Walter Williams, wrong again.

      The first 300 words of this are the words I'm limited to when writing to the editorial staff of the local daily newspaper. What follows that is what I'm writing to the more literate who will or should read the blog page.

        "Walter Williams is a bright guy, which then begs the question of why he says such stupid things in his op-ed column with such stunning regularity. At times, Mr. Williams seems to take almost a perverse pleasure in slandering his own in the name of "conservatism" and  selling newspapers. In this he is little better  than an educated Rush Limbaugh.

        He frequently invokes his "Economist" creds, and then  draws stunningly bad parallels and conclusions.

        His latest column "Trade Ignorance and Demagoguery" is an attempt to paint a rosier picture of our overall financial deficit with China than exists in the real world. He admits to a huge deficit in balance of payments, meaning that we spend  about four times as much "buying Chinese" than they do "buying American" in terms of goods and services.

         At no time does he mention that, to working Americans, this means jobs lost due to manufacturers shipping them offshore. He then cites the  Chinese investment in US financial markets as what he calls a "current account" surplus, and as such he is again, correct. The real problem with his illogic is that Chinese investment in financial instruments and ownership of US real estate benefits only those who sell it to the Chinese, which certainly isn't anyone we of the middle class hang out with. In summary: trade deficit hurts working men and women. Current account surplus benefits only the top of the economic food chain.

        Later, in an even more bizarre statement he says: "....every President except Herbert Hoover and Franklin D. Roosevelt, whose administrations ushered  in the Great Depression" Really? The Great Depression began in 1929, and FDR was inaugurated in 1933.  He took office with a national unemployment rate of 32%.  Like blaming Obama for the housing bubble collapse, and just as wrong!

   Now for the rest of the story: Williams is prone to start a column with something valid and then go off the rails as he does here. He makes several good observations re: the negative aspect of tariffs and trade restrictions, but never addresses the reasons why such deficits exist in the first place, among which are labor costs (less there than here), need for American workers to retrain in more technical specialties, and foremost, the shift in control of raw materials. That last is irreversible and uncorrectable, it is, simply, what it is. He also seems to care little about those who are financially disadvantaged, either by lack of education and training, inability to compete, or institutionalized obstacles to success.

        Where he also errs is in failing to observe that those most hurt by these goods and services imbalances are those whose manufacturing jobs have been lost because of cheaper production capabilities elsewhere. In Walter's World, if the wealthy are selling US real estate, T bills, and stocks to the Chinese and getting rich doing it, all is well with the body politic. Not bloody likely.

        The statement which was revelatory to me regarding Professor Williams inability to tell the truth was the implication that somehow FDR's administration "Ushered in the Great Depression."  That any college educated individual, let alone an  Economics professor,  could make such a statement, is mind boggling. Here are some facts (remember facts?) about that time period:

        In 1929, as in 2007 and 2008, there was little regulation of financial markets or banks. There was actually almost none in the 1920s. Bankers could, and did, play the stock market with customer's savings  funds.  Between 1929 and 1933 (Hoover's inaugural to FDR's inaugural) over 6,200 banks failed, costing depositors losses of (adjusted for today's dollars) more than $60 billion.  

       In 1929, as now, (only worse) there was significant income inequality in America and the upper classes couldn't have cared less.

        In 1929, in fact through the 1920s, America had gradually shifted from a heavy manufacturing economy to a consumer products economy , yielding two conditions. The first, over production, was a direct result of the industrialists belief that "if we make it they will buy it." Driven by the growth of the advertising industry and fueled by the advent of radio advertising, the second condition, massive consumer debt, followed hard on its heels.

        When the stock market tanked in 1929, Hoover's first action was an attempt to increase federal revenues and spur domestic consumption by imposing a new and almost punitive, tariff. The Smoot- Hawley tariff, proposed by two western state Republicans,  imposed tariffs as high as 59% on some items. Instead of generating revenues, it simply spread the depression into foreign markets. Like the current President, who has thrown the term "tariff" around like Wonder Woman's golden lasso, apparently Hoover didn't get it either.  If we raise tariffs on foreign products so our people have to buy domestically, those foreign nations will retaliate by raising tariffs on what they buy from us and both of us will lose trade, damaging the economy. It has been proven exhaustively over time,  but apparently they don't teach it in military school  

        Early attempts to force Hoover to act to help the bulk of Americans who were hungry, and jobless, like the WWI veteran "Bonus Marchers" fell on deaf ears, being simply referred to by Hoover as "socialist"

        FDR took office with the highest unemployment rate of the 20th century, and possibly ever, but there are no records for the previous "panics" in our history.  He was not responsible for anything whatsoever leading to the Great Depression.

        Jump ahead to 2009. Barack Obama took  the oath of office under somewhat similar circumstances. The market had crashed, financial markets were hammered by the housing bubble collapse, specifically by the proliferation of now nearly  worthless bonds created by an under regulated banking industry to make money from nothing. Many CEOs of major financial houses didn't even understand what happened when it happened because of (again) an under regulated banking industry.

        The resultant ripples in the economy were much like "Great Depression Lite" Like Walter Williams, there are those ignorant souls who still blame the recovery's cost on the administration which inherited the mess.

        So what are the lessons we should take from this?

        First, that of the four largest recessions after the dismantling of the Bank of the United States in 1836, all have been either directly or in directly caused by the failure of the federal government to adequately regulate banking practices, especially what banks were and were not allowed to do with investor/depositor funds, or financial speculation by those least likely to suffer from its failure.

        Second, that these financial crises, were primarily started by persons, either bankers or industrialists,  whose means allowed them to weather the financial shoals, while the bulk of the population  suffered immense hardships. These "business cycles" were exactly as described by Karl Marx in 1867's "Das Kapital" volume I.

        Third, that banks became safer in America following the enactment of the Glass-Steagall Banking Act in 1933, which created among other provisions, the FDIC, but more importantly, prohibited banks from engaging in risky speculation with depositor's funds. After a period of 66 years, however, greed won again. The Glass-Steagall Act's partial repeal in 1999 by the Gramm-Leach-Bliley Act doubtlessly  contributed to the 2008 global credit crisis. Commercial banks around the world were saddled with billions of dollars in losses due to the excessive exposure of their investment banking arms to derivatives and securities that were tied to U.S. home prices.

        Will we ever learn that it is a fool's errand to expect an even playing field? Today, of course we are bombarded with the same old hype; that "excessive regulation" of business is the Satan spawn which threatens our well being. That left alone, it'll all be ok because large corporations and in fact small businesses, too, are honorable entities run by honorable men and women. we brush off  Big Pharma's  extortion of the general public and Medicare, as atypical, as aberrations.  Job one for the modern corporation, as taught  by any decent business school curriculum, is to maximize investor profit. What they ought to be allowed to do along the way is a very different consideration.

        A market economy is, I feel the best compromise to produce growth and implement the welfare of those who contribute to that growth, but those who reap the benefits at the top should be constrained by law to insure that those who produce their wealth are adequately compensated for their efforts.

        The age of robber barons like Rockefeller, Gould, Morgan and their ilk showed how severely the combination of lack of social conscience, unregulated greed and total market control  can hurt those of us not so fortunate as to be wealthy. That sort of unconstrained disdain for their fellow man, unregulated in the public interest, is simply a rich and greedy good old boys club. Unfortunately, we are currently in the grasp of a member of said organization in the White House.