Things Fall Apart, the Center Cannot Hold......

Please view video, below

This is an interview with Jim Rogers. His biography is here. I've followed him off and on, and see him as an interesting and astute commentator on modern economic matters. We particularly agree on the critical importance of the US's (and Western Europe's) crushing trade deficit with, mainly, Asia. This is the main subject of Roger's interview. However, there are a few points he makes which I must take exception to.

The first is his contention that government actions during the Great Depression did nothing to help matters, indeed, it made them worse--and that only WWII was the cause of the depression's end. As a matter of fact, he's simply wrong, and wrong on more than one level. The proposition that the New Deal did nothing to end the depression can be dispelled by something as simple as a graph is US GDP over the depression years.

The graph shows income falling steadily from 1929 until 1933, when the New Deal was getting under way. GDP then climbs smoothly and rather quickly until 1937 when there is a dip into decline, followed by an increasing trend until 1941 (and beyond). That this growth isn't simply something that would have occurred without the New Deal (perhaps even hindered by the lack of fiscal "restraint" that Rogers would seem to advocate) can be seen by in the GDP dip of 1937-38. This was the year when Roosevelt was convinced by conservatives that he should balance the budget. Result, instant recession. By 1937, GDP was rapidly closing in on 1929 levels.

Finally, it was, as Rogers dismissively suggests, WWII that ended the depression; as though this were proof the the New Deal's wrongheadedness. In reality, the role of WWII in ending the Great Depression totally vindicated New Deal policies. If one accepts the reality that government deficit spending and demand creation were the heart of the New Deal concept, then WWII was the ultimate New Deal program, finally big enough to get the job done, and dismal proof that while we were socially incapable of enough deficit spending on roads, hospitals, schools, arts, education, public works, etc. to totally end American depression suffering, we were quite willing to spend more than enough when the end product was death and destruction.

The second problem I have with Jim Roger's economic ideas relates to his unbounded faith in "free markets". We should, he seems to say, do nothing governmentally to stop the current slide. Let the weak fail, he argues, and the competent can pick up the pieces and build prosperity again. Given his own take on the current situation, that argument is weak.

Our problem, he argues, is the vast trade deficit we've created and the debt that needs funding. Ok, let's agree that _the_ major problem is our trade deficit. That deficit arises from the _fact_ that we've shipped manufacturing to Asia in staggering amounts, and don't have nearly enough to sell globally to make up for what we buy. This happened as a direct result of our buying totally into the concept of global _free markets_.

We accepted the concept of slave labor. Of people toiling for us. We embraced the idea that the utterly powerless, working overseas, under absolute overlords for pay barely enough to sustain them was fine. Indeed, we argued, they should be grateful for what they'd got. The current financial collapse is directly related. People borrowed against the anticipated gain in the value of their homes to pay for their ongoing consumption. This allowed a rise in spending for imported goods which further fueled the deficit. When housing collapsed, so did everything else.

If Jim Roger's "competent" economic actors are going to move in and build prosperity, it certainly can't be a "prosperity" coupled with massive trade deficits. Rogers doesn't speak to this. No one does. Unless we can build an economy that makes the things we need, or at least makes enough exportable stuff so that we can balance our imports with our exports, no "free market" triumph of the competent--or even any neo-Keynesian stimulus program (in the longer run)--can succeed.

Thanks to my friend Mark West, for pointing me to this video. Do have a look.