"I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future."
– E.H.H. Simmons, President, New York Stock Exchange, January, 1928.
Tell me if this sounds familiar:
Modern industry had the capacity to produce vast quantities of consumer goods, but this created a fundamental problem: Prosperity could continue only if demand was made to grow as rapidly as supply. Accordingly, people had to be persuaded to abandon such traditional values as saving, postponing pleasures and purchases, and buying only what they needed. “The key to economic prosperity,” a General Motors executive declared in 1929, “is the organized creation of dissatisfaction.” Advertising methods that had been developed to build support for World War I were used to persuade people to buy such relatively new products as automobiles and such completely new ones as radios and household appliances. The resulting mass consumption kept the economy going through most of the 1920s.
But there was an underlying economic problem. Income was distributed very unevenly, and the portion going to the wealthiest Americans grew larger as the decade proceeded. This was due largely to two factors: While businesses showed remarkable gains in productivity during the 1920s, workers got a relatively small share of the wealth this produced. At the same time, huge cuts were made in the top income-tax rates. Between 1923 and 1929, manufacturing output per person-hour increased by 32 percent, but workers’ wages grew by only 8 percent. Corporate profits shot up by 65 percent in the same period, and the government let the wealthy keep more of those profits. The Revenue Act of 1926 cut the taxes of those making $1 million or more by more than two-thirds.
As a result of these trends, in 1929 the top 0.1 percent of American families had a total income equal to that of the bottom 42 percent. This meant that many people who were willing to listen to the advertisers and purchase new products did not have enough money to do so. To get around this difficulty, the 1920s produced another innovation—“credit,” an attractive name for consumer debt. People were allowed to “buy now, pay later.” But this only put off the day when consumers accumulated so much debt that they could not keep buying up all the products coming off assembly lines. That day came in 1929.
The only thing that saved the capitalists from themselves was Franklin Delano Roosevelt, who put the brakes on Capitalism As Cancer and put government to work for the people, not just for war profiteers and office-seekers. But over the last few decades, the Republican ascendancy has led to the systematic and planned destruction of Roosevelt’s safeguards, just so a tiny minority of extremely greedy and amoral people could benefit.
Because of this recent greed-is-good amorality, we’re now seeing a rerun of the runup to 1929:
Rising income inequality fueled by slashing taxes on the rich.
Growth in productivity not matched by growth in real prosperity for the vast majority; only those at the very top reap the benefits.
The non-rich majority being encouraged to spend money they didn’t have to prop up the whole edifice, until they lost their jobs and couldn’t even begin to pay back the huge debts their "betters" had all but ordered them to rack up.
Oh, and even as the house of cards collapses one domino institution at a time (Lehman, Bear Stearns, AIG, etc.) , the people behind the whole scam are sending out their mouthpieces to put a happy-talk spin on everything, to the point where they mock those people who’ve been the first ones smacked around by the bow wave of the coming crash as "whiners".
Bush’s and McCain’s minders were hoping that Bernanke and Paulson could forestall the collapse until after the election. It looks like that might not be possible. This is one bullet they won’t be dodging.
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yet they want social security turned over to these same brillant folks that created this mess. Yeah we’re in good hands alright
AIG can’t seem to get above 5.84
PW…Ding.
Everything’s on schedule. The Republicans run the country for decades, run up deficits and run people out of jobs, homes and lives because of their short-sighted greed.
A Democrat gets elected and fixes everything, and puts the country on safe footing for the next decade or so.
The Republicans get back into power and start trashing everything again.
Cirle of life, you know?
a gargantuan 10-4 PW !
atrios, naked economist, and our own Ian have been hitting bullseyes on this for over a year now – echoing your thoughts on Paulson and Bernanke. none of them were reckless or foolhardy enough to give dates – just the scenarios and their triggers
all of them agreed that there would be a moment where EVERYTHING picked up speed – point of no return wrt to collapse
they have all done their best to avoid alarmist sentiments – but I believe we are there
I am reminded of the old story (don’t know how true it is) about a wired up lab rat that was provided with 2 buttons to push, one gave food and the other gave pleasure. The rat starved to death…
That’s what these greedy fuckers are like. They can’t stop even if it’s in their best interests. Most powerful drugs on earth, money and power…
Slow motion bank runs:
http://finance.yahoo.com/tech-…..AC,AIG,WM,^DJI,^GSPC
Don’t worry ,the government will bail these Bozo’s out ,using tax payers dollars!
I gotta bail these assholes out, and I don’t even own any stock!!
The taxpayers take it on the chin one more time
Wow, excellent post PW. Great find on the quote, and yes it’s the Time Machine redux, Poindexter.
The republicans have been pissed off about the success of Roosevelt’s programs for 70 years, and have finally managed to gut most of them… payback time it appears.
