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Great Depression. George Bush vs Einstein on economic policy

by Brent Herbert Friday, Feb. 28, 2003 at 9:27 AM

According to the mathematician, Albert Einstein, the policies of George Bush are likely to result in another Great Depression. To quote a recurring quip, 'I know George Bush, and let me tell you, George Bush is no Albert Einstein.'

During a recent press conference, a reporter asked Ari Fleischer if the President believed that ‘deficits did not matter', given the huge size of the tax cuts pushed through in this administration. The press Secretary replied that the President believed that his tax cut proposal was the best way to ‘create jobs'. At the present time the Republican Administration is pushing these tax cuts as an ‘economic stimulus package' as well as a measure to ‘create jobs'. Here we have an old policy being dressed up in new propaganda. The policy has not changed but the sales pitch certainly has.

A few years back it seemed that the American economy was booming and the Republicans were arguing that since huge surpluses were forecast for the next ten years, therefore it was only right that taxes be cut to provide tax relief, and since it was pointed out that about half of the cuts would go to the riches one percent of the population and the majority to the richest ten per cent, the Republicans argued that this was only fair, since they paid the most taxes and therefore should get the most ‘tax relief'. We now know that the economy was not rosy when the Republicans were making this particular pitch, but rather for years previous to this time, large corporations were cooking their books to hide the fact that they were not showing profits, and the economy was actually caught up in a huge stock market bubble. The tax cut package will reach around two trillion dollars if proposed additional cuts are included, and while the idea of tax cuts has not changed, the propaganda used to peddle the cuts has morphed and now rather than being a well deserved tax relief measure handed out during a time of ever expanding ‘surpluses' the tax cuts are being peddled as a ‘job creation measure.'

At the same time as the ‘don't tax and then spend' Republican party is handing out close to a trillion dollars to the richest one percent of the population, the country is running record breaking deficits, which do not yet include the cost of any war or the tens of billions of dollars of bribes being paid to countries such as Turkey, Egypt, and a handful of African nations as the price for their war support, as well as the reported twelve billion being paid to Israel to bribe them to keep out of the war. When the estimated (low ball figure) 95 billion dollar cost of the war is factored in and the close to 50 billion dollar cost of the bribery required to gain support for the war, the already record breaking deficit swells to about half a trillion dollars, which will have to be borrowed. So in effect, what is happening here is that George Bush is ignoring the state of the economy, and is borrowing heavily in the name of the American people so as to transfer a trillion dollars in borrowed wealth to the richest one per cent of the population.

This transfer of wealth is also known as ‘trickle down' economics (the doctrine of the Reagan White House). When massive wealth is accumulated at the top of the pecking order, it is argued, it will eventually ‘trickle down' to everyone at the bottom (or a rising tide raises all ships). I need not comment on the self serving nature of this particular piece of propaganda, since it should be self evident that trickle down theory is simply a means of justifying social inequality. During the Reagan years this policy of transferring trillions of dollars to the very wealthy resulted only in a monster debt so massive that no one seriously considers paying off the principal, and the huge interests payments have robbed America of its future. In the space of just the two Reagan administrations, America went from the largest creditor nation on earth to the world's largest debtor, and the impacts are being felt to this very day.

Now the White House press Secretary stated that the President believes that ‘trickle down' theory is the best way to ‘create jobs', this being the latest bait and switch propaganda technique being used to peddle the tax cuts (the Republicans changing propaganda used to peddle agendas the way others change shirts). However I am led to ask whether anyone would seriously think that George Bush is another Einstein.

Albert Einstein was one the greatest mathematicians of the previous century. This is a claim that could not be made by either Ronald Reagan or George W. Bush. His father, George Bush One, correctly called this trickle down economic theory ‘voodoo economics' when he was challenging Reagan for the nomination of his party, but became silent after being selected to be Vice- President. Perhaps it would be better to call it ‘voodoo propaganda' for that is all it is, for according to Einstein this ‘trickle down' theory is not a viable economic policy at all, nor is it the way to ‘create jobs.' It simply transfers wealth, with disastrous consequences, including in the end the loss of profitability that led to all the book cooking we have become so familiar with in recent times. Reaganomics, as it was called, takes about fifteen years to begin to destroy the economy, or so it would seem based on our present experiences.

