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The causes of a depression

August 20, 2013
The Daily Mining Gazette

To the editor:

A depression occurs when there is too little demand for goods, not a great supply. What is needed is more customers, not more capital. A depression exists when the sum-total of employers pay their employees too little to buy back all they produce. It is the excessive profit they have set upon the goods that keep them from being sold.

Defenders of laissez-faire capitalism say this cannot happen because employers will lower their prices on all their goods until they are sold; but employers often do not. Instead they create brand names, advertise widely, and buy out competitors. They replace competition with monopoly.

Such monopolistic conditions brought on the Wall Street Crash of 1929. President Hoover promptly reduced expenditures, cut taxes and balanced the books. Within three years this policy of austerity brought on the worst depression America has ever suffered.

But President Roosevelt in 1932 saw that if the private sector failed to provide America with a workforce the government should. Therefore he and Congress created the New Deal with its Social Security, minimum wages and much else to ensure that Americans maintained the purchasing power to keep the economy running.

This meant high taxes, which persisted even though the national debt rose above 100 percent of GDP. We did not go bankrupt, rather we grew wealthy and unemployment ended.

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From 1945 to 1980 successive presidents followed Roosevelt's, not Hoover's policy. Expenditures and taxes were high. So were employment and prosperity. During these years GDP grew two and a half percent a year every year - and for all classes.

Then Reagan proclaimed in 1980 that government was not the solution, it was the problem. Bush agreed and the two of them reduced government, cut taxes and repealed regulations. Economic growth ground to a halt except for the rich. By 2008 the purchasing power of the nation was so reduced that the Great Recession ensued.

During the years of Reagan and Bush the rich grew immensely rich. One percent of the wealthiest Americans came to enjoy 25 percent of all incomes received in America. If those 1 percent had continued to pay the taxes they paid from 1975 to 1980 there would have been no recession, and if they paid it now we could look forward to those halcyon days again.

Clayton Roberts




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