Unfortunately there’s not another FDR on the horizon, so we may be in for more than what happened in the 30s, but at internet speeds.
wow. taint good.
completely o/t
but thought you treehuggers could use a little good news today
Judge throws out Bush snowmobile ‘plan’ for Yellowstone
So… we can look forward to a Newer Deal… when, exactly?
China will now foreclose on its loans to the US ,and take possesion of the country by default!!
So effing true!
If 10-1 leverage was good, then 20 to 1 is better. Thirty to one had to be nirvana.
This lies directly at the feet of these ‘govt. is bad’ repugs. Got paid (via campaign contributions, trips and jobs, think Phil Gramm) to look the other way.
Now would be an excellent time to push for public financing of all federal elections. Keep the $2300 individual limit and that’s it. No PAC’s or corporate money whatsoever.
And when some deep thinker says to you “We can’t afford that”, explain to them the hundreds of billions of dollars we’re spending to get out of this mess, then say “We can’t afford not to!”
Houston update:
Now they are anticipating a bunch of fires as the power gets restored due to damage and shifting of walls and roofs.
CNN reporting the horse is out of the barn regarding the economy, and they are blaming lack of regulation and lack of regulators doing their job…ominous.
Forgot to say “Excellent Post!”
Forgive me.
how long before they blame it on the democrats?
I second that
Or the Saudis will sweep in and buy everything up (that China and Japan haven’t already bought) at fire-sale prices. Then, the climb up and out of the pit. Otherwise those countries would not be buying here.
One point to remember…the rich people love these depression scenarios..that is how they reinvest when the values are at rock bottom..that is how they get richer…they manipulate the cycles. This was anticipated. This is what they do.
I can’t follow your link, but it’s also right here.
Even more off-topic and terribly sad:
Pink Floyd member Richard Wright dies
Crisis == opportunity: The Shock Doctrine. Any questions?
To the point
http://www.washingtonpost.com/…..newsletter
My parents who grew up during the depression as teenagers…. still talk about how hard things were. My grandfather was a Postal Worker who continued to work through the depression but at periodic times they would cut his salary and put him on furlough for several weeks. My Dad’s folks lived on a farm and picked up odd jobs to survive….. My city grandparents had a big garden and chickens.
The difference in today and then….. we have generations of Americans who are so divorced from the land and have no clue where their food source comes from except a box or plastic wrap. During the depression most Americans had the knowledge on how to grow food and make things from scratch….. now we don’t.
Up until the 80’s there continued to be a “fear” to put money in the stock market which I think was left over from the 1929 crash. The 401K did away with that along with the mutual fund investing…..
Julia across the hall at The Campaign Silo with:
Obama “Waffles” Creator Works For Fox
1,766 DAYZ AND THE KILLIN’ GOEZ ON AND ON AND…
Citizen Phoenix Woman and the Firepup Freedom Fighters:
Great post…the families of the oligarchy who planned,staged and profited from the last great crash have been studyin’ what went wrong with their calculations after 1933…basically, the fact that the federal government had no debt and the great cashes of capital were accessible to taxation allowed for the “New Deal” to work over time. This crisis finds the country owing over a trillion dollars to foreign countries, the tax base destroyed, the assets of the old economy sold off and the equity from the working population stolen or mortgaged. In addition all the institutions and safety nets for support of the population at large in a time of crisis have been hollowed out or dismantled and the military has been shrunk and the state militias destroyed so that the nation as a whole can not protest itself and the people are left at the mercy of local police and corporate mercenary armies.
The crisis today has been set up jest like the last one but now there are no resources at the disposal of the federal state to re-engineer the economy, support the general population AND protect the people’s government from the power of the corporate oligarchy because the wealth of the country has been stolen and is firewalled against bein’ taxed because the debt of the country is too large to pay for all the work that must be done. This has happened in large part do to the purchasing of the Democratic Party after WWII by the military industrial complex. The anti-communist and anti-union attacks on the population destroyed the popular base of the Democratic Party and left ownership in the hands of the corporate oligarchy that it had ridden to power against in 1932-33. I’m convinced that irony and the Democratic Party are a couple of God’s little jokes on us!
KEEP THE FAITH AND PASS THE AMMUNITION, THIS IS THE LAST BATTLE FOR DEMOCRACY IN THE USA!!
We’re all Debt Mules on the Bush/McCain Farm now.
Loaded down – thanks to Bush and his sidekick McCain – by the Iraq War with $10,000 each, just for starters.
That’s $10,000 that could have gone to your retirement, health care, social security, or government services.
Gone to the Immoral War Profiteers, instead – but we’re burdened with the Loan.
My mother lived in NYC and was born in 1912, so she was a young woman when the crash hit. She said she was on her way to church one morning and was within 5 or 10 feet of someone who jumped out the window due to losses on the market. This was a fairly regular occurrence in NYC during that crucial period.
I also had the distinct impression that some of the problem was that credit was also being used to buy stocks on margin. When the margin was called and the person couldn’t pay, they lost all of their investments. Sometimes things get so bad it hits the rich where it hurts, also. They can engineer a lot, but not everything.
