the New Deal was not necessary, did not help, and very probably made the Depression worse”.

It is clear from this literature that “Yip Harburg was bemoaning government meddling when he wrote “Brother, Can You Spare a Dime?” What else was there to bemoan?”

Later in Chapter 8, Thomas Frank notes that the “ultimate act of thirties usurpation is Ayn Rand’s thousand-page 1957 novel, Atlas Shrugged“, which decribes the struggle of “group of business leaders fighting big-government oppression”.

The book is set in the Great Depression and follows a strike of the “noble producers who are unfairly oppressed” but the strikers are the capitalists who stand in contradistinction to the rest of us – the parasites who “use government to mooch and freeload on the labors of the virtuous capitalist”.

Rand claims that the “workers didn’t build America … businessmen did”. The hero, an entrepreneur named John Galt said at one stage:

We’ve heard it shouted that the industrialist is a parasite, that his workers support him, create his wealth, make his luxury possible – and what would happen if they walked out? Very well. I propose to show to the world who depends on whome, who supports whome, who is the source of wealth, and makes whose livelihood possible and what happens to whom when who walks out.

So the “captains of industry” (and more recently, the Wall Street banksters) are the “great victims … who have contributed the most and suffered the worst injustice in return.” John Galt declares himself “the defender of the oppressed, the disinherited, the exploited – and when I use those words, they have, for once, a literal meaning.”

Atlas Shrugged is a bible for the conservatives who loathe the “looting government” and the parasitic workers. It allows the conservatives to reconstruct all history in terms of the corrupt and misguided government policies inflicting untold misery on the true wealth producers – the capitalist (entrepreneur).

An economic crisis always becomes the fault of governments trying to help the parasites. In announcing the strike, John Galt says:

We have seen a proud, strong country fall to her knees. Her people have become slovely, inept and irresponsible. We do not see any morality in working hard for the benefit of those who choose not to. We do not see any moral value in contributing to a society that seeks to rule, rather than govern, and steal from the Producers to give them who are Looters and Moochers. We hereby [sic] withdraw our Producing abilities, from a society that is unworthy of such contributions. You, who would damn us, for a pursuit of success, for aspiring to our greatest human potential; yet who depend on our contributions to a society which you leach [sic] from ..

Incredible really.

Thomas Frank systematically demolishes the social theory implicit in Atlas Shrugged.

But for my purposes today I was thinking about all this as part of my current study of the Great Depression and the similarities in conservative narratives at that time in relation to what we have to put up with now.

I read an extraordinary delusional Bloomberg Op Ed yesterday (May 17, 2012) – Supply-Siders’ Case for Austerity Carries No Shame – by conservative journalist Amity Shlaes.

She teaches (at least that is what they call it) as an adjunct in the economics program at the New York University Stern School of Business. Add that to your list of programs to avoid if you would like an education rather than an indoctrination.

She is one of a growing number of conservatives that have taken it as their life work to re-examine history and present new interpretations – aka making stuff up.

The conservatives have long attacked the socialist nations (especially during the Cold War) for their revisionism – inventing new history when the actual history is inconvenient.

This is what they are now doing themselves.

In this Bloomberg article, Shlaes claims that there is no shame in pushing for “budget cuts instead of growth” and the Republicans should learn that their fear of the political backlash of advocating austerity is “exaggerated. And that the austerity concept is misunderstood”.

So the conservative putsch in spades!

She claims that:

Growth happens more easily when people believe that government is, and will remain, small. Austerity makes government smaller. Sometimes you have to have austerity first, so that you have trust, and growth can come later.

There is no empirical evidence to support the claim that economies with “small” government grow more easily, more quickly, or deliver bigher per capita income. There is good evidence to the contrary although the empirical terrain of this sort of econometric modelling is riddled with measurement disputes and technical shortcomings with respect to the different between causality and correlation.

For example, several studies find negative correlations between government spending as a proportion of total spending and growth. But more deeper analysis reveals that the causality flows the opposite way via the automatic stabilisers – so when the economy grows slows the proportional size of goverment rises and vice versa.

She then claims that the US “nightmare” is that it “fears replicating: Europe”. I note in her public bios she lists no formal qualifications in economics despite being an adjunct professor of economics ant Stern. It shows. Where is the evidence that the US fears it will become like Europe?

Why would it? It issues its own currency and bond markets no that. The bond markets also know that the EMU member states do not issue their own currency and thus face solvency risk and are acting accordingly.

No rational person who understood the slightest thing about the difference between the two monetary systems in question would have the slightest fear that she claims.

She claims that the Euro crisis is:

… a crisis of trust. First, markets and individuals trusted European governments when they said their budgets balanced over the long run. Stable governments with balanced budgets would leave the economy some room to grow and realize the advantages of a new continent-wide currency. Then the observers realized the governments were lying. Restoring trust is harder than killing it.

Which doesn’t bear any resemblance to the facts of the crisis that we are witnessing in our own time. Firstly, balanced budgets do not leave room for an economy to grow. The ensure that the private domestic balance (the difference between income and spending) will replicate the external balance. So a current account deficit will be a private domestic deficit of the same proportion of GDP.