Great Depressions were a regular occurrence in the American economy through the 1800s, recurring periodically throughout the century, bringing grief to the nation over and over again. The most famous Great Depression, the one people usually refer to when using the term, was the notorious Depression that lasted throughout the decade of the thirties. Since the analysis of economics involves mathematics and number crunching, Albert Einstein turned his talents to the analysis of the cause of these frequent Great Depressions. What he discovered is that Great Depressions were caused by what he referred to as ‘poorly paid workers who did not provide a profitable market' (leading to profit loss and book keeping in our day) as well as "the profit motive, in conjunction with competition among capitalists, is responsible for an instability

in the accumulation and utilization of capital which leads to increasingly severe

depressions." What he meant here was that so much money accumulates at the top as capitalists fiercely compete to see who can become the richest that eventually the bottom falls out of the bottom, the market can no longer be supported due to an imbalance in the distribution of wealth, which results in a glut of goods on the market that cannot be sold, which results in price deflation, which results in loss of profit, further job cuts, which then leads to a further deterioration in the market, and further deflation, which leads to further job cuts, as the economy spirals into disaster. Great Depressions are not caused when stock market bubbles burst, but rather the bursting of the bubble is merely a reaction to the collapse in the market (a symptom and and not a cause). Great Depressions are caused by the huge transfer of wealth to a tiny minority at the top of the pyramid, which as Einstein put it, causes ‘instability' in the ‘utilization of capital' which then results in ‘increasingly severe depressions' with the severity of the depression correlated directly with the degree of income inequality that has developed in a society.

So, therefore, while George Bush might ‘believe' that a huge transfer of wealth to a very tiny elite group is the way to ‘kick start' the economy, Albert Einstein, if he were alive, would argue otherwise. The policies being pursued by George Bush are, according to the Great Mathematician, the recipe for a severe Great Depression, and not a big time ‘job creator'. These would be the kind of policies that would capsize the economy, rather than priming the pump and bringing the country up to speed. The paltry 300 dollars that was the middle class share of the tax cut will in no stimulate growth or job creation, and the massive deficits that will result not only threaten to jack up interest rates but, given the threat of deflation, are actually extremely dangerous since deflation makes debt much worse. One thing you would not want is deficits and deflation at the same time, and you certainly do not want monster debt growing by the trillions of dollars at the same time as the economy is at the risk of suffering deflation.

The enormous transfer of wealth that was the result of the Reagan Years is partly responsible for the trouble the economy is experiencing now, as Albert Einstein would remind everyone, if he were alive today. He is not, and so I remind you on his behalf. The problem was compounded by the Free Slave Trade concept, pushed by Reagan. The so called ‘Reagan Miracle' which resulted in huge profits for a time, was the short term gains that resulted from exporting jobs to low wage maquiladoras, and importing cheaply produced goods which could then be sold for higher profits. While this Free Slave Trade strategy brought in short term gains, over the long run it eroded benefits and wages, driving down wage levels, as workers in different countries found themselves locked into a race to the bottom (who would work for less money, who would work more hours for less money and fewer benefits). As jobs were exported and wages eroded the short terms gains of the Free Slave Trade were lost, and at the end of it all, in pretty short order (about 15 years) even the world's largest corporations found themselves locked into that great race to the bottom. I call this the ‘trickle up theory of economic pain'. All that happened here was what Albert Einstein described in his analysis of the Great Depression. The problem was doubly compounded under Ronald Reagan in that both the huge transfer of wealth to a tiny elite took place at the same time as the Free Slave Trade concept was eroding jobs and wages at the bottom.

So now we find ourselves living in a world where Japan is fighting fiercely against deflation, trying to stave off the Great Depression, the German economy is stagnant, Asia still has not recovered from the collapse the occurred at the end of the 90s, and the American economy, despite having interest rates cut to almost zero, continues to suffer from millions of job cuts, while there is talk of a ‘jobless recovery'. It should be noted here that a Great Depression does not happen all at once. For example the depression of the thirties did not hit rock bottom until about the middle of the decade. They creep up slowly, grinding away, year after year.

Even now deflationary pressures are building in the U.S. economy, the largest in the world, and if the United States sinks into deflation and the spiral of further job cuts and further deflation continues, the rest of the planet is also at risk since the American economy is so large and so dominant. Now given the harm done to the economy by Ronald Reagan, his transfer of wealth which destabilized the economy, and his Free Slave Trade concept which only exacerbated the coming disaster, one must ask just what the Congress and the Senate are doing, behaving like blind sheep, and passing such reckless economic policies as those proposed by George Bush. Further destabilizing the economy by handing out trillion dollar wealth transfers to the top percentile is not going to heal the economy, but rather could be the final nail in the coffin that has already had enough nails pounded into it by Ronald Reagan. Further wealth transfer and further slave trading will only erode the base of the market even further, which as Einstein warned the nation, will in the end result in a Great Depression.

