Friday, 21 November 2008

HOW TO PROLONG A DEPRESSION: THE FDR MODEL

Ken Berwitz

All my life I've been told what a great job Franklin Delano Roosevelt did to end the depression.  From the "bank holidays" to the work projects to kingdom come. 

Since this is a subject that is starting to come up again because of our hard-and-getting-harder economic times, I know I'll be in for it when, as I have in the past, I disagree with the idolizing of FDR as some kind of economic savior.  This is based on previous reactions, which have ranged from overt disdain to suggestions that I might need professional help. 

Hey, everyone knows FDR got us out of the depression, don't they?  What kind of an idiot are you to say otherwise?

Well, I'm the kind of idiot that doesn't just accept things that are spoon-fed to me by media.  I've actually looked at the FDR years to some degree.  And while the depression did lesson in degree for several years during the 1930's - in relative terms - it remained a depression every one of those years, right up until World War II. 

The lowest yearly unemployment rate under FDR before 1941 (when we entered WWII) was about 14%.  How'd you like that as a "recovery" today?

Bottom line:  WWII, not FDR, ended the depression.

With this in mind, I am exhilarated by this academic analysis of the FDR years which, through much greater research than mine, came to the same conclusion.  And it was done, of all places, at UCLA.  Take a look at Meg Sullivan's article, at www.newsroom.ucla.edu,  and see for yourself:

FDR's policies prolonged Depression by 7 years, UCLA economists calculate

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.

In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.

Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.

Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.

"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"

NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.

"Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."

Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.

The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.

NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.

Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.

"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."

I can only hope that someone shows this to Barack Obama, and that he reads it.  Every word.  Because if he does what FDR did in these times, we are going to be in huge trouble.

Frankly, though, his first few cabinet selections - left wing Democrats and mostly D.C. insiders - give me little hope of any such ephiphany on his part. 


THE VALUE OF THE NEW YORK TIMES

Ken Berwitz

This blog is not about the New York Times' value as a source of news (although I do reference it at the end).  It is about the New York Times' actual monetary value.  And the numbers are not pretty.

Please read the following piece, which is written by Paul Tharp of the New York Post (with the caveat that there is absolutely no love lost between these two newspapers).  See for yourself:

TIMES IN A PINCH, SLASHES DIVIDEND

By PAUL THARP

November 21, 2008 --

The Sulzbergers who control The New York Times are drastically slashing their family's dividend checks by nearly 75 percent to preserve their dwindling cash.

Chairman Pinch Sulzberger alone will see his nearly $441,000 personal dividend check from last year shrink to about $115,000, according to filings.

The company yesterday blamed the cutback on a 16.2 percent dive last month in advertising revenue amid the economic slump.

Sulzberger said the company was forced to make the "difficult but necessary" decision to "conserve cash" and cut its quarterly dividend to just 6 cents from 23 cents.

The smaller checks will start Dec. 15 for all shareholders, including outsiders. Overall, the cut reduces dividend payments to just $34.6 million a year, down from $132 million, based on 144 million Class A and Class B shares outstanding.

The Times had just $46 million in cash and cash equivalents on its books as of last month.

Times stock toppled to a new low for the year of $5.69 before closing at $5.72, off 63 cents, or 5.8 percent.

In the past 12 months, family members and their trusts collected a total of more than $8.6 million on their 9.4 million shares, according to filings.

This year, if the quarterly dividend remains 6 cents, the annual perk will drop to about $2.1 million for its dozens of beneficiaries.

The Times said the cash squeeze is also forcing it to review assets that it might sell, which could include The Boston Globe.

As of October, the Times had about $1.1 billion of debt on its books.

The Times yesterday said operating revenue fell 9.4 percent to $296.8 million.

 

No one is saying the New York Times is going broke.  Yet.  But those are not what you'd call encouraging numbers, are they?

I get the Times delivered each morning.  I've started looking at that box in the upper left corner of the front page to see if they've changed the wording from "All the News That's Fit to Print", to "As Much News As We Can Afford the Ink to Print"

Congratulations to publisher "Pinch" Sulzberger.  Under your stewardship the once-great New York Times has abandoned any pretense of neutral journalism.  And, in no small part for that reason, it has gone from being "the paper of record" to "the paper of wreckage". 

You're certainly leaving your mark.


DON'T ASK/DON'T TELL: THE NEWEST CLINTON REHASH?

