The Great Depression and the New Deal: Causes, Effects, and Cures
History is like a mirror, reflecting our past, it can be used a guide to help us through the darkness of a depression or to be used to deflect an impending disaster for happening if we have the wisdom and knowledge to learn from our past mistakes.
While there are always opposing points of views on how to handle the economy, the progressives who believe in government and its responsibility to the people above all else, and the view of conservatives who feel that capitalism can self regulate an imposing governments will undermines the economy.
Throughout the later part of our history there has been a struggle between the middle classes and the wealthy. We have been plagued with boom or bust economy throughout our history. When this happens everyone winds up suffering, even those who appear to be ahead of the game at one point are affected. Our recent economy is no acceptation to the rule. Sometimes we can see the future, through the actions of the past.
The great crash signaled the start of the greatest depression in the history of the modern world “The Great Depression was a worldwide economic downturn that started in 1929 and ended around 1939, and is now used as a benchmark on how far the world's economy can fall” (US Gov).
During the last U.S. depression there were many parallels to the conditions we find ourselves in today. Perhaps in looking back we can dissect the facts, symptoms and solutions’ examining them to see if any of those solutions can be applied to today’s failing economy.
Causes
In the first few years after the crash the national income fell by half, factory wages also fell by half. Approximately 85,000 businesses failed. European governments defaulted on their war debts to the U.S. Led by Great Britain in 1931, 41 nations abandoned the gold standard. Foreign government’s expectations were to devalue their currencies by expanding their supply of money. Declining sales abroad sent crop prices to new lows. Banks closed panic ensued, consequently there was a run on money. In 1928 construction and the automobile industries began to lose their vitality as demand increased. Industry had done well by keeping the cost of labor and raw materials low as well as by decreasing productivity, but they used their profits to expand factories rather to pay workers higher wages. Without strong labor unions or government support, real wages never kept pace with productivity. Consumers and workers did not have enough money to buy the products they were making more efficiently and at lower costs. Consumer debt rose by 250 percent. By 1929 1percent of the population owned 36 percent of all personal wealth. The wealthy saved their money and did not put it back into the economy. The working and middle classes did not have enough money to keep the economy going (Davidson, Giennap, et al 2008 p.718-19). Mismanagement greed and the emergence of a new type of executive’s half banker- half broker led banks to divert more funds into speculative investments.
Effects
Since the Glass-Steagall acts repeal, banking economic situations parallels the same kind of irresponsible bank –stock broker mergers where speculation where poisonous derivatives and hedge fund transactions led to the banking disaster we have been experiencing, causing huge brokerage houses and Banks to fail. The government had to bail them out. Unions have been weakened, salaries are on the decline, automobile sales declined to the level where the largest Corporations Ford, GM, and Chrysler were in the red, and going into bankruptcy, the government had to bail them out.
The presidency of Herbert Hoover began his presidency with optimism, but, it soon turned into a personal and professional tragedy. Within his inauguration speech which was held in March, 1929 he announced, “I have no fear for the future of our country, it is bright with hope, unfortunately within seven months a depression began. Hoover put in a lot of effort trying to end the depression; it was he who coined the name “depression” (Davidson, Giennap, et al 2008 p.729). Unfairly and unfortunately for him Hoover was blamed for the depression. In a sense Obama’s situation parallels this because he is now being blamed for the terrible situation due to the rhetoric of his opposition. “For all of president Hoover’s promise, innovation and intelligence, his was to be a transitional presidency, important as a break-through from do nothing president’s of past depressions and as a herald of new, more active presidents to come” (Davidson, J.W. Giennap, W.E., et al 2008 p. 730).
Relief organizations with too little money and not enough resources attempted to make headway against the depression’ private charities had dwindled to 6% in all refunds. Ethnic charities try to ward off disaster of their own (Davidson, J.W. Giennap, W.E., et al 2008p.730). “The head of the Federation of Jewish Charities warned that private charity efforts, were failing). Eventually the government would be forced to step into the situation and bring relief on a large scale” (Davidson, J.W. Giennap, W.E., p.730 et al 2008” p.730). City Treasuries became depleted because nearly 30% of taxpayers fail to pay or had fallen behind on paying their taxes. By the end of 1931, Detroit, Boston, and scores of other cities were bankrupt. The state capitals were no of assistants to the city’s because after a decade of wastefulness and mismanagement, many states were already running deficits. Importantly, as businesses and property values collapsed, tax bases shrunk along with state revenues (Davidson, Giennap, et al 2008 p. 730)
Which most economists considered one of the consistent negatives effects of a severe downturn in the economy. New York established its temporary emergency relief administration (TERA) in 1931) no state had any agency or a goal to handle the problem of unemployment (Davidson, Giennap, et al 2008 p.730).
Herbert Hoover assumed leadership in combating the depression. Previously being the secretary of commerce under Harding and Coolidge, Hoover had formed the conceptual philosophy that government should foster private solutions to public problems by promoting voluntary cooperation among businesses and between business and government (Davidson, Giennap, et al 2008 p.731). Presidents of the past had feared any intervention by government would upset an actual working of the economy and that their sole responsibility was to keep the budget balanced” (Davidson, Giennap, et al 2008p.731) Hoover understood the vicious cycle in which rising unemployment drove down consumer demands, he also appreciated the need for stimulating investment. Hoover set in motion an unprecedented program of government activism. Hoover rallied business leaders who pledged to maintain employment, wages and prices-only to see those leaders backed down as the economy sputtered. He pushed a tax cut through Congress in 1930 in order to increase the purchasing power of consumers but when the cuts produced an unbalanced Federal budget, he reverse the course. He firmly believed that capitalism would generate its own recovery and that a balanced Federal budget was required in order to restore the confidence of business. Too much government’s action he worried might just destroyed the very economic system he was seeking to save, so he agreed to tax increases and 1930 which further undermined investment and consumption. His policies failed. Equally disastrous the president endorsed The Smoot-Harley Tariff (1930) to protect the United States from cheap foreign goods. That bill resulted in little but retaliatory tariffs from abroad, which choke world trade and reduced American sales overseas. Today we have incurred a similar problem with oversea manufacture of cheap production goods, not only do we have that problem but we also have to deal with a relatively new problem of our jobs being outsourced by huge corporations. Presently, Obama is trying to negotiate that china raise the value of its currency Lawmakers on Capitol Hill have introduced legislation calling for trade sanctions against China if it does not change its currency policy. And unions and manufacturers cite the undervalued Chinese currency as a major culprit for lost jobs (Landler, M. & Jacobs, A. 2010) (Learning from past history, if the issues are not settled it could lead to trade wars and boycotts, as we had in the thirties).
