Quote:
Originally Posted by gsoboi78
History seems to happen in cycles and I couldn't help but notice the parallels. The 1920s were a lot like the 1990s. They were both times of prosperity and cultural awakening. Many cities saw a building boom in both decades. In 1929 the stock market crashed and we had the great depression in the following decade much like the great recession in the 2000s (which seems to be lasting longer than the great depression). Around the time of the great depression there was a push for "government socialism" (social security) and a little later a push for federal spending on road projects and the concept of interstate highways to help further stimulate the economy. Today is no different. Obama new healthcare law parallels with the social security act and Obama is pushing for federal spending on road projects and high speed rail. High Speed Rail parallels with the interstate highway system. Like Obama's healthcare law, Social Security was not very popular in the beginning but today its something we are glad that we have. Its a safety net like Obamacare. Many republicans think its wasteful spending on high speed rail projects but look back in the past When Eisenhower (a republican) was pushing for the interstate highway system. Where would we be today without interstate highways? Look it how interstates have helped the U.S. economy. Interstates opened the door to new industries and brought opportunities to cities. High Speed Rail is no different. High Speed rail will help the economy of the 21st century. I just thought it was so interesting to see a number of parallels with the past. Sometimes if you want to know what the future may bring, you have to look at the past.
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Your analysis is kind of flawed.
Let's go back to the 1920s. First, you had a period of Real Inflation in the post-WW I Era running about 15%-25% annually. Comparatively, that's worse than the 1970s, but not nearly as bad as the post-1st Great Depression of the 19th Century/Civil War Era, but much better than the 35%-45% you're about to experience here in roughly 12 years.
This Real Inflation, in conjunction with the post-WW I Era and the introduction of the automobile led to an housing boom which finally busted. The bust lead to a period of Real Deflation starting in 1930.
There were several recessions during the 1920s, in 1925, again in 1928, and again in 1929.
While it is true the Stock Market crashed, that has no bearing on anything. The market was setting records because the US was in a recession from January 1928 through about 2nd/3rd Quarter of 1929.
Exactly as you would expect, the end of the recession resulted in a market crash. The market continued to tank as the economy improved (again -- as you would expect it to do), and then high taxes and a destructive tariff resulted in another major recession. During that recession, the Stock Market soared (exactly as you would expect it to).
The only true parallel between now and the 1930s is Labor.
When Ford began producing automobiles, he introduced a revolutionary new concept in manufacturing production and methods called Assembly Line Production.
From that point forward, through the 1920s, manufacturing in the US began switching to the Assembly Line model and due to the fact that the Assembly Line was more efficient than other production methods,
it resulted in an excess of Labor.
Recessions are all about efficiency.
When there is gross inefficiency, a recession occurs. The recession forces a shift in Capital from the least efficient use to the most efficient use --- with one caveat -- there has to be another efficient use and in the 1920s, there was no outlet for the Capital.
Here's where Property Theories can have an effect. Under Capitalist Theory, private individuals are more responsive to the needs of the market and immediately shift Capital when necessary. Under Socialism, the government gets tied up in bureaucracy -- it bats the ball back and forth between different government commissions and bureaucratic committees who waste valuable time and resources doing silly things like a feasibility study to see if it is feasible to study the problem of shifting Capital to more efficient uses. And then when that study is completed and gone through the procedural process, they actually do the feasibility study on shifting Capital, and then when that's done they actually study the problem of Capital. It ends up as a nightmare.
Let's go to the late 1980s. Reagan and Gorbachev have already agreed in principle to reduce military forces in Europe, and that means the US VII Corps is going to be withdrawn from Germany and deactivated, and the army reduced from 770,000 to 710,000. Then Bush the Elder and Gorbachev actually sign the agreement, and then Bush unilaterally withdraws all tactical nuclear weapons, then some very brilliant people decide to send the US VII Corps to Turkey to train in desert warfare tactics in a desert bordering Iraq, and then the US VII Corps actually goes to Iraq and defeats Saddam and then is sent to the US and deactivated.
