Income Distribution and its Role in Depressions

[liberalmike27]

The stock market crash of 1929, which marked the beginning of the Great Depression of the United States, came directly from wild speculation which collapsed and brought the whole economy down with it. But, as John Galbraith says in his study of that even (The Great Crash), behind that speculation was the fact that "the economy was fundamentally unsound." He points to very unhealthy corporate and banking structures, an unsound foreign trade, much economic misinformation, and the "bad distribution of income" (the highest 5 percent of the population received about one-third of all personal income).

A socialist critic would go further and say that the capitalist system was by its nature unsound: a system driven by the one overriding motive of corporate profit and there fore unstable, unpredictable, and blind to human needs. The result of all that: permanent depression for many of its people, and periodic crises for almost everybody. Capitalism, despite its attempts at self-reform, its organization for better control, was still in 1929 a sick and undependable system.

After the crash, the economy was stunned, barely moving. Over five thousand banks closed and huge numbers of businesses, unable to get money, closed too. Those that continued laid off employees and cut the wages of those who remained, again, and again. Industrial production fell by 50 percent, and by 1933 perhaps 1.5 million (no one knew exactly)--one-fourth or one-third of the labor force--were out of work. The Ford Motor Company, which in the spring of 1929 had employed 128,000 workers, was down to 37,000 by August of 1931. By the end of 1930, almost half the 280,000 textile mill workers in New England were out of work. Former President Calvin Coolidge commented with his customary wisdom: "When more and more people are thrown out of work, unemployment results." He spoke again in early 1931, "This country is not in good condition."

Clearly, those responsible for organizing the economy did not know what had happened, were baffled by it, refused to recognize it, and found reasons other than the failure of the system. Herbert Hoover had said right before the crash: "We in America today are nearer to the final triumph over poverty than every before in the history of any land." Henry Ford, in March 1931, said the crisis was here because "the average man won't really do a day's work unless e is caught and cannot get out of it. There is plenty of work to do if people would do it." A few weeks later he laid off 75,000 workers.

There were millions of tons of food around, but it was not profitable to transport it, to sell it. Warehouses were full of clothing, but people could not afford it. There were lots of houses, but they stayed empty because people couldn't pay the rent, had been evicted, and now lived in shacks in quickly formed "Hoovervilles" built on garbage dumps.

A People's History of the United States by Howard Zinn
pp. 386-87

As I've always stated, and been called a Socialist for, the system is flawed, and an income distribution that is so skewed to the top few percentages, leaves untouched money, that could be used to pump up the economy. This is one reason the inheritance tax was instituted in the first place. It is really a problem of simple compounding. Now with the repeal, it is just another nail in the coffin of our economy, and our Democracy. It would seem that the greed of a few fabulously wealthy families, like the Bush's, blinds them to the true nature of the problem.

[slor]

1. I am starting to think...

that besides getting rid of the legacy of F.D.R, bankrupting this country would create a vast pool of able-bodied, angry, idle people in which to enlist into a new military machine hell-bent on world conquest. Think about it, all those people blaming foreign governments for "taking" our jobs, with a few well timed "tu'rists" attacks and you could have a regular Mordor in America.

[liberalmike27]

3. You folks are spot-on

I couldn't agree with you more. It can easily be figured that the problem was seen looming, and regulation of all kind has been repealed, included in 1992, where Bush deregulated much of the power company structure. What do we have then? Blackouts.

Many things need to be regulated.

I hope it is all fixed before the really bad portion of what I also believe to be a manufactured depression, both for the military machine, and to get people back to where they will work for virtually nothing, and as a kind of disciplinary slap-in-the-face of workers. They've already pretty much used globalization to destroy the unions, since none of the other countries have the same collective bargaining, environmental regulations, and worker safety rules.

I personally think that this time around we'll see violence that makes the petty squabbles that happened in 1929 look small by comparison. I can only hope that the attacks are directed against the wealthiest individuals who are responsible. William Mellon Scaife is one prime example, as he is a major contributor, and creator of many of the Right-wing stink-tanks.

[DBoon]

2. Galbraith, in "The Great Crash"

Came to a similar conclusion. A skewed income distribution meant the economy was suceptible to the whims of a small number of wealthy individuals. If this small number are hit or panic, everything else follows.