home > archive > 2008 > this article

Search this site Search WWW

"Let's play 'Great Depression'"

By Daniel M. Ryan
web posted April 21, 2008

It isn't just the stock-market circuit that's been sharing in the frights recently. A few pundits have also been calling for a "new New Deal," in the hopes of reviving the glory days of old. Their tradition continues.  

Government control of the economy has been a tough sell lately. Instead of the gigantic clampdown that some were hoping for, the re-regulation suggestions emerging from the executive branch of the United States government would leave the freewheel-with-safety-net largely intact.

What's a government boy to do, especially when silver-tongued-lobbyist-bashing doesn't seem to satisfy anymore? Why, wish for a Newer Deal, of course. Wish for the good old days when clamping down and directing away was easy.

Of course, there's a bit of a wrinkle when it comes to wishing for a comprehensive system of government subsidization and controls. The New Deal was intended to haul the United States economy out of a Great Depression.

Rather than regale you with tales about the 115% unemployment rate that prevailed when Hoover left office, as well as food riots, pogroms, widespread famine, heresies, the ripping apart of the Universal Church, and other pastiched scenes from half-remembered history books, I am pleased to present you with a speculative look at what a new Great Depression may be like. (David Hume might very well aver that my odds of being right are as incalculable as anyone else's, credentials and experience notwithstanding.) Given the not-so-exciting non-response to current rallies for the Roosevelt standard, it's evident that the only sales angle that will get the voter signing is another economic collapse. To make it even more colorful, I've worked in a tale-of-two-nations approach.  

It's 2012. The North American economy has slowed down, leading to a responsive slow-down in the Chinese economy. Failing to recoup higher costs that result from inflation and global demand for inputs, the Chinese economy has kept sinking. Recovery based upon the productive power of the Chinese entrepreneur and worker hasn't materialized, because China's low-cost advantage has withered away.

What has also withered away is many Americans' margin of monetary safety. It took three years to see, but the sub-prime real estate crisis of '07-'08 was only a preface. When the market collapsed in the fall of '10, a meltdown that saw China hit worse in percentage terms, the same old reassurance was put out: "the underlying economy remains sound." It had worked for more than thirty years, ever since former President Reagan used it right after the Crash of '87. This time, though, it didn't.

There's already a huge controversy in the economic world about the cause. The still neo-Keynesian mainstream has actually split into two, because two countries with vastly different savings rates have suffered a similar fate. China's savings rate was legendary, estimated to be as high as 50%. America's savings rate, on the other hand, was plumb negative. The old Keynesians point to China's liquidity trap, while their more hep colleagues point out that America would be darn grateful for such a trap. Lines are drawn, positions are staked out, time series are appealed to and reinterpreted.

What the candidates in the '12 election find, consequently, is a profession rent by bickering. Certain out-of-the-mainstream economist snidely remark that the mainstream in the field is about as paralyzed as the more highly regulated sectors of the American economy. Efforts to rise up a happy medium seem hollow, and are joked about in both countries as ‘foreign aid' of a sort.

There are stories of disaster and despair, and as many as possible get their due footage in the mainstream media. Unnoticed except in the silly segments, though, is a trend that belies the 24/7 Doomshow. The left-anarchists are beginning to acquire a certain influence, along with affiliated groups that sought to free themselves from what they considered to be the slavery of money. During times of prosperity, their efforts were considered by sober minds to be a raffish display for attention. Now that times are hard, though, the general public has begun to discover that they've come up with some neat tricks to get along while broke.

More and more people are discovering that offloaded food, which the grocery stores have gotten rid of, isn't that bad for you. The food banks take notice, and supply grows along with the demand. Some food banks, now visited regularly by solid citizens, begin to take on the air of a hiring hall.

People who had the long-term foresight to buy "off-mortgage" houses at a huge discount are discovering that they got in a little too early. Those who did so with borrowed money, though, begin to discover that a McMansion can be swiftly converted into a McBoardinghouse. This retooling is done on a large scale once the owners discover that the ‘tenants from hell' make up a smaller and smaller percentage of prospective tenants. Those tenants themselves discover that social pressures are molding them to shape up if they can.

The welfare and other social assistance rolls have expanded considerably, of course, but a funny thing has happened on the way to the deficit explosion. Jobs programs have waiting lists, but job-training programs are unaccountably ending the fiscal year with departmental surpluses. The sensible decision by Joe Sixpack – that there's no point in drawing government money to train for a job that won't be there – has led to a widely unexpected lowering of government expenditures in certain categories. The attempts in the economics field to cobble together a Golden-Mean compromise were further rent apart by the announcement that the U.S.', and several states', deficits seem to be shrinking as the economic stats grew worse.

Since the greyhairs were too busy defending their own models and criticizing ones that were incompatible with theirs, it was left to the youngsters to find out what the hell was happening. What they found was a largely self-confident culture of poverty had grown around the hard times. Welfare recipients were everywhere, of course, but the lack of demand for already-offered government services was the result of:

  1. A surprisingly large number of free-food eaters;
  2. Tenants relocating to converted tenement house that are still middle class at heart and living life accordingly;
  3. Homeschooling rife;
  4. An easygoing culture that asks no questions about one's financial state, with some of the more pious amongst them recounting stories of the formerly rich saved from suicide or despair by the Word of God;
  5. A partially overlapping culture of debt repayment within reason, with the Christians in this subculture being AA-influenced and pushing a "One Month At A Time" approach;
  6. A thorough, if basic, understanding of the debt crisis and a quiet understanding that the party's over;
  7. A consequent sense of shame about approaching the government for more benefits than offered by social assistance tying in with the reluctance to enter retraining for no immediately good reason.

Further adding to the shock was the realization that Friedman's Law of Spending Growth was now working in reverse. Just as a dollar in extra tax revenue has led to $1.30-1.35 in extra government spending, so it was that lowered government revenue has actually been outstripped by lowered demand for pricier government services. The stoicism inherent in any culture of poverty has had the effect of actually lowering Medicare expenses by a considerable amount. There are some folk remedies floating around, but the bulk of the savings come from doctors who deliver technologically suboptimal but adequate medical services largely at patients' behest. Services deemed adequate for the new times.

Further adding to the downward spiral is the new poverty culture, ironically, tending to discourage mega-lawsuits. As a result, walk-in clinics are clogged while up-to-the-minute operating theaters stand empty. Some trial lawyers begin wondering if they themselves would be visiting the "hiring hall" soon. Social pressures also encourage basic preventative healthy-living practices, without official encouragement. The researches that discern this unexpected response pattern comfort themselves with the thought, "it's so groundbreaking it's unpublishable."

Also unpublishable was the confluence of rising wealth inequality combined with a lack of anger about it. "We cared about the rich man little, and we care now not at all" didn't translate all that well into socio-economic jargon.

Nor, come to think of it, did the growing demands for tax cuts from the grassroots, "paid for" by governments getting rid of a few things… ESR

Daniel M. Ryan is a regular columnist for LewRockwell.com, and has an undamaged mail address here


Send a link to this page!
Send a link to this story





Site Map

E-mail ESR

Musings - ESR's blog


1996-2020, Enter Stage Right and/or its creators. All rights reserved.