The Hobo Philosopher

On Economics - Private sector jobs vs Public sector jobs

Obama and the Federal Reserve

President Obama has both the Right and the Left in a state of confusion over his economic solutions. Who is correct, the Right, the Left, or president Obama?
The extreme Right basically is advocating what they have always advocated – inaction. Their historical answer in times of economic stress has always been Prayer, Poverty and Providence. Let the banks fail, let Detroit fail, let people lose their homes, let unemployment soar, let charities and soup kitchens take care of the poor and unemployed, let God’s invisible hand inspire and guide the system – Laissez-faire. Despite the general acceptance on the Right that this is a credible answer, history says otherwise and morality and ethics will challenge any movement in that direction.
This conservative notion is a good idea if the goal is to vanquish government and foment a revolution. As the critics of this policy state, “The less we do the worse we will all fair.”
Both the Left and the Right bring up the 1929 Great Depression and the role of the Federal Reserve. Both sides somehow credit the Federal Reserve with wrong doing.
The Right claims that it was the Federal Reserve that caused the 1929 Depression. This is false.
We can argue until the cows come home about what caused the 1929 Depression but the basic arguments are not so complicated.
Some claim that excessive negative competition and overproduction in the marketplace, lead to a negative spiral and thus to the downfall of the general economy. This amounts to a general lack of any controls or regulation on business, labor and production and substantiates the inadequacy of the Lessez-faire policy.
Others claim that the super wealthy fearing a worker revolution pulled their money from industry and investment in an attempt to stifle worker organization and cooperation. This was due to a fear of the spread of the communist and socialist philosophy on the part of the wealthy capitalists. This also negates the Lessez-Faire notion.
Another answer is that this is just the way the capitalist economic system works or that the whole thing was just an accident and couldn’t be helped. This is consistent with the Lessez-faire notion but not consistent with reason, logic history or common sense.
The stock market collapse, most agree, was due to over speculation. A speculative bubble was created. Many contend that this was done by accident in 1929. But other more radical voices of that era claim that the market crashed due to greed and chicanery on the part of the “best, brightest and wealthiest.” When the bubble burst and the smart money pulled out and ran, everything collapsed.
In evaluating today’s stock market crash the radical Right is once again claiming “accident” or at least mass complicity. Others contend that just as in 1929 it was the greed and selfishness of the best, brightest and wealthiest.
The Right goes on to claim that the government is spending too much. This has also been proved wrong by the historical facts and even by their own past evaluations of history.
Both the Right and the Left blame the Federal Reserve in the 1929 fiasco, but what did the Federal Reserve do to warrant this criticism?
Basically it didn’t do anything. It did what the Right is recommending today. Today’s Right blames the Fed for their inaction in 1929 but yet recommends that they do the same today.
Today’s Left agrees that the Fed didn’t do enough in 1929 and that is what they fear is going to happen again today.
The Right says that all of FDR’s social recovery spending was unsuccessful and that it was World War II that cured the Depression.
Well, what happened in World War II that was so influential in curing the Depression?
It was massive government spending for the war effort that made the difference - spending of up to 120 percent of the GDP. So then if there were no World War II what should have been done in 1929?
Obviously FDR should have increased Government social spending instead of cutting spending as was demanded by the Right in 1938 and as is being demanded by the Right in 2009.
After the war Truman, fearing an inevitable post war economic collapse, initiated a continuation of massive war time spending, as preparation for the impending and inevitable war with Russia (cold war) and massive government spending on the Marshall Plan (redistribution of American wealth).
The Korean Conflict then justified more military spending and it has gone on and on – but it is all “government spending.” It could have been medical and health care spending, education spending, infrastructure spending, disease research spending or aid to the impoverished spending.
What is Obama doing? He is recommending massive government spending. This is what was done by FDR in financing World War II. This is what both, the Right and the Left, Galbraith and Milton Friedman, economists past and present and the bulk of historians have analyzed as what should have been done and what was eventually done in the depression years (spending on the war). Only the extreme, radical Right claim that a massive depression is better than government intervention. No Republicans have yet to recommend World War III as a possible solution – but we’ll have to wait and see.
Today many of our Republicans are pushing for depression and a federal government collapse. They are offering the do nothing Rightwing radical response. They would rather have no government than what they term as a socialist government.
By Rightwing standards it is “socialist” if the government money goes to the American people or for social spending but if the government money goes to subsidize or support corporations, big business, banks or war and the pentagon it is “capitalism.” The only big businesses they don’t want to support are those that have labor unions. Money spent to help labor is the equivalent of “social spending” and is therefore socialistic.
They are basically anarchists. But rather than have rule by the aggregate masses, they advocate rule by the aggregate capitalists. In the past it was demanded by rightwing conservatives that anarchists be deported or put in prison.
The less than radical Right wants the government to spend but they want it to spend less and via convoluted methods like tax cuts for the wealthy or even for the middle class, and investments overseas. These policies are what brought us to this present sad state of affairs.
Spending less is not the answer. The answer is creating jobs and employment. Hitler brought Germany out of the Great Depression with no advanced knowledge of economics or the stock market. He simply believed in putting people back to work – 100% employment. He was successful. Once World War II arrived, the U.S. then achieved 100% employment via massive government war spending and our depression ended also.
The answer is spending and creating jobs – any kind of jobs. As far as government jobs versus private sector jobs, it doesn’t matter. One collects taxes off the backs of the masses and the other collects profits off the back of the masses. This is a political argument not an economic argument. It is a political preference as to who saps up the excess. From the “what stimulates the economy” point of view, it is inconsequential. It doesn’t matter - either public sector or private sector jobs will do the trick. The bulk of jobs that saved us from the Great Depression via World War II were public sector jobs – soldiers and military production, procurement, research and development. All the money was coming from the government. Some of it was filtered through private enterprise, but for the most part it was federal taxpayer’s money. And both sectors were loaded with graft, theft, and corruption but not the majority. This is always the case, but it too is inconsequential. The country as a whole would be better off without this human corruptive reality and a more positive and prosperous society would result but it isn’t necessary.
The Right wants anarchism and the Left wants Socialism. Obama is advocating a middle of the road path.
The Left wants a more powerful Federal Reserve. Some want the Federal Reserve to move into hedge funds, insurance companies and credit cards as well as banking. Obama policy is doing this but via a cooperation of responsibility of government and government agencies. Obama is enabling the Federal Reserve but holding back the power for the government and the law makers. This is safer and smarter and much more in tune with American tradition and popular opinion.
The Left wants a take over of banking and financial institutions. Obama is asking for cooperation and voluntary compliance along with new stricter rules and regulations. This is the safe road once again. If it doesn’t work the harsh road of complete takeover is still available.
The left and much of the public want to see some arrests. The administration’s answer to this has been that they must put out the fire before they can go after the arsons. This sounds reasonable unless the arsons continue to light more fires.
Again Obama is taking the middle of the road approach. If this whole problem on the part of banking and finance was just a matter of lax rules or sanctioned misbehavior then it can be corrected by new rules and sanctioned good behavior. If this has been a criminal conspiracy then the fire will continue and some heads will have to roll – jail and no bail for the bad guys and total government control, at least for a limited time.
If Obama goes to the Left he will totally alienate the Right and possibly some of the middle. If he goes to the Right, he will undermine his base and possibly lose the majority. If he continues down the middle, progress may be slower but he will maintain the majority, keep both sides hopeful, though dubious, give the guilty a chance to redeem themselves, and possibly turn the ship in an acceptable direction. All Obama has to do is show a change in direction to be considered successful. He doesn’t have to cure or revamp the entire system.