Hoover spent one billion dollars on public works more than the sum total of his entire predecessor combined-did not approach the 10 billion needed to imply it only half the jobless. Spending such a huge sum seemed unthinkable because the entire Federal budget at the time was $3.2 billion dollars. Under pressure from Congress, Hoover took action to save the banks. Between 1930 in 1932 some 51,000 banks one under when worried depositors took their money and ran. Hoover permitted the creation of the Reconstruction Finance Corporation (RFC) in 1932; the agency’s purpose was that it could lend money to banks and their chief corporate debtors-railroads and insurance companies within three months failures dropped from 70 a week to 1 every two weeks. The Glass-Steagall banking act (1932) made it easier for banks to loan money by adding two billion dollars of new currency to the money supply, backed by Federal Reserve government bonds. Despite the success Hoover drew criticism for rescuing banks and not people, which in my opinion was similar to the bail out of the banks that President Bush put into place and President Obama recently administered. (There are objections to this on the right claiming too much government and left claiming not enough allocated for recovery of people through small business loans and addressing the Mortgage crisis in today’s economy).
“Although Hoover refused to give Federal aid to the unemployed, fearing a giveaway program would damage the freedom and the initiative of recipients, he worried it might also produce an underclass” (Davidson, Giennap, et al 2008 p. 732). Hoover felt that the bureaucracy needed to police recipients would meddle in private lives of citizens and along with it bringing corruption and waste. “Hoover wrongly assumed neighborliness and cooperation would be enough” (Davidson, Giennap, et al 2008 p. 732).Today the same argument is repeated by the right, saying that poverty should be left to charity.
“Unemployment continued to get worse; finally Hoover started to soften his stand and permitted congress to pass the Emergency Relief and Construction Act. It authorized the RFC to lend up to 1.5 billion dollars for the reproductive public works that paid for themselves, like bridge tolls and slum clearance. Another 300million went to states as loans for the direct relief of unemployment. In this depression $300 million was a pittance. When the governor of Pennsylvania requested loans to furnish the destitute with 13¢ a day for year, the RFC sent only enough for 3¢ a day” (Davidson, Giennap, et al 2008 p. 733). (Much Too little, and too late)
In the election of 1932, although the economy was deplorable, with no improvement in site, Republicans still endorsed Hoover and his entire depression program at their convention in Chicago. Franklin D. Roosevelt was the democratic choice. Roosevelt promised a new deal for the American people. Hoover denounced Roosevelt’s “New Deal” calling it a dangerous departure from time honored traditions, warning that would destroy American values and institution and would build a bureaucracy such as we have never seen in our history. ” It didn’t matter; the deepening depression ensured that virtually any democratic candidate would defeat Hoover. Roosevelt won the election by a decided of 57%. By now ¼ work force was unemployed 30,000,000 families’s had no means of support and there wasn’t enough money in the treasury to meet the Federal payroll. At Roosevelt swearing in ceremony the stated “let me assert my firm belief that the only thing we have to fear is fear itself “in the election of 1932, Republicans still stuck with Hoover and endorsed his entire depression program at their convention in Chicago. Franklin D. Roosevelt was the democratic choice.
Roosevelt promised a new deal for the American people. Hoover denounced Roosevelt’s “New Deal” as a dangerous departure from time honored traditions, calling it a dangerous departure from time honored traditions, warning that would destroy American values and institution and would build a bureaucracy such as we have never seen in our history. ” It didn’t matter; the deepening depression ensured that virtually any democratic candidate would defeat Hoover. Roosevelt won by a decisive 57%.” By now ¼ work force was unemployed 30,000,000 families’s had no means of support and there wasn’t enough money in the treasury to meet the Federal payroll. At Roosevelt swearing in ceremony the stated “let me assert my firm belief that the only thing we have to fear is fear itself”, he promised exercise broad executive powers to wage a war against the emergency.
Cure
In the spring of 1933 the new deal started to unfold with a chaotic three months burst of legislation known as “The hundred days” Roosevelt launched the new deal with record breaking legislation in his first hundred days in office on March 5th, the day after his inauguration, Roosevelt ordered every bank closed for a four day (later extended to 8) day bank holiday as he called it. On March 9th the president introduced emergency banking legislation which the house passed sight unseen, and which senate sanctioned later on the same day. Roosevelt signed it that evening (Davidson, Giennap, et- al 2008 p.736)
The emergency bill contained a plan to let sound banks open immediately with government support. Troubled banks would be handed over to the federal “conservators, “who would guide them to solvency. On Sunday, March 12, Roosevelt explained to the public what measures were being taken, it was the first of many fireside chats. When the banks reopened the next day deposits exceeded withdrawals.
“To restore confidence in government, Roosevelt pushed through the Economy Act in March 1933, slashing $400 million in veteran’s payments and 100 million in salaries from the federal budget. To guard against future stock crashes, financial reforms gave government greater authority to manage the currency and regulate stock transactions. For liberals and conservatives alike, the Great Depression serves as a natural debating point that "justifies" or "refutes" various economic policies To understand the Great Depression , it is important to know the theories of John Maynard Keynes "father of modern economics" (Kangas, S. 1997) “ John Maynard Keynes is doubtlessly one the most important figures in the entire history of economics. He revolutionized economics with his classic book, The General Theory of Employment, Interest and Money (1936). This is generally regarded as probably the most influential social science treatise of the 20th Century, in that it quickly and permanently changed the way the world looked at the economy and the role of government in society. No other single book, before or since, has had quite such an impact” (newschool.edu). “John Maynard Keynes had actually recommended the kind of deficit spending that Roosevelt was using. Keynes startling theory called on government not to balance the budget but to spend its way out of the depression. When prosperity returned he argued the government could pay off its debts through taxes. This deliberate policy of “counter cycling” action (spending in bad times, taxing in good) was designed to compensate for swings in the economy” (Davidson, Giennap, et al 2008 p. 755).
In April 1933, Roosevelt dropped the gold standard and began experimenting with the value of the dollar to boost prices. Later that spring, The Glass-Steagall Banking Act restricted speculations by banks and more importantly created federal insurance for bank deposits of up $2,500.Under the Federal Deposit Insurance Corporation, the results were that few banks failed for the rest of the decade then the best year in the twenties. The Securities Exchange Act (1934) established a new federal agency, the Securities Exchange Commission.” (Davidson, Giennap, et al 2008 p.736
To meet the need to alleviate starvation, Congress created the Federal Emergency Relief Administration in May of 1933. In two the two years FERA’s existence it furnished more than 1 billion in grants. To states local areas and private charities Mortgage relief came in 1934 for the millions who had lost their homes, in the Home Owners Loan Act. Congress passed the soil Conservation and Domestic Allotment act (1936), in it farmers were now subsidize for practicing conservation and the other agencies try to help impoverished farmers. The Farm Credit Administration refinance about a fifth of all farm mortgages (Davidson, Giennap, et al 2008 p. 739).
In 1935 the resettlement administration gave marginal farmers a fresh start by moving them to better land. Beginning in 1937 the farm security administration furnished low interest loans to help tenants by family farms. In neither case did the rural poor have enough political leverage to obtain sufficient funds from Congress. Fewer than 5000 family’s (of the projected 500,000” were resettled, and less than 2% of tenant farmers receive loans (Davidson, Giennap, et al 2008 p.739-40).
“In the second new deal of 1935 – 1936, a year voters had broken and president by returning the party in power to office, giving the democrats the largest majority in decades.” The emphasis shipped in from planning and collaboration with business to greater regulation of business, broader relief, and boulder reforms to protect Americans against a perilous plummet (Davidson, Giennap, et al 2008 p. 740).
