Economic Scene: The Great Depression Then and Now
Kurdishaspect.com - By Rauf Naqishbendi
The uncertainty of the future health of the American economy has created an atmosphere of fear, doom, and gloom. The optimists among us persist on predicting a quick recovery, while the pessimists believe we are approaching another Great Depression. But for the optimists, as usual, recovery is one or two quarters away. The path to economic recovery will be a long and painful journey, requiring remedies to counter the cumulative missteps and misguided policies of the past several decades. The economic fallout has both differences and similarities to that of the Great Depression.
As reported by the Department of Labor, last November, the underemployment rate jumped to 12.5 percent, from 8 percent. During this one-month period, 621,000 workers were pushed into part-time work and 422,000 discouraged jobseekers simply dropped out of the labor force while 533,000 jobs lost.
During the Great depression unemployment didn’t start with 25 percent. In 1929, the unemployment rate was less than five percent and in 1930, unemployment was below 10 percent. It was not until 1933 that unemployment peaked at a staggering 25 percent. The obvious conclusion is that rising unemployment is a progressive consequence of continued economic deterioration.
During the Great Depression there was no Federal Deposit Insurance Corporation (FDIC), which resulted in a lack of faith in the banking system. By 1933, 11,000 of the United States' 25,000 banks had failed. To date during this current crisis only 24 small banks have failed. It is worth noting that, unlike the Great Depression era, we have a social safety net available to us, including welfare, food stamps and unemployment benefits.
During the "First New Deal" in 1933, President Franklin D. Roosevelt targeted his economic programs for short-term recovery for the nation. President Elect Obama is taking his cue from FDR and planning to do the same. Indeed, this is a first great step towards economic recovery. Additionally it will enhance and improve our aged infrastructure system of roads, bridges, tunnels, waterways, and schools. In the meantime, the best of the good news is the dramatic decrease in energy prices which should help consumers as well as businesses. Finally, the fiscal policy of cutting taxes for the middle class should provide a further stimulus to the economy.
During the Great Depression, white-collar workers were less affected than their blue-collar counterparts. Today's economic meltdown, on the other hand, started hard with white-collar workers and they remain among the most affected. Between 1929 and 1934 personal income plunged 44 percent. In the present circumstance, personal income is less impacted. By January 1, 1934, as many as half of all residential mortgages were delinquent with the very real risk of foreclosure. The current foreclosure rate is still in the single digit range. During the Great Depression the stock market lost almost 80 percent of its value while the current decline in share values is about half that figure.
Regarding unemployment, it is hard to say with any certainty if we are in middle of our economic crisis or toward the tail end of it. Here is where the Grape of Wrath comes in. A 12.5% underemployment rate doesn’t constitute an economic depression. However, with protracted economic sluggishness, that number can easily climb. Many economists as believe things will get worse before they get better. If that proves to be accurate, how high unemployment can climb depends on when the economic down turn will bottom out. The main problem for the economy is unemployment. Higher levels of unemployment can escalate the home foreclosure rate, and dry out consumer spending. The shock waves will reverberate throughout the economy. Without a meaningful job creation strategy there will be no economic recovery.
Any new New Deal must include more than temporary stop-gap jobs that cannot be sustained. Once FDR eased spending in 1937, America dipped back into recession again. Unsustainable jobs are like a Winchester House phenomenon: as long as the hammering continues, the project survives. The real recovery from the Great Depression didn’t come until America entered World War II and in the aftermath of the war.
By the end of the war America was a super industrial complex and exporter to the world. Now we are a net importer. We have lost our edge in industrial manufacturing by outsourcing jobs and manufacturing capacity to foreign countries such as China. In the service sector millions of IT jobs have been outsourced to countries like India. At the same time instead of the impetus provided by World War II in our economic recovery, we are fighting two costly losing wars with no end in sight.
Another plan aimed at revitalizing our economy is Obama’s plan to invest in renewable energy. This is necessary and long overdue to be sure, but we are not sure if the number of jobs created by this plan will exceed or short the number of people who are currently employed in the fossil fuel industry. Nevertheless this is a necessary program and should be encouraged to reduce our dependency on foreign energy and secure price stability. Yet those who are short-term minded may be disappointed for this may take years or a decade to materialize.
When FDR took office, the federal deficit was minuscule relative to what Obama is about to inherit. Obama will inherit an accumulated deficit mainly from Ronald Regan’s presidency through George W. Bush. Make no mistake about it – it is gigantic. Obama is a capable man, and he is young and has not allowed himself to be an instrument of special interest groups. This implies that he will advance the wellbeing of commonwealth rather than feeding the appetite of the rich.
