Our economic “New Normal”: 1933
We need an economy for the millions, not just the thousands
Before the corona virus, we already had the kind of economy that confronted President Roosevelt in 1933. We just didn’t know it.
The growing wealth and income disparity between the rich and the middle-class-and-poor was just waiting for a major disruption to occur, like the bankruptcy of a major financial institution. Or a virus.
Many things caused Great Depression. But historian T. H. Watkins described the most important one in his classic book, The Great Depression. In 1929 “…most of the personal wealth in the country resided in the pockets, bank accounts, and stock portfolios of a tiny percentage of the population. But goods had been produced for the millions, not the thousands, and the millions, in the end, simply could not afford them.”
In 1929 investors collectively realized that far too many products and services were not being purchased by the millions. They panicked, withdrew from the market, and the Great Depression began.
Today millions of Americans are priced out of their ability to afford to buy or rent homes in desirable areas near where they work. Thousands of investors buy foreclosed homes at fire-sale prices and rent them back to original owners. Or, they tear down three homes and build a mansion.
Millions can’t afford a new compact fuel efficient car and still put nutritious food on the table or take a vacation. The thousands buy huge gas guzzling cars, yachts, and airplanes. If we ever get out of this pandemic, they’ll be able to travel the world.
Millions can’t afford adequate health insurance or necessary medical prescriptions. Prescription and health insurance costs are not issues for the thousands and health insurance are not one of their concerns.
The millions can no longer afford to pay for their children to attend public colleges and universities. The thousands send their children to the most prestigious public and private colleges and universities.
Similar comparisons could be made about most of the factors that determine living standards of America’s wealthy thousands vs. its struggling millions. Now, because of the length of the pandemic and the millions’ losing income, they will be even less able to afford the products and services that so many businesses sell.
In 1933 the unemployment rate was 24.9%. Today it is probably close to or over that. By November, it’s likely to expand beyond what it was then. Whoever is president in 2021 will face a new normal — not the normal we had in 2008 when Obama became president — but the one in 1933 when Roosevelt assumed office.
In his first inaugural address Roosevelt stated that the depression was caused by the lack of national leadership. As leader, he would involve the federal government in addressing the nation’s many problems, from unemployment to monopolies to banking. He would continue and improve the programs that worked. Those that didn’t, he would try new solutions. It was time for the federal government to take action.
Roosevelt not only got us out of the depression, he laid the foundation for creating the greatest middle class in history. He, with a liberal Congress, raised the top income tax to ninety-one percent, where it remained until 1962, when it was reduced to seventy percent and lasted until 1980. They raised the top inheritance tax to seventy-eight percent where it remained until 1980. During the war they imposed an excess corporate profits tax.
At a time when investors had abandoned the economy, Roosevelt used tax funds and deficit spending to put unemployed Americans to work. Upon entering the second world war, and despite Republican objections, he insisted that workers would have the right to organize and share the increased profits of the defense industry.
Incidentally, entering WWII did not get us out of the depression. Manufacturing millions of tanks, airplanes, warships, and so on — and sending them overseas to destroy, and get destroyed by, other nation’s tanks, airplanes, etc. — didn’t give us a good economy. The act of going to war simply gave Roosevelt the moral authority to raise taxes on the wealthy and fund federal programs that benefited, and are still benefiting, our entire nation.
As in 1933 our new president and Congress will also have to figure out ways to deal with a whole host of problems: environmental protection, unemployment, unaffordable health care, nutritious diet, advanced education, housing, and most of the important things for a decent standard of living.
As in 1933, Democrats will be faced with a huge number of significant problems to solve and will not have enough money to address all of them. They need to commit to do what Roosevelt did: pick some of the most crucial ones and figure out how to pay for them. Then, work on others.
Democrats’ big challenge will be how to pay for any of them at a time when our national debt is higher than it has ever been and still growing.
The solution is simple, but almost impossible because the public has been conned into believing that high progressive taxes on the wealthy are unfair to successful citizens, and the magic of an unregulated and untaxed free market stimulates an economy better than government financed stimulus.
And all this is happening when so many institutions and individuals — even including many of the thousands — have record unsustainable debt.