The Social Security Act passed in 1935; it sought help to who could not help themselves. To assist the elderly and other people suffering from the Great Depression, Roosevelt enacted his New Deal. Roosevelt hoped that his New Deal would allow Americans to cope with the Great Depression, would help end the current economic downturn, and would help prevent another depression from occurring in the future. “The Social Security Act probably has had the longest lasting impact of any of Roosevelt's New Deal programs. This legislation, implemented in 1935, collected one percent of workers' wages to be set aside for the workers' retirement. Businesses also had to contribute an amount equal to their employees' contributions. Once workers reached retirement age, they would receive this money back in monthly payments, assisting these people in supporting themselves when they were less employable due to their age. At first, the monthly stipends varied from ten dollars to eighty-five dollars per month. In the beginning the Social Security Act excluded domestic servants and farm laborers, but it eventually also included these employees as well” (ohiohistorycentral.org).
Roosevelt responded to the growing hostility of business by bucking the wealthy and powerful in 1935. The revenue act in 1935(the wealth tax) threatened the rich with high taxes, although Congress had the last word because in its final version of the law, it levied only moderate taxes on the comparatively small number a high incomes and inheritances (Davidson, Giennap, et al 2008 p.743) .“The Banking Act of 1935 centralized the money market in the Federal Reserve Board. By controlling interest rates and the money supply, the government increased its abilities to compensate for the swings in the economy” (Davidson, Giennap, et al 2008 p743). “Utilities Holding Company act (1935) limited the size of utility companies. Those giant holding companies produce high profits for speculators and higher prices for consumers. Although Congress deluded the act, as it had a wealth tax, New Dealers could still claim the political victory” (Davidson, Giennap, et al 2008 p.743).
By 1935 the Nation had achieved some measure of recovery, but businessmen and bankers were turning more and more against Roosevelt's New Deal program. They feared his experiments, were appalled because he had taken the Nation off the gold standard and allowed deficits in the budget, and disliked the concessions to labor. Roosevelt responded with a new program of reform: Social Security, heavier taxes on the wealthy, new controls over banks and public utilities, and an enormous work relief program for the unemployed political sociologists over the past twenty years. In particularity the New Deal has served as a major empirical context for developing, testing, or applying broader theoretical models of political change in the United States” (whitehouse.gov) The house enacted the Securities Act of 1933, often referred to as the "truth in securities" law, the Securities Act of 1933 had two basic objectives: require that investors receive financial and other significant information concerning securities being offered for public sale; and prohibit deceit, misrepresentations, and other fraud in the sale of securities. There have been many new laws enacted since. “The most recent was the 2002 Sarbanes Oxley Act of 2002, which was passed after a public demand which grew due to the scandalous exposure of several high level financial scandals in which a number of big corporate giants were involved. A number of Fortune 500 companies were found involved in these scandals and the investor confidence, had hit rock bottom. The purpose of Sarbanes Oxley Act was to empower the Securities and Exchange Commission of the U.S. so that it can keep an eye on the corporate governance and the investor's confidence in the market shall be reinstated. Despite overflowing amounts of legalese, there are two major purposes of the Sarbanes Oxley Act. They are to ensure transparency and accountability by implementation of Sarbanes Oxley compliance. These purposes are to be fulfilled at the pain of fine or punishment or both. President Bush stated that, “no law of such significance to businesses has been signed since the presidency of Franklin D. Roosevelt in the U.S. which reflected the significance of this act” Bling, K. (n.a).
From the right, there charges of some wealthy business executives and conservatives that Roosevelt was the enemy of private property and a dictator in the making despite the fact that Roosevelt’s methods did save the economy (Davidson, Giennap, et al 2008 p.741).
They are the same kind of mentality, and fight everything that Obama presents such as the spending programs that congress passed to stave off job losses and stimulate the economy.
We need politicians with the political courage to stop the current trends and put back methods that kept Wall Street under bit and bridle and yet despite all of the experience of the greed without reason or restraint still prevails.
The 1987 Wall Street crash served to "clearing the decks" so that only the "fittest" survive. In the wake of crisis, a massive concentration of financial power has taken place. From these transformations, the "institutional speculator" emerged as a powerful actor overshadowing and often undermining bona fide business interests. Using a variety of instruments, these institutional actors appropriate wealth from the real economy. They often dictate the fate of companies listed on the New York Stock Exchange. Totally removed from entrepreneurial functions in the real economy, they have the power of precipitating large industrial corporations into bankruptcy.
In 1993, a report of Germany’s Bundesbank had already warned that trade in derivatives could potentially "trigger chain reactions and endanger the financial system as a whole". While committed to financial deregulation, the Chairman of the US Federal Reserve Board Mr. Alan Greenspan had warned that: "Legislation is not enough to prevent a repeat of the Barings crisis in a high tech World where transactions are carried out at the push of the button". According to Greenspan "the efficiency of global financial markets, has the capability of transmitting mistakes at a far faster pace throughout the financial system in ways which were unknown a generation ago..."What was not revealed to public opinion was that "these mistakes", resulting from large-scale speculative transactions, were the source of unprecedented accumulation of private wealth. By 1995, the daily turnover of foreign exchange transactions (US$ 1300 billion) had exceeded the world’s official foreign exchange reserves estimated at US$ 1202 billion. The command over privately-held foreign exchange reserves in the hands of "institutional speculators" far exceeds the limited capabilities of central banks, – i.e. the latter acting individually or collectively are unable to fight the tide speculative activity (Chossudovsky 2008).
According to the Economic Policy Institute,
China’s entry into the World Trade Organization (WTO) was supposed to improve the U.S. trade deficit with China and create good jobs in the United States. But those promises have gone unfulfilled: the total U.S. trade deficit with China reached $235 billion in 2006. Between 2001 and 2006, this growing deficit eliminated 1.8 million U.S. jobs The world’s biggest retailer, U.S.-based Wal-Mart was responsible for $27 billion in U.S. imports from China in 2006 and 11% of the growth of the total U.S. trade deficit with China between 2001 and 2006. Wal-Mart’s trade deficit with China alone eliminated nearly 200,000 U.S. jobs in this period. Jobs in the manufacturing sector pay higher wages and provide better benefits than most other industries, especially for workers with less than a college education. China has achieved its rapidly growing trade surpluses by purchasing more than $1 trillion in U.S. Treasury bills and other government securities over the past few years in order to artificially and illegally reduces the value of its currency and thereby lowers the cost of its exports to the United States and other countries. It has also repressed the labor rights of its workers and suppressed their wages, making its products artificially cheap and further subsidizing its exports. Wal-Mart has aided China’s abuse of labor rights and its violations of internally recognized norms of fair trade behavior by providing a vast and growing conduit for the distribution of artificially cheap and subsidized Chinese exports to the United States. The Wal-Mart effect: Its Chinese imports have displaced nearly 200,000 U.S. jobs (Scott.R 2006)
During 'National Prohibition" the United States of America banned the transportation, sale, and production of liquor, this was done by way of the 18th amendment to the constitution on January 16, 1919. Soon, one of America's largest industries was completely wiped off the face of the country, or was it? Many liquor serving establishments kept on operating during prohibition. Soon, the industry was reaching profits that it could have never before achieved because of the status given to it by being banned (the forbidden fruit). Organized crime grew rapidly and mass killings and gang wars were fought over the trickling supply of liquor. This was the era of gangsters, including the most famous gangster of all, Al Capone. Music and other media also changed during National Prohibition, ushering in jazz. Gangster movies soon became the most popular genre of film, reflecting the careless lawbreaking of the time. After a long period of rampart crime and embarrassment, for the government, the politicians finally realized the error of their ways and ended National Prohibition, but not before it left a profound stain in the history of our nation. In 1932 , within a month after Franklin Delano Roosevelt's election, the alcohol content allowed in beer was raised to 3.2 percent, soon afterward the 18th was Amendment was repealed it was the only constitutional amendment to ever be repealed(Thinkquest.Org).
