“9 Crazy, Mad years with the golden calf and the ticker tape” Part I

“I shouldn’t like to have it said of my first administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second administration that in it these forces met their master…”   Franklin D Roosevelt  2nd inauguration speech

The title is an extract from a speech made by a more confident Roosevelt in his second term in office and was alluding to the Depression; a referrence to the 9 years of wall street abuse. Reading his speeches, fireside chats and other details relating to the Depression, one can just begin to imagine the state of affairs in america back then.

In approach, politics, business and economics are probably one of the most difficult disciplines to understand and master, not only in terms of its veracity but also in terms of its context and motive. Context as defined by historical circumstances is malleable and subject to reinterpretations. In business, results as an imperative factor is so compelling that all other variables are rendered inconsequential. Proper context has no value if it hinders the application of an idea for other ends; a higher purpose; the bottom line so they say. Consequently, ideas from other disciplines are appropriated for business objectives. Eventually, one becomes a master of himself and a slave to no one.

“…engaged in a double task of recovery and reform – recovery from the slump, and the passage of  those business and social reforms which are long overdue. For the first, speed and results are essential; the second may be urgent too but waste will be injurious, and wisdom of long range purpose is more necessary than immediate achievement. It will be through raising high the prestige of your administration by success in short range recovery that you will have the driving force to accomplish long range reform.”   John Maynard Keynes

This is an extract from a heart felt letter Keynes wrote to FDR post inauguration during his first term in office. FDR, however was not too keen on his theories. It would take two more decades, during Kennedy’s administration when Keynesian econonomics would be accepted;and even then it would be an abuse of his concepts.

Note, however the import Keynes attaches to having the recovery addressed initially before reform can be fully appreciated. He further states that haste will be injurious and wisdom of long range purpose is more necessary than immediate achievement. In our current financial crisis, Obama chose to address reforms first. Understandably, as a response, reforms were already initiated during the Bush administration. Although, it is quite obvious and does not need a stretch of imagination to know that Obama had the benefit of time to study the situation from a distance prior to assuming the presidency to have realized the brashness and desperation of the TARP bailout.

Keynes was primarily concerned with unemployment as a condition which warranted a complete abolishment as an economic want. Anti-capitalist he was not but from my understanding he accepted greed as a reality and hence found no reason to address it.  He probably found it more practical to circumvent rather than confront it. He further noted that in capitalism the rate of interest is never a dominating factor. Inflation was not an overriding concern and that it would take care of itself through employment which he referred to as an aggregate purchasing power. Hence, he focused on the other side of the equation which was government. To expound further on this, Investment is a combination of both Public and Private investment. During his time, the main investments of government were a) housing, b) public utilities and c) transportation. All this was premised on a peace economy which explains the absence of the military. Furthermore, Keynes clearly delineates his obligation as an economist whose main concern was full employment and the bankers who were profit-driven.

Keynesian economics fell from grace after supposedly having failed to address the problems of stagflation during the 70’s. In its place, Milton Friedman’s theories were adopted as a policy tool to confront inflation through monetary policies. It was only after the Dot Com bubble that Keynesian economics came back in vogue. Regarding the stagflation issue, I would like to share an insight which if not in accord to some of you with a better grasp of economics, consider it a lack of restraint on my part for being overzealous to make a contribution, insignificant though it may be, to an understanding of our current financial crisis. But, given these basic tools for a rudimentary understanding of Keynesian economics, there must have been another reason for the demise of Keynesian economics during the 70’s. Common knowledge has it that for three generations beginning with the end of WW II, military expenditure has been a significant part of government spending. The Vietnam War exacerbated the situation by among others leading to a flight of business capital to Europe looking for a safe haven; eventually this lead to the breakdown of both the Bretton Woods system and the gold standard. Clearly, military spending is antithetical to Keynesian concepts with an emphasis on housing, utilities and transportation.

Capitalisms’ inadequacies were already apparent and gaining credence from the late 19th century with Bismarck’s welfare state (1880) which provided insurance for accident, sickness, old age, and disability – in medicine, germany was second to none. In Britain, the Webers – founders of London School of Economics – were unabashedly committed to Socialism. In 1910, the liberal british government introduced legislation for unemployment, and old age pension insurance. In Cambridge 1920, Arthur Pigou (economist) held that as long as total production was not reduced, the redistribution of wealth was feasible. This was the first break with classical economics. America was a latecomer in this area. In 1930, the Wisconsin plan/New Deal was introduced for statewide unemployment compensation. Note, that in the early 20th century, Pragmatism was founded by Pierce and James as the first american philosophy. America was getting acquainted to its newly discovered identity and was beginning to spread its wings. In 1942, the Beveridge report which would create the first modern welfare state in Britain was a huge success that even Hitler, based on documents found after the war considered it better to the german welfare system.

At the cessation of hostilities during WW II, except for the USA, all other major participants were able to attain full employment. In my opinion, it was at this juncture that america could have made a positive, life affirming, profound and universal committment to the betterment of mankind. A crossroads so to speak, in a sea of chaos, upheaval and bedlam; amidst cries of despair and pain, she alone was left unchallenged and victorious. She alone possessed the atomic bomb. Sadly, It was never meant to be. It is my hope that with the benefit of hindsight future generations may have a better understanding of this part of history. And so, it continues….