Oct 26, 2007

Refections of the Great Depression

FDR and the New Deal, Rebuttal.

I was surprised to read how long the Depression lasted in the united sates during the 1930’s. No wonder the impression it left on my grandparents lifestyle was so pronounced. Yet it was rarely mentioned. My father was three years of age in 1929 and my Mom was born in 1931. Basically, the formative years of their lives were spent during in these hard times. I heard few stories of that time, but the contrast between many families was vast. One of my Mom’s uncles owned an island in lake Minnetonka with butler, cook and maid, while her father worked at various unskilled jobs. I heard about the Work Projects Administration (WPA) building a cement wall around Lake Phalen near Como Park in St. Paul. But otherwise it was not mentioned as they reminisced of old times. A friend of mine told me of his grandmother who died in Cloquet Minnesota. When they went to the house it was packed neatly with all the egg cartons and boxes she had ever taken in. She never threw anything away that had even marginal value. Given the hardship that generation experienced it is easy to understand this type of extreme or protective response.

My grandmother’s generation was the last to bake bread, can vegetables and darn socks in daily life. My mother cooked from scratch until the 1970’s but that was reserved for desserts and holidays as time passed. Whatever happened in the Great Depression has probably been lost on most of people alive today. The more I read about this period in history, I see economic momentum that slid off the tracks, for whatever reason, only to be mired under its own complexity.

Much like today’s economy, the 1930’s econoimic era relative to modern accounting and finance practices were so complex that no one could predict or control its direction. Although the lack of broadly-accepted principles of behavior contribute to instability in any large group. Experts are always asking the government to regulate and deregulate, support and tax, tariff and subsidize. Special interest groups micro-manage the policies that work in their favor. The New Deal was not supposed to solve all the social issues prevalent at the times. That should be up to the people. And political upheaval is not what the country needed either. Some stability had to be perceived by the populace or chaos would extend to every facet of government. Rhetoric and propaganda was used to build consensus and a spirit of hope.

With his election to office in 1933, Franklin Delano Roosevelt (FDR) inherited a melting economic system steaming ahead in its “correction”. The middle class or working class had been toiling for average wages as the gap between rich and poor grew ever wider. The inflated stock market value brought speculation and leveraging. Companies were valued by no standard, just a prospect for success and a drive for stature until 1929 when the “Crash” brought a cascading collapse of industry, agriculture and the banking system.

Speculation still exists in the markets today. In 1990, I did work for a company that did an IPO (Initial Public Offering of stock) after years of growth. The IPO was the climax of their business. I discovered the product was the company itself and the things they produced just a vehicle to sell the company. Needless to say, once the company was sold and the “absentee owner corporation” took over, things slid fast. Their goal seemed to be profits where as the previous owners goal was asset management for the eventual IPO. I have seen this behavior in many companies that sell out. The founder, figurehead or entrepreneur works tirelessly to build a business and as soon as it is sold, “ownership” evaporates. It gets to be an “us versus them” management relationship very quickly.

When investment firms like JP Morgan buy up small privately owned corporations, the environment changes. When investors buy up small companies where the middle class is trying to make a living, things get a bit tenuous for the employees. The 1920’s saw huge stock sales and millions of dollars not going to the workers, but rather to faceless investors on Wall Street. That is no way to share the wealth. In the same way, banking as an industry made loans without due diligence and failed for not regulating themselves. Trapping farmers and businesses alike in loans to expand operations. (Why does this all sound so familiar as we repeat our own history in the Farm Crisis, Tech Boom, Black Tuesday, Sub Prime Mortgage Market Collapse scenarios?) This is not coming from government regulation or oversight, but the continued corporate quest for short-term profits.

Grain Exchange competition brought the prices of agricultural goods down below the margins farmers required to stay solvent. The disconnection between producer and consumer widened as the middlemen took the ever-growing share of profits and left the risk to the producers. Setting up a conflict between the expectation of cheap food and healthy farms eventually farmers could not make the payments on the loans the banks were so willing to grant. The first of many farm crises built on over production. Even the co-ops put farmer against farmer by under bidding the market until, ironically, the price fell so low they could not afford to sell it to a hungry nation. Generations, having built businesses from wilderness or small farms, lost everything trying to compete in a market beyond their control. An economy of scale failed on a massive scale. Farmers began to burn corn for heat. These conditions occurred again in 2005. Looking for a scapegoat, business expects the government to cure the ills of the economy through legislation that otherwise would be seen as over regulation. The government must keep escalating the number of corporate farms to feed a hungry nation. Unfortunately, the efficiency of large farms brings down the cost of food as they compete for markets. To that end it’s OK for Walmart and Kmart types to compete. They have the margins and breadth to manage the ups and downs. The small mom-and-pop businesses suffer without the huge assets to buffer the market shifts. So too the small farm, baited into loans by greedy banks and pressured to expand for the thin profit margins, carry debt from year to year until a series of crop losses or low market prices deplete the operating capital. What government can regulate multinational corporations when the benefits to the nation are precisely due to the fact that large firms can research, improve, grow, process and deliver the goods more efficiently? The large and growing populations in the cities drive the demand for food transported from long distances. The price of the food may stay the same but the middle costs between grower and consumer rise. To wax nostalgically that the family farm is the foundation of our economy is to disregard the reality that consumers will not support them in the grocery stores. Economies of scale persist in every niche where consumers demand lower prices. The disconnection of the grower and the consumer reduces the value of the relationship and the food. As past CEO of Nash Finch, Ron Marshall, told me, they make money “managing their stores, not selling food”.