Now I know that George Bush is no Albert Einstein, and so the opinion of George Bush in regards to this transfer of wealth is of no interest to me (even going so far as to be forced to borrow the money to complete the wealth transfer) The fact that as Ari Fleischer put it, ‘the President believes that this is the way to create jobs' is of no concern to me, because I think it is more sensible to listen to Albert Einstein, and would only change my mind if it turned out to be the case that George Bush at the very least, worked through the whole theory of Relativity with a stack of papers and a pencil and then got an A plus as a grade, or even better, improved on the theory of Relativity, thus making him not only a mathematical genius but a great economist as well.

If Einstein were alive today I am sure he would be testifying on Capital Hill and bawling out Senators and Congressmen, who do, after all, have a long history of just following along in allowing and fostering all the Great Depressions that occurred in the past, and so no one should have any illusions that the Congress will not just go right ahead again this time and plunge the country into utter ruin, because they certainly will. If Einstein was alive today he would be talking to you people about these matters, but he is not, and I am, so I will do so myself on his behalf...

Below follow some quotes from Einstein on this subject, and below this a selection of quotes from a page on the same subject "The Causes of the Great Depression'....

Albert Einstein - Why socialism : a few quotes from Einstein's essay - "I shall

call "workers" all those who do not share in the ownership of the means of

production ... the worker produces new goods which become the property of

the capitalist ... Private capital tends to become concentrated in few hands ...

The result of these developments is an oligarchy of private capital the

enormous power of which cannot be effectively checked even by a

democratically organized political society. This is true since the members of

legislative bodies are selected by political parties, largely financed or otherwise

influenced by private capitalists ... an "army of unemployed" almost always

exists. The worker is constantly in fear of losing his job ... unemployed and

poorly paid workers do not provide a profitable market ... The profit motive, in

conjunction with competition among capitalists, is responsible for an instability

in the accumulation and utilization of capital which leads to increasingly severe

depressions ... This crippling of individuals I consider the worst evil of

capitalism. Our whole educational system suffers from this evil. An exaggerated

competitive attitude is inculcated into the student, who is trained to worship

acquisitive success as a preparation for his future career ... "

The Cause of the Great Depression

The depression began in late 1929 and lasted for about a decade. Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade. The maldistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize ... the rewards of the "Coolidge Prosperity" of the 1920's were not shared evenly among all Americans. According to a study done by the Brookings Institute, in 1929 the top 0.1% of Americans had a combined income equal to the bottom 42%. That same top 0.1% of Americans in 1929 controlled 34% of all savings, while 80% of Americans had no savings at all...In the 1923 case Adkins v. Children's Hospital, the Supreme Court ruled minimum-wage legislation unconstitutional ...

Essentially what happened in the 1920's was that there was an oversupply of goods. It was not that the surplus products of industrialized society were not wanted, but rather that those whose needs were not satiated could not afford more, whereas the wealthy were satiated by spending only a small portion of their income. A 1932 article in Current History articulates the problems of this maldistribution of wealth ... One obvious solution to the problem of the vast majority of the population not having enough money to satisfy all their needs was to let those who wanted goods buy products on credit. The concept of buying now and paying later caught on quickly. By the end of the 1920's 60% of cars and 80% of radios were bought on installment credit. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from .38 billion to around billion. Installment credit allowed one to "telescope the future into the present", as the President's Committee on Social Trends noted. This strategy created artificial demand for products which people could not ordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came.

Mass speculation went on throughout the late 1920's. In 1929 alone, a record volume of 1,124,800,410 shares were traded on the New York Stock Exchange. From early 1928 to September 1929 the Dow Jones Industrial Average rose from 191 to 381. This sort of profit was irresistible to investors. Company earnings became of little interest; as long as stock prices continued to rise huge profits could be made.

Prices had been drifting downward since September 3, but generally people were optimistic. Speculators continued to flock to the market ... Once enough investors had decided the boom was over, it was over. Partial recovery was achieved on Friday and Saturday when a group of leading bankers stepped in to try to stop the crash. But then on Monday the 28th prices started dropping again. By the end of the day the market had fallen 13%. The next day, Black Tuesday an unprecedented 16.4 million shares changed hands. Stocks fell so much, that at many times during the day no buyers were available at any price.

More jobs were lost, more stores were closed, more banks went under, and more factories closed. Unemployment grew to five million in 1930, and up to thirteen million in 1932. The country spiraled quickly into catastrophe. The Great Depression had begun.

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