We should have learned our lesson with prohibition of alcohol, which had instigated illegal activities where innocent bystanders were killed and huge syndicates of crime were formed, but we didn’t because making drugs illegal caused an underground illegal drug culture of gangsters many of the same problems prohibition caused are happening again. Creating law that made drugs illegal did more to develop crime, illegal business and incarcerate otherwise law abiding citizens. The so called war on drugs is costly and a losing proposition. A Washington Post article stated “Thirty-six years and hundreds of billions of dollars after President Richard M. Nixon launched the war on drugs, consumers worldwide are taking more narcotics and criminals are making fatter profits than ever before. The syndicates that control narcotics production and distribution reap the profits from an annual turnover of $400 billion to $500 billion. And terrorist organizations such as the Taliban are using this money to expand their operations and buy ever more sophisticated weapons, threatening Western security. In the past two years, the drug war has become the Taliban's most effective recruiter in Afghanistan. Afghanistan's Muslim extremists have reinvigorated themselves by supporting and taxing the countless peasants who are dependent one way or another on the opium trade, their only reliable source of income The Taliban is becoming richer and stronger by the day, especially in the east and south of “The war on drugs is defeating the war on terror” (Glenny, M 2007).
The war on drugs is costly and losing propositions in my opinion. The success of the illegal narcotics industry isn't confined to Afghanistan. Business is booming in South America, the Middle East, Africa, and across the United States “(Glenny, M 2007).
Since 1980, the country's prison population has quadrupled, with the South accounting for nearly half of that increase. In 2008, the Pew Center on the States released a study revealing that the United States continues to lock up record numbers of people in jail and prison -- one out of every 100 people is behind bars. Indeed the South continues to lead in U.S. prison population growth, and the rising costs of incarceration have taken a definite significant toll on Southern state budget. Facing south” reported in June 2008 that Kentucky, which has experienced the nation's largest prison population increase, suffered with state budget woes hampered by the amount of money the state spent on prisons. In its 2008 study Pew found that total state spending on corrections--including bonds and federal contributions--topped $49 billion in 2007, up from $12 billion in 1987. The Pew Center's Public Safety Performance Project has recently projected that state and federal prison populations -- under current policies -- will grow by more than 190,000 by 2011, to about 1.7 million, at a cost to the states of $27.5 billion, reports the Associated Press" (southern state .org). At least half of the monies we spend on prison and law enforcement, court processes etc. are because of the drug crimes
Although President Roosevelt’s New Deal was somewhat successful, it failed to achieve full recovery, in my opinion that because of the forces of interests that constantly lobbied to dilute his initiatives. “In the 1930s and 1940s, southern representatives possessed a structural veto over Democratic party policy aims, over the course of the New Deal, wartime, and post-war congresses, their utilization of this potential increased steadily” (Katznelson, L., Geiger, K., and Kryder, D. 2003). “The consequences of Southern power have also been widely acknowledged, Southern members of Congress were able to use their leverage to ensure that New Deal social programs did not provide sufficient benefits for African Americans to disrupt the Southern agrarian economy. The overall impact of New Deal relief programs was thereby blunted upon implementation” (Manza2000). Today the southern Republicans are trying to obstruction much of the progressive legislation, President Obama and The House has been putting forward.
Even though there are always many points of views on how to handle the economy, blending ideas of the progressives and liberals, who believe in government and its responsibility to the people, as well as the view of conservatives who feel that government regulation is a hindrance to large business and can get in the way of profits. Recently we had the same symptoms and consequences that have occurred in the 20s and 30s. Perhaps in studying the past, and paralleling events they in common with the present, we might be able to offset some of the problems we are having now. History is like a mirror, reflecting back our present and sometimes we can change the future, through seeing the successful solutions and actions of the past.
Reference
Anonymous (2005) Prohibition the Nobel experiment retrieved on April 4, from http://library.thinkquest.org/04oct/00492/index.html
Bling, K. (n.a.). Purpose of Sarbanes Oxley Act, Retrieved on April 4, 2010 from http://ezinearticles.com/?Purpose-Of-Sarbanes-Oxley-Act&id=713192
Chossudovsky, M. (2008). Global Financial Meltdown: Sweeping Deregulation of the US Banking System Retrieve April 4, 2010 from http://www.globalresearch.ca/index.php?context=va&aid=10588
Davidson, J. W., Gienapp, W. E., et al. (2008). Nation of nations: a narrative history of the American Republic (6th ed., Vol. 2). Boston: McGraw Hill
Kangas, S. (1997) "The Great Depression: Its Causes and Cure," Liberalism Resurgent Retrieved March 22, 2010 from http://www.huppi.com/kangaroo/THE_GREAT_DEPRESSION.htm
Katznelson, L., Geiger, K., and Kryder, D. (2003). Limiting Liberalism: The Southern Veto in Congress, 1933-1950, Political Science Quarterly, Vol. 108, No. 2 (Summer, 1993), pp. 283-306 The Academy of Political Science http://www.jstor.org/stable/2152013
(Katznelson, I., Geiger, K. and Kryder, D. 2003). John Maynard Keynes, 1881946
Retrieved from http://homepage.newschool.edu/het//profiles/keynes.htm on March 22, 2010
Manza, J. (2000). Political Sociological Models of the U.S. New Deal, Annual Review of Sociology, Vol. 26 (2000), pp. 297-322 Published by: Annual Reviews Stable URL: http://www.jstor.org/stable/223446 Accessed: 22/03/2010 21:11
Scott, R. (2006). The Wal-Mart effect: Its Chinese imports have displaced nearly 200,000 U.S. jobs Economic Policy Institute. Retrieved April 4, 2010 from http://www.epi.org/publications/entry/ib235/
"Social Security Act", Ohio History Central, July 1, 2005. Retrieved March 22, 2010 from http://www.ohiohistorycentral.org/entry.php?rec=1433retrieved
White house about the presidents/ Roosevelt. Retrieved on March 22, 2010 from http://www.whitehouse.gov/about/presidents/franklindroosevelt
USA Government Made Easy retrieved on March 22, 2010 from http://answers.usa.gov/cgibin/gsa_ict.cfg/php/enduser/std_adp.php?p_faqid=822
Landler, M. & Jacobs, A. (April 03 2010) Amid Thaw, Obama Talks with Chinese Leader NY Times, Retrieved on April 4, 2010 from http://www.phayul.com/news/article.aspx?id=27039&article=Amid+Thaw%2C+Obama+Talks+With+Chinese+Leader
Glenny, M. (2007). The lost war. The Washington Post. Retrieved April 2, 2010 from http://www.washingtonpost.com/wpdyn/content/article/2007/08/17/AR2007081701716.html
Retrieved April 2, 2010 from http://www.southernstudies.org/2009/01/budget-crises-force-states-to-rethink-prison-policies.html
History is like a mirror, reflecting our past, it can be used a guide to help us through the darkness of a depression or to be used to deflect an impending disaster for happening if we have the wisdom and knowledge to learn from our past mistakes.