A friend of mine has tried to grow chickens on a small scale. USDA (United Stated Department of Agriculture) requires them to be taken to an approved (usually union) rendering plant. If he takes the chickens in, he pays for defeathering and cleaning, but cutting them up, bagging and freezing is an additional fifty cents each. By the time he completes the process his costs are $4.50 per chicken. This cost is after feed and farm expenses. He cannot grow his own chickens for less than the cost of buying them at the store. However, they still choose to do this because the value of the organic homegrown meat to them personally is higher than the meat they would get in a store. Socialist (Soviet) farm collectives have not been proven to deliver the quantity and quality of food needed to support a nation. As long as there is the energy to support them, big cities will require big corporate farms. Accountants, not farmers, make them viable.

After 4 years of Woodrow Wilson’s attempts to rebuild the nation, came Franklin Delano Roosevelt. FDR focused on the people. He offered aid to the growing poor, hoping to recover or upswing the sliding situation. He tries to lift the masses, and he fails. Where is state government? What are the counties doing to help? It would seem that FDR offered the only hope for a restored standard of living. However to say nothing was accomplished or that he failed at an opportunity to reform government or economic policies would seem ludicrous. The argument that FDR should have created a new order in socialism is not valid since it would not have made any difference, other than to nationalize industry and stop free enterprise. The fear of revolution must have been pronounced, for the elite to hoard gold. The government must have been under great pressure to be seen as doing something constructive; otherwise public opinion would have stirred much more violence. FDR’s New Deal(s) consisted of relief for the unemployed, economic recovery, and reform of the economic and banking systems. Many of which still are regulating or supporting policies governing our economy. Social reforms and resource allocation was designed to pull the country out of the depression not to reconstruct the federal government. Capitalism offered the solution to the economic issues by allowing free trade and the hope of a better life through entrepreneurship, skilled labor and education.

The Tennessee Valley Authority (TVA) and resulting hydroelectric dams, airports, bridges and roads created infrastructure and lasting resources for everyone. WPA projects and support of artists brought back to the masses a possible semblance of normalcy . A reason to thrive. The great WPA projects that put people to work and were long-lasting assets building the means to create a new economy. The Rural Electrification Administration (REA) also brought services and expanded utilities to remote areas. With power came communications, sanitation, clean water, efficient farms and the ability to pursue new opportunities and work in new industries. The electric resource also made sales of electric-powered items increase, causing further economic recovery. FDR restructured government and business by giving resources to the people in poverty and companies that would employ them. FDR’s WPA, REA and TVA programs made huge contributions to the recovery and future economy.

The WPA was much more successful than FDR’s attempts to help farmers through the Resettlement Administration as fear of Soviet style-collective farms limited its success. Again in 1937, with the Farm Security Administration, loans were set up for sharecroppers and tenant farmers to build back their farms; this too was stalled for lack of funds and fear of communist undertones. Native Americans, women and minorities gained little in the New Deal policies. In fact, agricultural policies actually reduced the Navajo peoples ability to be self-sufficient. Changes were concentrated in small areas but had long-term negative and systemic effects. But FDR’s first programs were for farmers. The agricultural industry would seem the place to start given that is fed the nation and was vital to success in any other area, but this gave way to social reforms after two years. Farming’s collapse was based on failed markets and economics not failed farm practices. (Unfortunately, farm practices at the time did cause great losses in future soil fertility and stability adding another level of issues for the farmer to contend with.)

Unlike the farms, internal practices within the banks caused their failures. The Glass-Steagall Banking Act separated the investment and the commercial loan activities and regulated interest rates to reduce speculation. (Mostly rescinded now, banking and investments are under one roof.)

Toward the end of the 1930’s, FDR was looking to new policies and social change and began to work with labor and unions. Strengthening the possibility of home ownership through the FHA (Federal Housing Administration.) and the National Housing Act provided an opportunity of safe housing to low-income families. Price supports for farm products came from federal government, not processing taxes. Redistributing the wealth came to farmers after years of fiscal abuse. Social programs are the “redistribution of wealth”. Public Works, such as libraries, transportation and parks compensate the less fortunate for the “misallocation” of wealth. These projects bring people limited by racism or systemic injustice to at least access to public amenities and a brighter future. The minimum wage and standard workweek brought from the Fair Labor Standards Act lifted many to a socioeconomic level just a little higher out of poverty. Children born to poverty have a baseline right to health beyond the means of their parents. Prohibiting child labor also meant healthier and balanced adults for future employment.

Another part of FDR’s legacy is the Social Security Administration. Since 1935 it has been modified and expanded, but has been the safety net for old age, the disabled, blind and suffering children. Again, the hope for a many seniors lays with the monthly payments they receive and allows them to remain vital citizens. It is the highest level of redistribution of national wealth short of the states’ educational systems.

The British economist, J.M. Keynes had advised the European and American governments to use deficit pending to jump-start the economy. This would call for massive amounts of spending that would increase demand for goods by creating income. Some progress was made by FDR by implementing this approach, but the biggest influence to move the economy and create jobs was World War II. By 1940, World War II was underway. Germany had invaded Austria in 1938 and Poland the next year. The Unites States was supporting the Allies in Europe with loans and by selling weapons and armaments for that loaned money. This was a fairly expensive way to boost production and economic stability. Then again, the Brits were supposed to pay it back. It positioned the U.S. for our entry into the war years later.

Through the Great Depression, political opportunists were vying for major changes in the government to socialize all aspects of business and government. Communists and Socialists of the time saw Soviet-style governance as the answer to the Capitalist disparities. Neither approach made life easier for anyone; it just made the proletariat poor and applied its own form of propaganda to sell its principles. The U.S. needed an economic correction, not a political adjustment. Government is not supposed to feed the people or guarantee income, but ensure the means so they can feed themselves, building the infrastructure, policies, and education necessary to do so. FDR’s policies eventually broadened the middle class to include more people.

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Permaculture and Polyculture Consulting and Design

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