Whether that situation is conducive to growth depends on a number of factors. But it is likely that such a situation will be unsustainable in the medium-term because it requires the private domestic sector to be accumulating increasing volumes of debt to sustain growth in demand – the private deficit in that case being the only positive contributor to real growth.

I glean that Shlaes hasn’t the slightest understanding of these macroeconomic balances and how they interact and just adopts the mantra – balanced budgets are good as an ideological statement without knowing what that means.

Her solution to the Euro crisis is also bizarre but mainstream:

The simplest way for European governments to restore voter and market trust is to cut national budgets dramatically.Even by half.

The “even by half” reflects deep scientific calibration.

But she would oversee a massive increase in unemployment, further poverty and, most likely, rising deficits due to the automatic stabilisers. Before “her government” could absorb all that it would be stormed by angry mobs intent on overthrowing her despotic regime.

The twisted logic she brings to journalism is exemplified in this tract:

Such deep cuts, however, are deemed politically impossible. The Europeans will do just about anything to avoid seriously reducing their budgets, including raise tax rates, so they can get more revenue on paper. These tax increases are the kind of austerity that supply-siders have historically deplored. It’s true that higher taxes deter activity, but partly because they give license for larger government by supplying cash for future spending.

So “budgets” are not a balance but spending, which reflects the bias of the conservatives.

Further, tax rate increases deter activity but do no necessarily deliver more “cash for future spending” – because at lower levels of activity, the volume of tax revenue at the given rates may easily (and probably would be) much lower.

Shlaes likes to market herself as an historian. She claim in this article that austerity would push unemployment up:

But there is also evidence that long-term unemployment will be just as bad if the U.S. doesn’t cut the budget in the short term. That evidence is called the 1970s.

I was mystified by this bit of historical invention as I am very familiar with the behaviour of long-term unemployment in the US.

You might like to read this US Bureau of Labor Statistics publication – A glance at long-term unemployment in recent recessions – published in January 2006. It analyses the behaviour of long-term unemployment for the recessions in the 1970s, 1980s, comparing them to the downturns in the US economy in the 2000s (but clearly excluding the current crisis).

The Report says:

In November 1975, the share of persons jobless for more than half a year peaked at 2.1 percent of the labor force, 8 months after the end of the 1973-75 recession.2 In June 1983, 7 months after the official end of the 1981-82 recession, the long-term jobless rate peaked at 3.1 per cent, the highest recorded in the post-World War II era. Although the downturn of 1990-91 more closely resembled that of the mid-1970s in terms of the magnitude of the long-term unemployment rate – just over 2 percent in October 1992 – the rate did not peak until 19 months after the official end of the recession (March 1991). Following the 2001 downturn, the long-term jobless rate peaked at 1.4 percent in September 2003, 22 months after the official end … The most obvious reason for the slow improvement in long-term unemployment followingthe two most recent contractions was the relatively slower pace of job growth. Following each of the recessions of the mid-1970s and early 1980s, employment rose by 1.5 percent within a year. In contrast, employment was virtually unchanged in the year following the 1990-91 and 2001 recessions. As shown in the accompanying table, even by the time long-term unemployment had started to decline, employment had risen by 1.0 percent or less. Also, in contrast to the recessions of the mid-1970s and early 1980s, the employment-to-population ratio continued to decline far longer following the recessions of 1990-91 and 2001.

The fiscal response in 1974 (that is, the annual fiscal shift) towards deficit was substantial (from $US6,135 million to $US53,242 million) which helped the economy recover relatively quickly. The response of long-term unemployment reflected that.

Schlaes regularly revises history. In her recent book – The Forgotten Man – she does some reinvention about the New Deal. Thomas Frank considers this book and says that:

The larger object of Shlaes’ 2007 book … is to document the conservative article of faith that Rooesevelt’s New Deal did not help the nation recover from the Depression. The author uses two measurements of the national economy to accomplish this goal: the Dow Jones Industrial Average and unemployment numbers. The first metric had little to do with the economy as average people experienced it; the second metric is actually rigged against Roosevelt – Shlaes counts people who held temporary government jobs as having been unemployed. The author thereby makes a mystery of the enthusiasm for FDR felt by the millions of people who were saved by jobs with the WPA. As for the standard yardstick of economic well-being – GDP growth – Shlaes does not even mention it atall. One the chance that anyone gives a damn about what actually happened in the thirties, here are the numbers. GDP shrank dramatically from 1929 to 1933, then abruptly reversed course in the year after Roosevelt took office . “Real GDP increased 11% in 1934, 9% in 1935, and 13% in 1936″, writes the economist Christina Romer – and those percentages … dwarf the growth levels of the eighties, nineties and zeroes”.

Conclusion

The conservatives have only one recourse to attempting to match the facts with their erroneous theories about fiscal policy. They have to reconstruct the facts – a process that includes leaving important facts out and focusing on irrelevant correlations; fabricating facts; using definitions that no-one else would consider reasonable and then blurring the definition – and more.

They should be disregarded. The lessons of history are firmly supportive of the view that when non-government spending growth lapses, growth can be engendered with an increased contribution from government net spending. It is a proposition that is glaringly obvious in concept and stands the test of time.

The conservatives hate that reality. So instead – make an alternative up.

Saturday Quiz

The Saturday Quiz will be back tomorrow – a few tricks are planned.

That is enough for today!