While there are always opposing points of views on how to handle the economy, the progressives who believe in government and its responsibility to the people above all else, and the view of conservatives who feel that capitalism can self regulate an imposing governments will undermines the economy.
Throughout the later part of our history there has been a struggle between the middle classes and the wealthy. We have been plagued with boom or bust economy throughout our history. When this happens everyone winds up suffering, even those who appear to be ahead of the game at one point are affected. Our recent economy is no acceptation to the rule. Sometimes we can see the future, through the actions of the past.
The great crash signaled the start of the greatest depression in the history of the modern world “The Great Depression was a worldwide economic downturn that started in 1929 and ended around 1939, and is now used as a benchmark on how far the world's economy can fall” (US Gov).
During the last U.S. depression there were many parallels to the conditions we find ourselves in today. Perhaps in looking back we can dissect the facts, symptoms and solutions’ examining them to see if any of those solutions can be applied to today’s failing economy.
Causes
In the first few years after the crash the national income fell by half, factory wages also fell by half. Approximately 85,000 businesses failed. European governments defaulted on their war debts to the U.S. Led by Great Britain in 1931, 41 nations abandoned the gold standard. Foreign government’s expectations were to devalue their currencies by expanding their supply of money. Declining sales abroad sent crop prices to new lows. Banks closed panic ensued, consequently there was a run on money. In 1928 construction and the automobile industries began to lose their vitality as demand increased. Industry had done well by keeping the cost of labor and raw materials low as well as by decreasing productivity, but they used their profits to expand factories rather to pay workers higher wages. Without strong labor unions or government support, real wages never kept pace with productivity. Consumers and workers did not have enough money to buy the products they were making more efficiently and at lower costs. Consumer debt rose by 250 percent. By 1929 1percent of the population owned 36 percent of all personal wealth. The wealthy saved their money and did not put it back into the economy. The working and middle classes did not have enough money to keep the economy going (Davidson, Giennap, et al 2008 p.718-19). Mismanagement greed and the emergence of a new type of executive’s half banker- half broker led banks to divert more funds into speculative investments.
Effects
Since the Glass-Steagall acts repeal, banking economic situations parallels the same kind of irresponsible bank –stock broker mergers where speculation where poisonous derivatives and hedge fund transactions led to the banking disaster we have been experiencing, causing huge brokerage houses and Banks to fail. The government had to bail them out. Unions have been weakened, salaries are on the decline, automobile sales declined to the level where the largest Corporations Ford, GM, and Chrysler were in the red, and going into bankruptcy, the government had to bail them out.
The presidency of Herbert Hoover began his presidency with optimism, but, it soon turned into a personal and professional tragedy. Within his inauguration speech which was held in March, 1929 he announced, “I have no fear for the future of our country, it is bright with hope, unfortunately within seven months a depression began. Hoover put in a lot of effort trying to end the depression; it was he who coined the name “depression” (Davidson, Giennap, et al 2008 p.729). Unfairly and unfortunately for him Hoover was blamed for the depression. In a sense Obama’s situation parallels this because he is now being blamed for the terrible situation due to the rhetoric of his opposition. “For all of president Hoover’s promise, innovation and intelligence, his was to be a transitional presidency, important as a break-through from do nothing president’s of past depressions and as a herald of new, more active presidents to come” (Davidson, J.W. Giennap, W.E., et al 2008 p. 730).
Relief organizations with too little money and not enough resources attempted to make headway against the depression’ private charities had dwindled to 6% in all refunds. Ethnic charities try to ward off disaster of their own (Davidson, J.W. Giennap, W.E., et al 2008p.730). “The head of the Federation of Jewish Charities warned that private charity efforts, were failing). Eventually the government would be forced to step into the situation and bring relief on a large scale” (Davidson, J.W. Giennap, W.E., p.730 et al 2008” p.730). City Treasuries became depleted because nearly 30% of taxpayers fail to pay or had fallen behind on paying their taxes. By the end of 1931, Detroit, Boston, and scores of other cities were bankrupt. The state capitals were no of assistants to the city’s because after a decade of wastefulness and mismanagement, many states were already running deficits. Importantly, as businesses and property values collapsed, tax bases shrunk along with state revenues (Davidson, Giennap, et al 2008 p. 730)
Which most economists considered one of the consistent negatives effects of a severe downturn in the economy. New York established its temporary emergency relief administration (TERA) in 1931) no state had any agency or a goal to handle the problem of unemployment (Davidson, Giennap, et al 2008 p.730).
Herbert Hoover assumed leadership in combating the depression. Previously being the secretary of commerce under Harding and Coolidge, Hoover had formed the conceptual philosophy that government should foster private solutions to public problems by promoting voluntary cooperation among businesses and between business and government (Davidson, Giennap, et al 2008 p.731). Presidents of the past had feared any intervention by government would upset an actual working of the economy and that their sole responsibility was to keep the budget balanced” (Davidson, Giennap, et al 2008p.731) Hoover understood the vicious cycle in which rising unemployment drove down consumer demands, he also appreciated the need for stimulating investment. Hoover set in motion an unprecedented program of government activism. Hoover rallied business leaders who pledged to maintain employment, wages and prices-only to see those leaders backed down as the economy sputtered. He pushed a tax cut through Congress in 1930 in order to increase the purchasing power of consumers but when the cuts produced an unbalanced Federal budget, he reverse the course. He firmly believed that capitalism would generate its own recovery and that a balanced Federal budget was required in order to restore the confidence of business. Too much government’s action he worried might just destroyed the very economic system he was seeking to save, so he agreed to tax increases and 1930 which further undermined investment and consumption. His policies failed. Equally disastrous the president endorsed The Smoot-Harley Tariff (1930) to protect the United States from cheap foreign goods. That bill resulted in little but retaliatory tariffs from abroad, which choke world trade and reduced American sales overseas. Today we have incurred a similar problem with oversea manufacture of cheap production goods, not only do we have that problem but we also have to deal with a relatively new problem of our jobs being outsourced by huge corporations. Presently, Obama is trying to negotiate that china raise the value of its currency Lawmakers on Capitol Hill have introduced legislation calling for trade sanctions against China if it does not change its currency policy. And unions and manufacturers cite the undervalued Chinese currency as a major culprit for lost jobs (Landler, M. & Jacobs, A. 2010) (Learning from past history, if the issues are not settled it could lead to trade wars and boycotts, as we had in the thirties).