McSame’s on t.v. saying we need more regulation in the financial markets.
How rich.
This from a man whose chief economic adviser– Phil (turtle head) Gramm got this whole mess rolling 7-8 years ago by opening the Enron loophole and allowing billions of dollars to flood into oil futures contracts, and has worked at UBS which has lost billions in the sub-prime mortgage meltdown.
Putting these two in charge of our economic system would be like putting Col. Sanders in charge of the chickens.
The chickens would have a better chance.
Good Post.
I spent years teaching the Great Depression at the University in the 70’s through the 90’s, and while most of my students came to the class with the family lore that Franklin D. Roosevelt had saved the family home, or the family farm — they had little clarity as to how this was accomplished. What policies and programs did he put in place that saved these thing? Because they had limited understanding of the causes (emphasis plural) and the multiple programatic approaches to restoring the economy, they also had little notion of the idea that human decisions created the economic mess, and that indeed a series of human decisions were of consequence in fixing it.
I would agree that the lack of correspondance between increased productivity of value on the part of workers, with the wages paid for that, thus increasing the purchasing power of the working class, was critical. We’ve known a similar pattern has existed since the 70’s — but no one seems to have focused on the danger it presents. But it was more than just working class income. The 20’s were a revolutionary period in American Agriculture. It shifted from home grown fuel (the field that was used to grow feed for horses) to a capital intensive form — the horse was replaced by a tractor that ate diesel fuel — all of which you had to purchased with cash. The US and the World markets could not absorb the increased volume of commodities sufficient to balance the capital investment. In 1920 about 50% of our US population lived on farms or in small farm dependent towns, but by 1930 a great migration to industry had transpired, and less than 30% of the population derived income from agriculture. (Today it is less than 3%). The Agricultural Depression predated the crash of the stock market by about seven years.
In the early 30’s the normal form for a home mortgage was a five year note, with monthly payments, and with a balloon payment at the end. If one could not pay the balloon, one renegotiated the note for another five years — at a new rate of interest of course. What happened in the early 30’s was that the banks, which had speculated in the market on their own account, lost their shirt after the crash, and were unwilling to rewrite outstanding notes, thus taking back residential real estate as the notes came due, preferring to own the asset than extend the loan. In many ways it is similar to the current mortgage problem — what makes an ARM mortgage different from a 25-30 year fixed rate mortgate, is precisely the difference between mortgage practice in the 20’s and after New Deal programs emerged that regulated the mortgage market. In effect, the Adjustable Rate Mortgage is little different (except in name) from the mortgage contracts common before the great crash.
So what did FDR Do to fix the problems? With regard to Mortgages, he first created HOLC — the Home Owner’s Loan Corporation, built on the back of the Reconstruction Finance Corporation of the Hoover period, which allowed Home Owners to convert short term notes into longer term mortgages that were then distributed among local Savings and Loans, and Commercial Banks that had been re-organized under the Emergency Banking Act. Then, a few years later — FHA was created, insured loans for working and middle class purchasers, fixed rate over 20 years, clear credit requirements, and a cap on the size of the loan, and strict requirements as to the home meeting code requirements. You can actually see the physical implications of this in virtually any American City — Housing built in the 1920’s tends to be larger, more architectual special features — housing built in the post FHA period is small cape cods and ranch style housing, tends to not have porches, frequently had no garages, had small kitchens, frequently eliminated the dining room for a dining area in the kitchen, but was quality construction, small but tight. You can see where one era ended, and another began. That was the impact of the Cap on the size of insured mortgages — and one of the so called “reforms” of McCain’s efforts in Congress back during the S&L crisis, was raising the Cap, and allowing S&L’s and Banks to do insured mortgages with so called “Jumbo” loans. You can see this physically too — the line at the edges of the suburbs where fairly nice homes built in the 60’s and 70’s are surrounded by the McMansions of more recent years. That is the visable aspect of raising the cap and deregulating credit requirements.
But in the end — the most important thing to realize about all this is that while FDR tried a bit of this, and a bit of that to get to sustainable financial institutions — the underlying lesson is that he did things that prevented the business cycles from driving middle and working class people into poverty that lasted over 50 years. The layers of the New Deal mattered, and in fact political leaders made decisions creating these institutions. Government Mattered. FDR reorganized the banks and finance regulation at the same time as he provided home owners, through HOLC, with a way to stablize an existing home mortgage. He cut farm overproduction of commondities so as to re-inflate prices, at the same time he provided Farmers with a special home and land mortgage window, so they could continue to produce at a regulated pace, linking supply to demand. And as the depression wore on, he proved to be adept at favoring Labor Organization which in turn raised working and middle class wages and share in overall productivity. All these were human interventions in a crisis — Government practice and policy mattered.
Midwestern unionized industrial workers know about that — dust to dust, rust to rust.
Rice: “Nobody could have predicted it.”
Corn: “Rice is cooked.”
LOL