Debate forum left 09/22/10

Obama’s plan: It worked for FDR

By Rana Odeh

Rana Odeh

While 9.6 percent is the official unemployment rate, the Bureau of Labor Statistics estimates that the underemployment rate is 16.5 percent. Everyone complains about the deficit out of fear of consequential inflation, but the reality is that the inflation rate for this year is 1.1 percent and that is dangerously low. The U.S. economy experienced deflation in 2009 for the first time since 1955. The danger of deflation is a decrease in the real value of personal goods (your house, car, property, business) and an increase in the real value of personal debt (your mortgage, car loan, student loan).  Inflation only occurs when consumers have too much money or spending power, which we all know is not the case right now, so what we need is more government spending, not less, considering how low the inflation rate is. So who should do the spending?

When the economy is in a deep recession, its recovery depends on the collective psychology of consumers and businesses. We cannot expect consumers to go on shopping sprees when millions have lost their jobs and homes, 30 million of them are underemployed, and the rest of them are nervous and worried about the future stability of their jobs. Consequently, if businesses do not feel confident that consumers are spending significantly more and that there is an increased demand for their products and services, then they will not feel the need or desire to hire more employees. Business owners have to take care of themselves and their interests too.  They are not going to hire people for charity; they need a strong incentive to do so. $50 billion is not enough to get the American people to start spending and demanding more goods and services. It is a good start, but what the federal government needs to do is to spend a large sum of money in order to create long lasting, well paying jobs for all Americans and to bring about full employment. Only then, will people have the money to start paying off their debts (which might take a very long time) and to start buying more goods.

The reason why the $1.1 trillion that was spent by the federal government did not work is that the money went to bail out the failing banks that refuse to extend lending to businesses and consumers. The Federal Deposit Insurance Corporation reported in August that bank profits were up 21 percent to nearly $22 billion, but lending over the same period fell 1.3 percent, or about $96 billion. The banks that we bailed out are reporting the highest profits they have seen for three years. How did the banks react to it? John C. Hope III, Chairman of Whitney National Bank (New Orleans), a bank that received $300 million of bailout money was quoted saying “Make more loans? We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.” That is the mentality of the bankers, yet nobody complained when the government gave them $1.1 trillion.

What about the wars? Nobel laureate Joseph Stiglitz estimated in 2008 that the cost of the wars in Iraq and Afghanistan has totaled over $3 trillion. Again, the complaints there were sparse. When President Obama suggests spending $50 billion, people get angry and shut down the idea even though, with the bank bailouts and the war spending, the stimulus would be the only productive government spending that Americans would actually benefit from.

While Obama’s FDR-like plan would relieve the severity of the recession, and improve America’s infrastructure, there is no mention of full employment or green jobs. The federal government should be spending closer to $700 billion to create full employment rather than a temporary fix, and we need to look at creating green jobs to improve the environmental crisis we are in. With a relatively small amount of government spending, we could create a country with full employment, lead the world in alternative sources of energy and raise the bar for clean air standards.

Let’s look at what we have to lose…

We are currently in a deep recession, we have a very weak mass transit infrastructure, we rely on big oil and coal companies that continue to destroy our environment and receive government money, and we are one of the highest pollution-emitting countries in the world. We could become a financially stable and environmentally sustainable nation with less than one third of the money we have already spent on the wars in Iraq and Afghanistan, and slightly more than half the money we spent bailing out banks that have no intention of returning the favor. It sounds too good to be true, but it is very possible if we collectively see the big picture and understand that real change is something that has to come from within the government and may take a long time. $50 billion in stimulus funds is a great baby step in the right direction.

Rana Odeh is a graduate of the University of Dayton with a degree in English and philosophy. Her research and writings focus on issues of race, class and gender. She can be reached at contactus@daytoncitypaper.com

2 Responses to “Debate forum left 09/22/10” Subscribe

  1. Kevin Fodor October 3, 2010 at 2:58 am #

    Rana:

    You may know your English…but not your history.

    A study conducted in 2004 by 2 UCLA economists (that’s University Of Southern California…not exactly a bastion of conservative thought.) shows FDR’s policies actually EXTENDED the Great Depression by 7 years.

    In the August, 2004 “Journal Of Political Economy”, study authors Harold Cole and Lee Ohanian said the problem was FDR’s “ill-conceived stimulus policies”. (Sound familiar?) In fact, Cole and Ohanian blame FDR’s anti-competition and pro-labor measures (familiar again…maybe?) that Roosevelt signed into law in 1933.

    According to this study, yes, wages following the implementation of Roosevelt’s policies in 11 key industries were 25% higher on average, but unemployment was 25 percent higher than it should have been. (FDR’s version of President Obama’s “new normal”, as we live with 10% stated unemployment, with “actual” unemployment, when you add those who have stopped looking for work, at around 16 or 17 percent).

    In fact, one of the final determinations of this study is that FDR’s economics really did artificially inflate wages and prices.

    And, according to the study, without the policies of “stimulus”, Cole and Ohanian contend that the Great Depression would have ended in 1936. A lot earlier than when they contend it ended: 1943.

    In fact, the pair states from their study that “recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a long string of setbacks.”

    So, what do we have today, Rani? Stimulus after stimulus after stimulus after stimulus…government support leaned overwhelmingly in favor of labor unions, and the businesses in which they are deeply entrenched, (Think GM, Chrysler, Delphi..and let’s not forget about the unions representing government workers, Teamster pensions, and yes…Teachers unions). If this report is right, America could be ruined…because a Harvard Law School grad who never produced a single product in his life, thought he could copy FDR’s “success”.

    A “success” that just might be nothing but the work of historical spin.

    • Ben October 4, 2010 at 4:01 pm #

      First, the depression ended somewhere from the mid 30′s to the 40′s depending on who you talk to. Around 1936 unemplyoment began a dramatic recovery. 1943 is an incredibly late date to set the end of the depression. Secondly, what does “25% lower than it should be” mean? It appears by what you’ve said that unemployment was gaining ground, just slower than one might expect. That’s actually good, right?

      And third, I’ve read the study you are talking about. All of their estimations are theoretical, and are based on allowing prevailing market forces to work. Here’s the problem. Pure capitalism is like pure communism. Neither exists in the real world, because corperations with large ammounts of money use that cash to unfairly compete with smaller businesses and to generate large but unsustainable financial advances that eventually collapse if left unregulated.

      As a matter of fact, the Great Depression started because Hoover did precisely that and allowed investments in the stock market to get so out of control that all of a sudden it all imploded. To suggest that we should then fix the problem by allowing unrestricted capitalistic forces to work their magic is incredibly callous to reality. That’s like putting out a fire with a flamethrower.

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