Hoover spent one billion dollars on public works more than the sum total of his entire predecessor combined-did not approach the 10 billion needed to imply it only half the jobless. Spending such a huge sum seemed unthinkable because the entire Federal budget at the time was $3.2 billion dollars. Under pressure from Congress, Hoover took action to save the banks. Between 1930 in 1932 some 51,000 banks one under when worried depositors took their money and ran. Hoover permitted the creation of the Reconstruction Finance Corporation (RFC) in 1932; the agency’s purpose was that it could lend money to banks and their chief corporate debtors-railroads and insurance companies within three months failures dropped from 70 a week to 1 every two weeks. The Glass-Steagall banking act (1932) made it easier for banks to loan money by adding two billion dollars of new currency to the money supply, backed by Federal Reserve government bonds. Despite the success Hoover drew criticism for rescuing banks and not people, which in my opinion was similar to the bail out of the banks that President Bush put into place and President Obama recently administered. (There are objections to this on the right claiming too much government and left claiming not enough allocated for recovery of people through small business loans and addressing the Mortgage crisis in today’s economy).
“Although Hoover refused to give Federal aid to the unemployed, fearing a giveaway program would damage the freedom and the initiative of recipients, he worried it might also produce an underclass” (Davidson, Giennap, et al 2008 p. 732). Hoover felt that the bureaucracy needed to police recipients would meddle in private lives of citizens and along with it bringing corruption and waste. “Hoover wrongly assumed neighborliness and cooperation would be enough” (Davidson, Giennap, et al 2008 p. 732).Today the same argument is repeated by the right, saying that poverty should be left to charity.
“Unemployment continued to get worse; finally Hoover started to soften his stand and permitted congress to pass the Emergency Relief and Construction Act. It authorized the RFC to lend up to 1.5 billion dollars for the reproductive public works that paid for themselves, like bridge tolls and slum clearance. Another 300million went to states as loans for the direct relief of unemployment. In this depression $300 million was a pittance. When the governor of Pennsylvania requested loans to furnish the destitute with 13¢ a day for year, the RFC sent only enough for 3¢ a day” (Davidson, Giennap, et al 2008 p. 733). (Much Too little, and too late)
In the election of 1932, although the economy was deplorable, with no improvement in site, Republicans still endorsed Hoover and his entire depression program at their convention in Chicago. Franklin D. Roosevelt was the democratic choice. Roosevelt promised a new deal for the American people. Hoover denounced Roosevelt’s “New Deal” calling it a dangerous departure from time honored traditions, warning that would destroy American values and institution and would build a bureaucracy such as we have never seen in our history. ” It didn’t matter; the deepening depression ensured that virtually any democratic candidate would defeat Hoover. Roosevelt won the election by a decided of 57%. By now ¼ work force was unemployed 30,000,000 families’s had no means of support and there wasn’t enough money in the treasury to meet the Federal payroll. At Roosevelt swearing in ceremony the stated “let me assert my firm belief that the only thing we have to fear is fear itself “in the election of 1932, Republicans still stuck with Hoover and endorsed his entire depression program at their convention in Chicago. Franklin D. Roosevelt was the democratic choice.
Roosevelt promised a new deal for the American people. Hoover denounced Roosevelt’s “New Deal” as a dangerous departure from time honored traditions, calling it a dangerous departure from time honored traditions, warning that would destroy American values and institution and would build a bureaucracy such as we have never seen in our history. ” It didn’t matter; the deepening depression ensured that virtually any democratic candidate would defeat Hoover. Roosevelt won by a decisive 57%.” By now ¼ work force was unemployed 30,000,000 families’s had no means of support and there wasn’t enough money in the treasury to meet the Federal payroll. At Roosevelt swearing in ceremony the stated “let me assert my firm belief that the only thing we have to fear is fear itself”, he promised exercise broad executive powers to wage a war against the emergency.
Cure
In the spring of 1933 the new deal started to unfold with a chaotic three months burst of legislation known as “The hundred days” Roosevelt launched the new deal with record breaking legislation in his first hundred days in office on March 5th, the day after his inauguration, Roosevelt ordered every bank closed for a four day (later extended to 8) day bank holiday as he called it. On March 9th the president introduced emergency banking legislation which the house passed sight unseen, and which senate sanctioned later on the same day. Roosevelt signed it that evening (Davidson, Giennap, et- al 2008 p.736)
The emergency bill contained a plan to let sound banks open immediately with government support. Troubled banks would be handed over to the federal “conservators, “who would guide them to solvency. On Sunday, March 12, Roosevelt explained to the public what measures were being taken, it was the first of many fireside chats. When the banks reopened the next day deposits exceeded withdrawals.
“To restore confidence in government, Roosevelt pushed through the Economy Act in March 1933, slashing $400 million in veteran’s payments and 100 million in salaries from the federal budget. To guard against future stock crashes, financial reforms gave government greater authority to manage the currency and regulate stock transactions. For liberals and conservatives alike, the Great Depression serves as a natural debating point that "justifies" or "refutes" various economic policies To understand the Great Depression , it is important to know the theories of John Maynard Keynes "father of modern economics" (Kangas, S. 1997) “ John Maynard Keynes is doubtlessly one the most important figures in the entire history of economics. He revolutionized economics with his classic book, The General Theory of Employment, Interest and Money (1936). This is generally regarded as probably the most influential social science treatise of the 20th Century, in that it quickly and permanently changed the way the world looked at the economy and the role of government in society. No other single book, before or since, has had quite such an impact” (newschool.edu). “John Maynard Keynes had actually recommended the kind of deficit spending that Roosevelt was using. Keynes startling theory called on government not to balance the budget but to spend its way out of the depression. When prosperity returned he argued the government could pay off its debts through taxes. This deliberate policy of “counter cycling” action (spending in bad times, taxing in good) was designed to compensate for swings in the economy” (Davidson, Giennap, et al 2008 p. 755).
In April 1933, Roosevelt dropped the gold standard and began experimenting with the value of the dollar to boost prices. Later that spring, The Glass-Steagall Banking Act restricted speculations by banks and more importantly created federal insurance for bank deposits of up $2,500.Under the Federal Deposit Insurance Corporation, the results were that few banks failed for the rest of the decade then the best year in the twenties. The Securities Exchange Act (1934) established a new federal agency, the Securities Exchange Commission.” (Davidson, Giennap, et al 2008 p.736
To meet the need to alleviate starvation, Congress created the Federal Emergency Relief Administration in May of 1933. In two the two years FERA’s existence it furnished more than 1 billion in grants. To states local areas and private charities Mortgage relief came in 1934 for the millions who had lost their homes, in the Home Owners Loan Act. Congress passed the soil Conservation and Domestic Allotment act (1936), in it farmers were now subsidize for practicing conservation and the other agencies try to help impoverished farmers. The Farm Credit Administration refinance about a fifth of all farm mortgages (Davidson, Giennap, et al 2008 p. 739).