Ken Berwitz

We've already gotten Rerun Emanuel and Eric Holdover....er, sorry, Rahm Emanuel and Eric Holder.....from the Clinton administration.  Can it be we're getting Clinton's "don't ask/don't tell" military policy too? 

When Bill Clinton took office in 1993, he made it clear that one of his very first acts would be to accommodate gays in the military.  But instead, he acceded to the "don't ask/don't tell policy which doesn't seem to please anyone fully, least of all gay people who are in the military.

Now, if the Washington Times is correct, on this issue Barack Obama is going to be Clinton: round 2.  Here, from today's article, are the key excerpts:

Friday, November 21, 2008

EXCLUSIVE: Obama to delay repeal of 'don't ask, don't tell'

EXCLUSIVE:

President-elect Barack Obama will not move for months, and perhaps not until 2010, to ask Congress to end the military's decades-old ban on open homosexuals in the ranks, two people who have advised the Obama transition team on this issue say.

Repealing the ban was an Obama campaign promise. However, Mr. Obama first wants to confer with the Joint Chiefs of Staff and his new political appointees at the Pentagon to reach a consensus and then present legislation to Congress, the advisers said.

"I think 2009 is about foundation building and reaching consensus," said Aubrey Sarvis, executive director of the Servicemembers Legal Defense Network. The group supports military personnel targeted under the ban.

Mr. Sarvis told The Washington Times that he has held "informal discussions" with the Obama transition team on how the new president should proceed on the potentially explosive issue.

Lawrence Korb, an analyst at the Center for American Progress and an adviser to the Obama campaign, said the new administration should set up a Pentagon committee to make recommendations to Congress on a host of manpower issues, including the gay ban.

"If it's part of a larger package, it has a better chance of getting passed," he said.

The Obama transition team did not reply to a request for comment.

The incoming administration is well aware of how President Clinton botched the same issue 15 years ago. Shortly after taking office in 1993, the president ordered the Pentagon to rescind the regulation that excluded gays.

On Capitol Hill, Republicans, and some leading Democrats, including then-Senate Armed Services Committee Chairman Sam Nunn of Georgia, objected. Retired military officers and a number of pro-military conservative activist groups joined the fight.

Mr. Clinton backed off. Congress ended up enacting the ban into law as part of U.S. Title 10 which regulates the military.

As a compromise, the White House and congressional leaders wrote a new policy known as "don't ask, don't tell." Under it, gay service members must keep their sexuality private or face expulsion. About 12,500 people have been discharged under the policy.

Delaying the congressional vote a year would give the White House time for consultation, but it would also let ban proponents organize and possibly sway public opinion, as they did in 1993.

Mr. Obama's gay-ban pledge was not a major campaign issue. However, he provided a policy statement to the Human Rights Campaign, the largest U.S. gay rights group, pledging to repeal the exclusion and to invite back service members discharged under the law. He also said that he wants the Pentagon to school military people on how to treat gays.

The law states that open homosexuality in the ranks would be detrimental to combat unit readiness.

"The presence in the armed forces of persons who demonstrate a propensity or intent to engage in homosexual acts would create an unacceptable risk to the high standards of morale, good order and discipline, and unit cohesion that are the essence of military capability," the law says.

Ban proponents say removing the restriction would hurt recruiting by discouraging conservative, religiously oriented youths from signing up.

"It's true that many in the military have looked the other way and served alongside people they know are into homosexuality," Mr. Knight said. "But that is with the ban in place. Open acceptance would change the atmosphere entirely. If fraternization is a problem now between men and women, imagine the conflicts with openly gay officers who no longer have to be reticent."

Mr. Sarvis said not to look for the debate to begin until late next year or 2010.

"What's the reality for the new administration?" he said. "Financial crisis. Economic upheaval. Health care reform. Environmental challenges. Where does 'don't ask, don't tell' fall in all this? I would say it is not in the top five priorities of national issues."

Celie Johnson, the character played (beautifully) by Whoopi Goldberg in The Color Purple, said it well.  She said "the more things change the more they stay the same".  Maybe Mr. Obama should name Ms. Johnson an aide to the Joint Chiefs of Staff because, unlike his LAMB (lunatic-left And Mega-moonbat Brigade) supporters, she demonstrated a level of common sense and reality that they seem unable to attain.

Besides, anyone who could make a pair of pants that fits both Barack Obama and the 1985 version of Oprah Winfrey must have something on the ball......


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