Modern Day Hoover?

Herbert Hoover, after which a Tower at Stanford is dedicated, was elected President of the United States in November 1928. Barack Obama, for which at present no tower I know of is dedicated, was elected President of the United States in November 2008.

A few months after Hoover was inaugurated, October 1929, the Stock Market crashed. A decade of prosperity (except in the farming sector) came crashing to an end. At first, both political parties rode the recession out. Government had no place, in either party’s platform in stimulating the economy. In fact, the Democrats held firm to a balanced budget. Hoover, on the other hand, proposed a national sales tax in 1930, which was narrowly defeated. So, in 1929-30 the Republican President proposed a tax to fight the depression while the Democrats cried for a balanced budget (believe it or not).

A few months before Obama was inaugurated, October 2008, the financial sector of the United States crashed. Both presidential candidates concurred with the sitting Republican President that the government should take immediate and forceful action and bail out the major financial institutions that were in trouble. Once President Obama took office, he pushed through a tax cut for the middle class and a modest stimulus program. So, this time the Democrat cut taxes and the Republicans began calling for a balanced budget to fix the economy (believe it or not).

This is exactly the opposite reactions from each party from 1930 to 2010.

And Obama is getting the blame for the recession he had nothing to do with creating. Hoover got the blame for the recession that morphed into a depression and really had little to do with it either. Hoover’s mistake was in trying to ride out the depression with little governmental action (the conventional wisdom of the time). It became Hoover’s Depression because of his inaction. It must be noted that F.D.R. shared many of Hoover’s views regarding government spending and economic stimulus, and had to be conviced to adopt many of the New Deal reforms by modern economists.

Meanwhile, the 2010 economy has limped along, the recession is over we are told, but unemployment is at depression levels. The mid-term elections of 2010 loom on the near horizon, and predictions are for large gains by Republicans.

As in 1930, the President’s party is being blamed by the American People for the economic downturn. As in 1930, the President had little to do with it. What is different from 1930 is the President has taken action, using government spending to essentially end the recession, but not acting boldly enough to dent the unemployment rate. So, the American people do what they did in 1930 and 1932, punish the administration’s party.

But the differences are telling:

1. Obama is not continuing Democrat rule from the past administration; President Bush was a conservative Republican. It is the Republican and Conservative economic policies and philosophy that caused the financial meltdown.

2. The recession did not start on Obama’s watch. It is his problem all right, but eight years of Republican rule precedes his administration. Hoover was third in a line of Republican administrations and represented Republican 20th century dominance of American politics going back to Teddy Roosevelt.

3. We have historical precedent and lessons from the Great Depression to warn and guide us. There is little doubt that the TARP bailout stopped a depression meltdown of the financial sector. However, TARP did not save the housing bubble from bursting and the middle class from being ravaged by unemployment.

4. Tragically, the American instinct to punish the current leadership is adopting the philosophy and economic approach that could very well plunge the country into a depression. The economy is recovering, albeit slowly, but high unemployments and unprecedented concentration of wealth in the top 1%, l has dramatically reduced demand. This large depression in demand, coupled with soaring supply, in the housing market for example, is a DEPRESSION. That is the classic definition of a depression, and we seem to be walking right into it.

So, where does this leave us? Historically, it is not surprising what is happening to the Democrats. The American People are punishing those in power. What is surprising is the short attention span of the American People in forgetting in a few months what party was in power, and what economic theory was in control prior to Obama being elected.

Essentially, Ron Reagan’s supply side economic approach, tax cuts to stimulate the economy and cutting governmental red tape and regulations has been the dominant economic policy of the United States since 1980. We have had one Democratic President since 1982, and three Republicans. The Republican Party had control of the House of Representatives from 1994 until 2006! That is important because that is where the spending authority of the United States lies.

So, logic would dictate that what failed and led to the Great Recession of 2008-2010 was the supply side economic policies of Ronald Reagan and his disciples.

Statistics are overwhelming about the destruction of the middle class, the hoarding of wealth in the top one percent of Americans, the outsourcing of jobs, and the loss of wealth of middle America. In short, the demand side of the economic equation has been gutted!

And what are the middle Americans poised to do in November?

Vote Republican, of course.

This time there will be no Roosevelt. This time no New Deal. A return to the broken economic policies of the past thirty years, at this critical juncture means only one thing: A Great Depression.

Look at history. In 1930 it was felt by BOTH parties that the depression was easing, and it only got worse. In 1936 Roosevelt declared the depression over and cut spending and attempted to balance the budget by reducing government work projects, and the economy tanked. That is where we are today, We are about to repeat the mistake of 1936.

