Wednesday, September 17, 2008

Forward into the Past: October 1929, Part 4 of 6

Franklin Delano Roosevelt was elected president almost solely due to the Great Depression. By his lights, he made good on his promise to the American people. In hindsight, however, FDR managed to do all the wrong things for all the right reasons.

The New Deal gave an artificial boost to the economy, strengthening the federal government and Wall Street at the expense of the productive sector. Even this was not enough, as the Recession of 1936 demonstrated. While Roosevelt was falsely accused of starting the Second World War to get America out of the Depression, it cannot be denied that the war saved the American economy . . . in the short run.

The war vastly increased effective demand by putting everyone who was even marginally compos mentis to work, and gearing up industry, commerce, and agriculture to meet the demands of the war effort. The accumulated effective demand, held in check during the war by rationing, kept the economy going until the mid-1960s, when it finally began to falter under the contradictory demands of Keynesian economics. By the 1970s, the decay was becoming evident, with only government involvement staving off the day of reckoning.

The economy managed to stumble along even with the transfer of heavy industry and jobs overseas, until September 11, 2001. Nine-one-one put a heavy strain on the country by attempting to foster financial recovery and engage in a war at the same time. This was a task that caused massive upheavals during the 1960s as the "Great Society" attempted to run itself on Keynesian rules at the same time it was violating them.

Then came the sub-prime mortgage meltdown.

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