In 1935 the resettlement administration gave marginal farmers a fresh start by moving them to better land. Beginning in 1937 the farm security administration furnished low interest loans to help tenants by family farms. In neither case did the rural poor have enough political leverage to obtain sufficient funds from Congress. Fewer than 5000 family’s (of the projected 500,000” were resettled, and less than 2% of tenant farmers receive loans (Davidson, Giennap, et al 2008 p.739-40).
“In the second new deal of 1935 – 1936, a year voters had broken and president by returning the party in power to office, giving the democrats the largest majority in decades.” The emphasis shipped in from planning and collaboration with business to greater regulation of business, broader relief, and boulder reforms to protect Americans against a perilous plummet (Davidson, Giennap, et al 2008 p. 740).
The Social Security Act passed in 1935; it sought help to who could not help themselves. To assist the elderly and other people suffering from the Great Depression, Roosevelt enacted his New Deal. Roosevelt hoped that his New Deal would allow Americans to cope with the Great Depression, would help end the current economic downturn, and would help prevent another depression from occurring in the future. “The Social Security Act probably has had the longest lasting impact of any of Roosevelt's New Deal programs. This legislation, implemented in 1935, collected one percent of workers' wages to be set aside for the workers' retirement. Businesses also had to contribute an amount equal to their employees' contributions. Once workers reached retirement age, they would receive this money back in monthly payments, assisting these people in supporting themselves when they were less employable due to their age. At first, the monthly stipends varied from ten dollars to eighty-five dollars per month. In the beginning the Social Security Act excluded domestic servants and farm laborers, but it eventually also included these employees as well” (ohiohistorycentral.org).
Roosevelt responded to the growing hostility of business by bucking the wealthy and powerful in 1935. The revenue act in 1935(the wealth tax) threatened the rich with high taxes, although Congress had the last word because in its final version of the law, it levied only moderate taxes on the comparatively small number a high incomes and inheritances (Davidson, Giennap, et al 2008 p.743) .“The Banking Act of 1935 centralized the money market in the Federal Reserve Board. By controlling interest rates and the money supply, the government increased its abilities to compensate for the swings in the economy” (Davidson, Giennap, et al 2008 p743). “Utilities Holding Company act (1935) limited the size of utility companies. Those giant holding companies produce high profits for speculators and higher prices for consumers. Although Congress deluded the act, as it had a wealth tax, New Dealers could still claim the political victory” (Davidson, Giennap, et al 2008 p.743).
By 1935 the Nation had achieved some measure of recovery, but businessmen and bankers were turning more and more against Roosevelt's New Deal program. They feared his experiments, were appalled because he had taken the Nation off the gold standard and allowed deficits in the budget, and disliked the concessions to labor. Roosevelt responded with a new program of reform: Social Security, heavier taxes on the wealthy, new controls over banks and public utilities, and an enormous work relief program for the unemployed political sociologists over the past twenty years. In particularity the New Deal has served as a major empirical context for developing, testing, or applying broader theoretical models of political change in the United States” (whitehouse.gov) The house enacted the Securities Act of 1933, often referred to as the "truth in securities" law, the Securities Act of 1933 had two basic objectives: require that investors receive financial and other significant information concerning securities being offered for public sale; and prohibit deceit, misrepresentations, and other fraud in the sale of securities. There have been many new laws enacted since. “The most recent was the 2002 Sarbanes Oxley Act of 2002, which was passed after a public demand which grew due to the scandalous exposure of several high level financial scandals in which a number of big corporate giants were involved. A number of Fortune 500 companies were found involved in these scandals and the investor confidence, had hit rock bottom. The purpose of Sarbanes Oxley Act was to empower the Securities and Exchange Commission of the U.S. so that it can keep an eye on the corporate governance and the investor's confidence in the market shall be reinstated. Despite overflowing amounts of legalese, there are two major purposes of the Sarbanes Oxley Act. They are to ensure transparency and accountability by implementation of Sarbanes Oxley compliance. These purposes are to be fulfilled at the pain of fine or punishment or both. President Bush stated that, “no law of such significance to businesses has been signed since the presidency of Franklin D. Roosevelt in the U.S. which reflected the significance of this act” Bling, K. (n.a).
From the right, there charges of some wealthy business executives and conservatives that Roosevelt was the enemy of private property and a dictator in the making despite the fact that Roosevelt’s methods did save the economy (Davidson, Giennap, et al 2008 p.741).
They are the same kind of mentality, and fight everything that Obama presents such as the spending programs that congress passed to stave off job losses and stimulate the economy.
We need politicians with the political courage to stop the current trends and put back methods that kept Wall Street under bit and bridle and yet despite all of the experience of the greed without reason or restraint still prevails.
The 1987 Wall Street crash served to "clearing the decks" so that only the "fittest" survive. In the wake of crisis, a massive concentration of financial power has taken place. From these transformations, the "institutional speculator" emerged as a powerful actor overshadowing and often undermining bona fide business interests. Using a variety of instruments, these institutional actors appropriate wealth from the real economy. They often dictate the fate of companies listed on the New York Stock Exchange. Totally removed from entrepreneurial functions in the real economy, they have the power of precipitating large industrial corporations into bankruptcy.
In 1993, a report of Germany’s Bundesbank had already warned that trade in derivatives could potentially "trigger chain reactions and endanger the financial system as a whole". While committed to financial deregulation, the Chairman of the US Federal Reserve Board Mr. Alan Greenspan had warned that: "Legislation is not enough to prevent a repeat of the Barings crisis in a high tech World where transactions are carried out at the push of the button". According to Greenspan "the efficiency of global financial markets, has the capability of transmitting mistakes at a far faster pace throughout the financial system in ways which were unknown a generation ago..."What was not revealed to public opinion was that "these mistakes", resulting from large-scale speculative transactions, were the source of unprecedented accumulation of private wealth. By 1995, the daily turnover of foreign exchange transactions (US$ 1300 billion) had exceeded the world’s official foreign exchange reserves estimated at US$ 1202 billion. The command over privately-held foreign exchange reserves in the hands of "institutional speculators" far exceeds the limited capabilities of central banks, – i.e. the latter acting individually or collectively are unable to fight the tide speculative activity (Chossudovsky 2008).