Very obviously, we now have excess and inefficient use of Capital in the Defense Industry, and so the US has a very mild recession for two quarters (about 6 months) as Capital is shifted from Defense to other sectors of the US economy.
See the difference?
That's the whole point. In the 1990s, there was an outlet for that excess Capital, in particular, the excess Labor. Why? Well, people were demanding 24 Hour Convenient Marts, and then retail shops (or shoppes) be open on Sundays and open later on week-days and on Saturdays and that required lots and lots of Labor, and then people wanted colonic irrigation and all kinds of other amenities and services, like Starsucks, and that required Labor, so the excess Labor was absorbed.
Let's jump back two decades to the 1970s.
You have Real Inflation and then you have a recession due to inefficiency. The problem here is that Capital must be shifted regionally in order to be used efficiently, and the problems are exasperated by Real Inflation. Textile mills in New England close, and the Capital is shifted to the Southeast (mainly Georgia and North Carolina) and then in the Midwest you have manufacturing shifting to the South (mainly to Mississippi, Louisiana and Texas).
See the difference there?
Now let's look at the late 1920s and early 1930s. You have lots of excess Capital in the form of Labor and there is no place for it to go. Where does it all end up going? Into the military to fight in WW II.
When WW II ends, you have a recession due to excess Capital and its inefficient use, but here once again, we have an outlet for that excess Labor -- the developed world, meaning Europe is destroyed -- manufacturing base is destroyed, the agriculture base is destroyed, the raw material base is destroyed, the infrastructure is badly damaged or completely destroyed, millions of workers are dead, and millions more injured.
The US picks up the slack.
What is happening now? The US government has engaged in destructive foreign policies that barred development in other countries. The end result is a very skewed wage differential between American workers and the workers in other countries. As the global economy starts to develop more fully and expand, there is excess Capital in the form of global labor, and the US is unable to compete on a global scale.
There is a recession because of inefficiency, and that inefficiency is concentrated in several sectors, mostly Labor, but also housing.
Where is the outlet for Labor?
There is none.
You have all of this excess Labor, and there is no place for it to go --- just like in the Great Depression Era.
To make matters worse, you have incremental advancements in technology, which also makes Labor even more inefficient. Understand that technology is not the primary cause, but it is a factor, and one which will continue to affect Capital like Labor for decades to come, until the introduction of technology plateaus, or declines in pace with population growth.
So, barring WW III, where is all of this excess Labor to go? Nowhere.
You're comparing High Speed Rail to Interstates. That fails as a comparison. However, there is a better alternative and that is Rail Freight. Rail Freight would be an excellent comparison to Interstates.
If Obama was a leader, then he his first act would have been to announce a national initiative to shift 85% of all freight from over-the-road trucking to rail within 8 years.
If had he would have had the guts to do that, your unemployment rate would now be about 6%. Note that no matter what, you'd still have excess Labor from now and for quite a while, but at least such an initiative would have absorbed up to maybe 4 Million jobs.
Once you have your Rail Freight systems up and running, then you can look at High Speed Rail. Why?
Because that's how every country on the Planet has done it, and that is why it is successful for them. You're trying to put the cart before the horse. Get the horse first,
and then you can get a cart for the horse to pull.
For a developing State - and the US is not a developing State -- the wages generally double about every 10 years, so it will be around the year 2040 when you will have some place for your excess Labor.
In a post-Industrialized State like the US, wages do not double as frequently. How fast do they double? Well, we're kind of in uncharted waters here, because we've never seen fully industrialized States operate for any real length of time.
The US did not become fully industrialized until the mid-1960s, so it's only been about 50 years, and over that 50 years, your annual GDP rate has steadily declined. Why? Not sure. It could be a symptomatic effect of industrialized States, or it could be related to industrialized States competing with large numbers of developing States. Never really had this many States developing simultaneously before.
And while safety nets are good things to have, they are useless if you cannot pay for them, and the reality is that you cannot pay for Social Security or Medicare.
You cannot pay for Obamacare either, and soon enough, you'll discover that having is not so pleasing a thing as wanting. Wait until you see the damage it does to your economy.
Paralleling...
Mircea
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