And what did it lead to. Well World War II for one. Because American plunged back into the depression in 1936, Hitler had an opening to pursue his conquest agenda. America was to pre-occupied to do anything about Hitler’s expansionism.

The threat this time is China, but is mostly (at least for now) economic in nature. China is emerging a a major economic power. By essentially shooting ourselves in the foot by pursuing failed economic free enterprise stimulus policies, we are playing right into their hands.

In short, we are getting beat. By not investing in the future, and yes redistributing some of the concentrated wealth back to the middle class, we are suddenly and tragically digressing into a Third World Nation.

This time the rest of the world is in better shape. There are nations who are indirectly affected by our self-destruction, but they are quickly adapting because of the world economy.

In short, the world does not need the American consumer economy anymore to keep their economies going, when you have huge emerging middle classes in Indian and China. An economic power vacuum is developing, and other emerging middle class economies are surging into the void.

In the 30s America had a huge potential production potential that eventually helped win WWII. Today, that production potential has been destroyed, factories have essentially been dismantled and send overseas. To rebuild this production power, factories have to be rebuilt. Moreover, thanks to our conservative friends, infrastructure has deteriorated because taxes have been cut over the past 30 years. This is particularly evident in education, which is an essential underpinning of economic vitality. As we cut education at all levels, and maintain huge tax cuts for the rich, the intellectual capital needed to innovate our morbid economy is destroyed.

Chinese students now occupy seats in American universities once occupied by American members of the middle class. The American educational system is turning out MBAs for our foreign competitors. This would not be so bad, except for the fact that we are failing to tax enough to support education K-12 at the same time. In short, our infrastructure is being ignored to support huge tax cuts and an economic philosophy that has failed.

California is a perfect example. We are home to Prop. 13, the revered cornerstone of the conservative “economic miracle”. Prop. 13 is the third rail of California politics. The major thing it did, and most destructive, was to shift the funding of public education from property taxes (more stable source of revenue), to income taxes (volitile source of revenue).

The tragedy is that public education was not supported at adequate levels when Prop. 13 was passed. The tax cutting frenzy that followed, left a huge deficit in state funding that persists today.

A good example of this madness what when our present governor used a recall to take power on the promise that he would cut the vehicle license fee dramatically. This fee was used to replace funds for local governments, especially to do with street and roads, that Prop. 13 had reduced. Moreover , the fee discouraged multiple ownership of cars, a real source of co2 emmissions and pollution in the state.

This essential tax cut reduced state revenues by at least 8 billion dollars. This added to the state deficit, resulting in a constant pressure to cut spending below inflation adjusted levels. In effect, state spending has actually declined over the past five years, but the deficit has deepened.

California is a good example of the dangers of tax cutting and its utter failure to improve the economy. And, the damage to state infrastructure at every level, from highway maintenance to education has been dramatic. California in effect led the nation into the Great Recession because the middle class was decimated by tax cuts that went mostly to the rich. Ironically, Prop 13 made it necessary to rely on income taxes (the rich) for much of state revenue.

Many rich people have moved out of Calfornia, or used tax dodges, to reduce their taxes. The result has been a devastating drop in revenue for state infrastructure.

And what does our present conservative candidate base her campaign on? Elimination of the Capital Gains Tax! This will cost the state budget additional billions in lost revenue, and will drive a stake in the heart of public education K-16. The rich will get richer with yet another tax cut, that history shows does nothing to create jobs or stimulate the economy. The candidate also promises to cut thousands of state workers, adding to the depression! Cut jobs in a depression at any level only deepens the depression; it depresses demand, depresses prices and the economy stagnates.

We are hearing from conservatives that the global economy will somehow save us. This is nonsense. Multi-national companies do not care about the American middle class. They don’t need us as consumers anymore, with vast, emerging markets in China and India. And, the “ruling class” (the rich) in American don’t care either. They can make money outside of the American economy since most of them are part of the world economy already. This is what outsourcing is all about.

And who is left holding the bag? The same Tea Party Patriots who are out there working hard to get an economic policy reinstated that broke the middle class of which they are a part. They are part of a middle class that has been destroyed. This has dramatically reduced the demand side of our economy. American rich people have in effect “killed the golden goose” of middle class demand. Unfortunately, the supply of goods and services is being sucked up by emerging middles classes in India and China. In effect the economic engine that has saved American’s economy is the past is on the mat, and multi-nationals led by rich American CEO brainpower, does not need them anymore.

We have met the enemy and it is us!!!! We are literally beating ourselves, and the world does not give a damn.