As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
That is what happened to us in the twenties.
That's what's happening to us now with tax policies that distribute more wealth to the rich, a credit-fueled housing boom (now gone bust), and inflation in commodities such as eggs and gas that disproportionately takes wealth away from those in the lower income brackets.
Robert Reich, Secretary of Labor under Bill Clinton, wrote in February of this year:
We're sliding into recession, or worse, and Washington is turning to the normal remedies for economic downturns. But the normal remedies are not likely to work this time, because this isn’t a normal downturn.
The problem lies deeper. It is the culmination of three decades during which American consumers have spent beyond their means. That era is now coming to an end. Consumers have run out of ways to keep the spending binge going.
And...
The underlying problem has been building for decades. America’s median hourly wage is barely higher than it was 35 years ago, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. Most of what’s been earned in America since then has gone to the richest 5 percent.
Yet the rich devote a smaller percentage of their earnings to buying things than the rest of us because, after all, they’re rich. They already have most of what they want. Instead of buying, and thus stimulating the American economy, the rich are more likely to invest their earnings wherever around the world they can get the highest return. (More here.)
Just what Eccles attributed the Great Depression to - more money to the wealthy and less to the middle class. Middle class buying power based on credit and not real assets. And remember all that capital sloshing around from my last post that's wreaking havoc with our financial system? That's what the rich are doing with their excess wealth.
Now, all this is not to say that we are necessarily headed for another depression. In fact this time, we may actually get a do-over. First, as noted earlier, we have the chance, if Congress can get its act together, to flood the market with capital and ease the credit crunch. (By the way, as of September 30, lending rates between banks have hit and all-time high.)
Second, we can elect Barack Obama as our next president and put the middle class back on firmer ground. Eccles went on to write:
Had there been a better distribution of the current income from the national product -- in other words, had there been less savings by business and the higher-income groups and more income in the lower groups -- we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.
Obama's tax plan does just what Eccles recommends by giving tax breaks to the middle class and recinding the Bush tax cuts for the wealthy - that disastrous policy McCain supports. See for yourself:
(from The Washington Post)A healthy middle class means a healthy America.
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