We have to bear in mind that an incompetent president can do great damage to the life of the nation. But a capable president’s good deeds are often limited to and dictated by available resources and circumstances of his time.
Decades of government catering to the rich through lifting its regulation, Wall Street to advance greed of its elites dumping the nation into economic fiasco. Response from Bush/Pulson-Bernanke is to use taxpayers’ $trillions profligately to bailout mismanaged institutions and maintain the jobs of the same corporate officers who invited this economic turbulences upon America. Bailout at a paramount cost unparalleled in history to laden current and future generations with debts, and without apparent benefit to taxpayers themselves or future generations. Government keeps on squandering $trillions without addressing the real issue. Ironically most of government’s dose of recovery so far is an ailing dose to our future prosperity considering the rapid and sizable debt burden. The real problem of our economy is its structural deficiency, and that is lack of good job with well paying wages.
Starting 1980s millions manufacturing jobs were given away to foreign countries. They let millions of illegal immigrant into this country for the sole purpose of helping business profitability. In 1990s, corporate America whatever well paying jobs they could offshore or outsource, they transported beyond our shores. They went even further in Information Technology field they brought Hindus for less pay to replace well paid Americans. In border states with Mexico, amongst other industries, in constructions industry they allowed Mexican illegal workers, and thus they brought wages down and made it less attractive for American to engage. The same trend went further as illegal immigrants marched to the American heartland. Additionally almost every low wage jobs which most American unskilled workers and low income family depended on given away to illegal immigrants and during all these national disgrace laws regulating immigration were all undermined. While this was happening our lawmakers shamefully trying to write new legislation regarding illegal immigration while sufficient existing laws remained not enforced.
Sure America is a land of immigrants and that has been our established tradition for centuries. That was fair and human when American could afford fulfilling dreams immigrants were seeking. But now, let American dream alone, as millions of Americans are unable to find jobs to support themselves and their families. These struggling people are American responsibilities, and therefore allowing new immigrants or legalizing illegal immigrants must be secondary to the need of Americans.
Spending nearly a $trillion for infrastructure as President elect Obam is aiming at creating over two million jobs is nothing more than temporary solution. Infrastructure projects employ people for the duration of the project, once the projects are completed, workers will be unemployed. However the construction industry has been notorious for using illegal immigrants, again rich entrepreneurs will be main beneficiaries. What America need is sustained employment. For instance factories need employees for as long as it operates. When demand for products arises, the factory produce more, hence it expands and hires more people. The problem with our manufacturing sectors is that they are located offshore, and when they expand they create jobs in foreign countries where they reside. To this end, America owe it to its own people not people in a foreign countries. A step in a right direction is for government to provide incentives to corporation to bring back home jobs they exported, for these are well paying jobs with sustained employment.
What has been hurting American economy is a Free-trade. America need a fair trade not free trade. In this what so called global economy there is nothing global about it except America is taken advantage of globally. For instance, the most populated countries in a world named China and India to offer their own people good jobs on expense of American workers. If its global, then the trade should be both ways. But as it has been India and China taking away as much as they can from US without giving back anything. Millions of Indians are working in America, yet there aren’t many Americans who work in India. Hundreds of American factories stationed in China, yet there aren’t many Chinese factories operating in America. This is not the fault of Indians or Chinese but the fault of our government that let its citizen down. This is a disgrace and defection of our system where our lawmakers are made themselves to be a device to advance unscrupulous greedy corporate CEO’s who do anything and at any cost to fed into their greed.
Economic recovery will not be achieved without sustainable job creation. Jobs need to be created in America not in China or India. Therefore the government should do: first abrogate hundreds of thousands of H1-B visas granted to foreign workers and let American corporation which has been a training camp for Indians to hire and train Americans. Second, government to legislate tough penalties on exporting jobs offshore, corporations should be allowed to send jobs offshore only if they are losing money in US rather than exporting jobs to satisfy their greed for more profit. Thirdly, to penalize all American businesses who hires illegal immigrants.
Aforesaid points to create jobs doesn’t mandate trillions of dollar government spending, it rather requires enacting legislation to protect American industry and American livelihood. Our lawmakers hasn’t done much for our middle class and working American, and its about time to enact upon meaningful legislation to mirror the true meaning of their moral responsibilities. During this current difficult economic hardships the bailout of rich keeps going and they keep extending it while working Americans and their families are suffering.