Tuesday, December 21, 2004

History repeats itself and people repeat history.  

A few postings ago RDF quoted Arthur Link's observations on the 1920's ~ see: Future Rama Lama.

Responding to that post reader Kyle Lanclos wrote in with the following on the topic:
A quote from Edward Chancellor's "Devil Take the Hindmost" (no, this is not my typical idea of light, pleasant reading), in sort of a Mad Libs format to show how history can repeat itself:

As [president] famously expressed it, "the business of America is business." His Treasury Secretary, the wealthy Philadelphia banker [banker], agreed. In his opinion, government existed mainly to facilitate business, indeed it was no more than a business itself. [Banker] set about improving the conditions by reducing the top rate of income tax from [high percent] to [low percent] percent, cutting corporation taxes to 2 1/2 percent, and slashing capital gains taxes. As a result of these tax cuts, the rich had more money to invest in stocks, companies reported higher after-tax earnings, and more of the profits of speculation could be retained by the players. While the rich became richer during the [decade], unions were weak and workers were unable to enjoy the benefits of their improved productivity. At his Baton Rouge plant, [car maker] employed armed thugs to terrorise his employees against collective action. Unable to maintain their share of the economic surplus, workers experienced a decline in real wages during the decade, and corporate profits rose as a percentage of national income. Capitalism, however, requires consumers as much as savers and demand was maintained by the massive expansion of consumer credit, then called "instalment purchases." [...] There was a decidedly speculative element in the growth of instalment credit: present consumption was being financed with anticipated earnings. Put another way, in their appetite for gratification, the consumers of the [decade] were devouring their future. When the future eventually arrived, they found the cupboard bare. At the time, however, instalment purchases were seen as yet another beneficial new era development. Credit and consumption, it was argued, formed a virtuous circle since from the immediate increase in prosperity would come the ability to pay off debt.

With a few judicious snips, it sounds a lot like the present. But when you fill in the blanks:

president: Coolidge
banker: Andrew Mellon
high percent: 65
low percent: 32
decade: 1920's

...we're leading up to the great depression. From reading the book, bouts of speculation come and go (often at the peril of the unexperienced speculator), but it takes a more widespread impact for it to affect the economy at large.

How about massively over-extended consumer credit, and a helping-the-big-guy government, while said consumers reap none of the economic benefits? Sounds disturbingly similar to our present economy. When the next speculation bubble bursts, will it take the consumers with it? To a large degree, consumer spending helped ease the pain of our most recent recession, but those mortgages and credit cards have not been paid off.

One added note here with respect to the post WW1 speculation of the 1920's - which did have a huge and widespread impact especially with respect to industrial workers and communities (the cotton mill towns as one example) - was the combination of a largely clueless and vapid mainstream media bewitched by the bells and baubles of faith based investing and a political cheerleading environment which was seemigly without a clue when it came to the gravity of the situation at hand. These were the days of Arthur Brisbane and great promises of two chickens in every pot. A rollercoaster ride of wild boons and busts. Wage cuts due to a surplus of labor returning from post war Europe, over production and dumping and slowdowns, and race to the bottom pricing. Everyone for themselves. A kind of dotcom bubble Jesus shouting laissez faire freebooter Klansman on bad-acid world gone insane.

(Kind of like Scarborough Country meets Kudlow and Cramer meets WalMart.)

And the Great Depression was its great ultimate hangover. Of course all of it was all the fault of the poor little flapper with a hole in her stocking, and theories of evolution, and bobbed hair, and lazy IWW ingrates and the ultimate evildoer, the bootlegger, each of which were no doubt trying to destroy Christmas.

The heroic cleansing neo-falangist mumbo jumbo of Pat Buchanan and William Donohue, well, they mosey into the picture a little later. As you might have noticed lately.

Hey. You can't go home again.


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