An Engineered Market

This is an email I received that is is quite enlightening:


All economies are engineered since the beginning of social organization. Once a group of hunter gatherers got to a critical mass of people the became a tribe and found consensus on a chief. part of the chief's responsibility was to control trade. If he did well then the tribe grew and prospered if not then they ceased to exist as a tribe or they got a new chief. Knowledge is not power and neither is action from knowledge. True power comes from the control of the action of others.

So how does this relate to our current economic situation? We have had 26 downturns in the economy with the worst being the "Great Depression" of 1929 to 1941. This was one was different because of its worldwide effect and its severity. The Depression has been raging since August of 1929. Unemployment is up to 25% of the population. Deflation has dropped prices of goods and commodities; farms and houses are going into foreclosure at an alarming rate. Almost 10,000 banks have closed and people are scared. Then suddenly in March 1933 everything gets better overnight. Coincidentally Franklin Delano Roosevelt (FDR) takes over as President that very month. He starts his first 100 days passing New Deal programs at a record pace. But I thought everything got better in March 1933? Why did he enact all these programs if had already gotten better? I will look at that and more in this missive. I will some of the programs, agencies, and significant persons involved. I will discuss the success and failures of each of these and then decide whether the New Deal was a good deal or a bad deal.

The National Recovery Administration (NRA) was one of FDR’s first programs enacted. Its mandate was simple fix prices. It was run by Hugh Johnson appointed by FDR himself. Once prices were stabilized the workers would get higher wages through collective bargaining; sounds like a great idea doesn’t it. There were parades with thousands of citizens marching and showing their support. Now if prices stay the same and wages go up what happens to profits? The only way to make more money was to do more with less people, not a good way to reduce unemployment. Business started using the NRA codes to stifle competition and pushed to raise prices. In 1935 the Supreme Court declared the National Industrial Recovery Act (NIRA) unconstitutional making the NRA defunct. Apparently Congress had delegated legislative power to the executive branch to approve codes with the force of law; sounds familiar doesn’t it.

FDR created the Civilian Conservation Corps (CCC) finding work projects for young men, the Federal Relief Administration giving half a billion to states to cover unemployment, and the Tennessee Valley Authority (TVA) to build dams for hydro-electric power. He created the Securities Exchange Commission (SEC) as a watchdog for Wall Street, The Home Owner’s Loan Corporation to prevent foreclosures, the Federal Deposit Insurance Corporation (FDIC), the Civil Works Administration (CWA), and the Works Progress Administration (WPA). What does he get for all this enacting? The share our wealth society founded by Huey Long wanting to redistribute income and wealth, labor riots, strikes, a 3 percent decline in unemployment and a marginal rise in the Gross National Product (GNP).

The second new deal starts with the National Labor Relations Act by Senator Robert Wagoner. Now FDR gets a National Labor Relations Board (NLRB) protecting their right to organize and collectively bargain. The Social Security Act creates a federal pension through a new payroll tax. The Wealth Tax Act hits the rich, inheritors, and corporate profits. The public utilities are reorganized under the Public Utility Holding Act. The Banking Act gives FDR the Federal Reserve Board where members are positions are presidential appointments. What does he get for all this? By 1938 the GNP is down, unemployment at 19% and the stock market plunges by 25 percent.

I believe the New Deal accomplished quite a few of its goals of social and political reform. I didn’t agree with Theodore Roosevelt’s grab for centralized executive power at the expense of congress and I agree with the Supreme Court finding the AAA and the NRA unconstitutional. This was definitely the time social reengineering or the American culture and psyche. In my opinion the New Deal did not get America out of the Great Depression. That was caused by World War II. It did prove that massive government spending can have an effect on the economy albeit a short term effect in my opinion. I am concerned that we are doomed to repeat this process with the current administration and economy. I learned a lot researching this and the similarity between now and then frankly scares the hell out of me.


My response:

Wow, that was quite an email. Tons of details I quite frankly wasn't familiar with. And filled with an alphabet soup of government acronyms. But really, you need to project all the way to the end of WWII, because the government grew and grew and life got even harder with shortages and rationing. The Great Depression didn't end until the massive government takeover of the economy was massively scaled back in the months and years after VJ day. That coupled with the ruinous destruction of the economies of the rest of the Western world, and the US economy grew at an unprecedented rate.

You also leave out the role of the Federal Reserve, astonishingly. Created in 1912, it created the credit bubble that fostered the 'roaring twenties' which popped in 1929. Then for the duration of the 30's it UNDERprinted the currency. There literally was almost no $$$ to be had. Plus all of the programs under FDR were funded with public debt, not to mention WWII.



Thoughts anyone?