According to the Economic Policy Institute,
China’s entry into the World Trade Organization (WTO) was supposed to improve the U.S. trade deficit with China and create good jobs in the United States. But those promises have gone unfulfilled: the total U.S. trade deficit with China reached $235 billion in 2006. Between 2001 and 2006, this growing deficit eliminated 1.8 million U.S. jobs The world’s biggest retailer, U.S.-based Wal-Mart was responsible for $27 billion in U.S. imports from China in 2006 and 11% of the growth of the total U.S. trade deficit with China between 2001 and 2006. Wal-Mart’s trade deficit with China alone eliminated nearly 200,000 U.S. jobs in this period. Jobs in the manufacturing sector pay higher wages and provide better benefits than most other industries, especially for workers with less than a college education. China has achieved its rapidly growing trade surpluses by purchasing more than $1 trillion in U.S. Treasury bills and other government securities over the past few years in order to artificially and illegally reduces the value of its currency and thereby lowers the cost of its exports to the United States and other countries. It has also repressed the labor rights of its workers and suppressed their wages, making its products artificially cheap and further subsidizing its exports. Wal-Mart has aided China’s abuse of labor rights and its violations of internally recognized norms of fair trade behavior by providing a vast and growing conduit for the distribution of artificially cheap and subsidized Chinese exports to the United States. The Wal-Mart effect: Its Chinese imports have displaced nearly 200,000 U.S. jobs (Scott.R 2006)
During 'National Prohibition" the United States of America banned the transportation, sale, and production of liquor, this was done by way of the 18th amendment to the constitution on January 16, 1919. Soon, one of America's largest industries was completely wiped off the face of the country, or was it? Many liquor serving establishments kept on operating during prohibition. Soon, the industry was reaching profits that it could have never before achieved because of the status given to it by being banned (the forbidden fruit). Organized crime grew rapidly and mass killings and gang wars were fought over the trickling supply of liquor. This was the era of gangsters, including the most famous gangster of all, Al Capone. Music and other media also changed during National Prohibition, ushering in jazz. Gangster movies soon became the most popular genre of film, reflecting the careless lawbreaking of the time. After a long period of rampart crime and embarrassment, for the government, the politicians finally realized the error of their ways and ended National Prohibition, but not before it left a profound stain in the history of our nation. In 1932 , within a month after Franklin Delano Roosevelt's election, the alcohol content allowed in beer was raised to 3.2 percent, soon afterward the 18th was Amendment was repealed it was the only constitutional amendment to ever be repealed(Thinkquest.Org).
We should have learned our lesson with prohibition of alcohol, which had instigated illegal activities where innocent bystanders were killed and huge syndicates of crime were formed, but we didn’t because making drugs illegal caused an underground illegal drug culture of gangsters many of the same problems prohibition caused are happening again. Creating law that made drugs illegal did more to develop crime, illegal business and incarcerate otherwise law abiding citizens. The so called war on drugs is costly and a losing proposition. A Washington Post article stated “Thirty-six years and hundreds of billions of dollars after President Richard M. Nixon launched the war on drugs, consumers worldwide are taking more narcotics and criminals are making fatter profits than ever before. The syndicates that control narcotics production and distribution reap the profits from an annual turnover of $400 billion to $500 billion. And terrorist organizations such as the Taliban are using this money to expand their operations and buy ever more sophisticated weapons, threatening Western security. In the past two years, the drug war has become the Taliban's most effective recruiter in Afghanistan. Afghanistan's Muslim extremists have reinvigorated themselves by supporting and taxing the countless peasants who are dependent one way or another on the opium trade, their only reliable source of income The Taliban is becoming richer and stronger by the day, especially in the east and south of “The war on drugs is defeating the war on terror” (Glenny, M 2007).
The war on drugs is costly and losing propositions in my opinion. The success of the illegal narcotics industry isn't confined to Afghanistan. Business is booming in South America, the Middle East, Africa, and across the United States “(Glenny, M 2007).
Since 1980, the country's prison population has quadrupled, with the South accounting for nearly half of that increase. In 2008, the Pew Center on the States released a study revealing that the United States continues to lock up record numbers of people in jail and prison -- one out of every 100 people is behind bars. Indeed the South continues to lead in U.S. prison population growth, and the rising costs of incarceration have taken a definite significant toll on Southern state budget. Facing south” reported in June 2008 that Kentucky, which has experienced the nation's largest prison population increase, suffered with state budget woes hampered by the amount of money the state spent on prisons. In its 2008 study Pew found that total state spending on corrections--including bonds and federal contributions--topped $49 billion in 2007, up from $12 billion in 1987. The Pew Center's Public Safety Performance Project has recently projected that state and federal prison populations -- under current policies -- will grow by more than 190,000 by 2011, to about 1.7 million, at a cost to the states of $27.5 billion, reports the Associated Press" (southern state .org). At least half of the monies we spend on prison and law enforcement, court processes etc. are because of the drug crimes
Although President Roosevelt’s New Deal was somewhat successful, it failed to achieve full recovery, in my opinion that because of the forces of interests that constantly lobbied to dilute his initiatives. “In the 1930s and 1940s, southern representatives possessed a structural veto over Democratic party policy aims, over the course of the New Deal, wartime, and post-war congresses, their utilization of this potential increased steadily” (Katznelson, L., Geiger, K., and Kryder, D. 2003). “The consequences of Southern power have also been widely acknowledged, Southern members of Congress were able to use their leverage to ensure that New Deal social programs did not provide sufficient benefits for African Americans to disrupt the Southern agrarian economy. The overall impact of New Deal relief programs was thereby blunted upon implementation” (Manza2000). Today the southern Republicans are trying to obstruction much of the progressive legislation, President Obama and The House has been putting forward.
Even though there are always many points of views on how to handle the economy, blending ideas of the progressives and liberals, who believe in government and its responsibility to the people, as well as the view of conservatives who feel that government regulation is a hindrance to large business and can get in the way of profits. Recently we had the same symptoms and consequences that have occurred in the 20s and 30s. Perhaps in studying the past, and paralleling events they in common with the present, we might be able to offset some of the problems we are having now. History is like a mirror, reflecting back our present and sometimes we can change the future, through seeing the successful solutions and actions of the past.
Reference
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Chossudovsky, M. (2008). Global Financial Meltdown: Sweeping Deregulation of the US Banking System Retrieve April 4, 2010 from http://www.globalresearch.ca/index.php?context=va&aid=10588
Davidson, J. W., Gienapp, W. E., et al. (2008). Nation of nations: a narrative history of the American Republic (6th ed., Vol. 2). Boston: McGraw Hill
Kangas, S. (1997) "The Great Depression: Its Causes and Cure," Liberalism Resurgent Retrieved March 22, 2010 from http://www.huppi.com/kangaroo/THE_GREAT_DEPRESSION.htm
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Retrieved from http://homepage.newschool.edu/het//profiles/keynes.htm on March 22, 2010
Manza, J. (2000). Political Sociological Models of the U.S. New Deal, Annual Review of Sociology, Vol. 26 (2000), pp. 297-322 Published by: Annual Reviews Stable URL: http://www.jstor.org/stable/223446 Accessed: 22/03/2010 21:11
Scott, R. (2006). The Wal-Mart effect: Its Chinese imports have displaced nearly 200,000 U.S. jobs Economic Policy Institute. Retrieved April 4, 2010 from http://www.epi.org/publications/entry/ib235/
"Social Security Act", Ohio History Central, July 1, 2005. Retrieved March 22, 2010 from http://www.ohiohistorycentral.org/entry.php?rec=1433retrieved
White house about the presidents/ Roosevelt. Retrieved on March 22, 2010 from http://www.whitehouse.gov/about/presidents/franklindroosevelt
USA Government Made Easy retrieved on March 22, 2010 from http://answers.usa.gov/cgibin/gsa_ict.cfg/php/enduser/std_adp.php?p_faqid=822
Landler, M. & Jacobs, A. (April 03 2010) Amid Thaw, Obama Talks with Chinese Leader NY Times, Retrieved on April 4, 2010 from http://www.phayul.com/news/article.aspx?id=27039&article=Amid+Thaw%2C+Obama+Talks+With+Chinese+Leader
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