The Big Restart

 

After the market crash of 1929, the country began to unravel. Franklin Delano Roosevelt was elected president and jumped into action. It was called The New Deal, a stimulus package like no other, one that today would probably send Republicans screaming. But the projects and programs funded by the federal government literally put millions of unemployed Americans to work to build infrastructure projects that continue to shine right into the present day. Projects like the Lincoln Tunnel, the Overseas Highway (a system of roads and bridges that linked Miami to Key West), and the massive hydroelectric projects like the Hoover and Grand Coulee Dams.

It was that massive surfeit of electrical power that resulted from these government-funded projects that gave the United States the ability to stock its allies and itself with American made ships, planes, tanks, artillery, trucks, jeeps, guns and munitions. Without that capacity, many historians speculate that Hitler just might have won WWII.

“The sheer number of accomplishments [from that New Deal] is staggering. CCC [Civilian Conservation Corps] projects included 3,470 fire towers erected, 97,000 miles of roads built, 3 billion trees planted, 711 state parks created and over 3 million men employed. The PWA [Public Works Administration] funded the construction of over 34,000 projects, including airports, dams, schools and hospitals. The WPA [Works Progress Administration] is credited with having constructed 651,087 miles of roadways, repaired 125,110 public buildings and constructed 853 landing fields. From 1933 and the birth of the New Deal to 1939, unemployment dropped from approximately 15 million to 9 million and most of those workers were employed by New Deal programs.” Owlcation.com

Socialism? Not really, since most of what was built were government-owned facilities and infrastructure. Social programs were developed – like Social Security and Medicare were born at the same time – but government did not take over the factories or land, which would have been true socialism. The big lesson: the difference between pure expenditures and investment. For example, paying for a large body of soldiers to be stationed in a military complex may be necessary, but it is an “expenditure.” There is no economic return on that payment. The money goes out, but there is no tangible economic rate of return. We may benefit from greater security, but there is no dollar return. Or we can change the tax code and reduce our revenues – as we did in 2017 with a huge corporate tax cut that failed to produce the promised job growth – and increase the deficit with no obvious longer-term economic benefit to the nation. Same result.

On the other hand, investing in cleaning up and modernizing our electrical power generating capacity, rebuilding our electrical and Internet grid, reducing the mega-trillion dollar impact of climate change (now vastly more intense: storms, floods, fires, droughts, coastal erosion, insect/disease movement and conflicts generated by people trying to leave permanently impaired lands), improving our roads, bridges, levees and dams, upgrading the quality of our educational system (the ultimate job-creator) and upgrading medical care will generate improved efficiencies, greater industrial capacity and increase overall worker productivity. Those are measurable “returns on investment.”

As the federal government has reduced its support for scientific research, a cornerstone cost-savings pillar of Trump’s vision of government, China and other powers have amped up their investments in tech and medical research. China’s output of hard patents is skyrocketing just as ours is contracting. America’s ability to restart the economy, after we have recovered from the pandemic and kept Americans and small businesses afloat (not cheap either!), will very much depend on whether the federal government injects capital into both the private and public sector. But fears of deficits hitting the stratosphere must be measured against: 1. National survival and 2. The reality that governmental investments in ourselves should generate an economic value to the nation that well exceeds any deficit, investments that could endure for decades if not longer. Looking at increasing the deficit, without looking at the offsetting economic benefits that would result, is just a rookie mistake.

So much of our cutting-edge government-sponsored research and technology development is focused on the military. There are spin-off benefits for the private sector, our course, but, for example, pulling down our federal medical research, our pandemic preparedness infrastructure and specialized personnel – saving a few billion dollars – probably cost us a few trillion dollars because of our woeful unpreparedness for the COVID-19 pandemic. Our government moved from being proactive and prepared (other than in military tech) to being reactive and unprepared. This approach makes us pay for the inevitable natural disasters at vastly higher multiples than having structures and systems in place to reduce the damage before it gets out of control.

In the non-military technology arena, the government can do more and also inform the public of what they really have done also to benefit civilians (like inventing and deploying satellite communications with GPS capacity). Google CEO Eric “Schmidt believes that the government’s image problem may be hurting Silicon Valley in an indirect way. That’s because there’s a lack of support for government partnerships with universities and research facilities, and it’s in these places that the Googles and Amazons of tomorrow incubate. ‘Science funding as a percentage of GDP is below what it was in Sputnik times,’ Schmidt said…

“Many of the technology advancements that people assume are the work of big private companies are really built on top of research that was funded by the government, he pointed out. Schmidt said the government needs to make the public aware of that fact… ‘You like the GPS? That goes back to the university system that was originally funded by essentially an Air Force project,’ he said. ‘You like the iPhone? The iPhone technology originally came out of that funding.’

“Fast Company Editor in Chief Stephanie Mehta…  pointed out that public trust in, and respect for, the government remains at historic lows, while the public’s trust in the private sector—including high tech companies—is much higher. ‘The American public has ceded innovation to the private sector,’ Mehta said… There are those who portray the government as incompetent for political reasons. The idea that government is the cause, not the solution, for people’s problems is a Right-wing saw that dates back to the Reagan years and is still given as a reason to shrink the federal government. That view has metastasized into the radical anti-government posture seen in the current administration.

“‘In the past however many years there’s been a very simplified rhetoric around what it will take to have a strong economy,’ [Rhode Island Governor Gina] Raimondo said. ‘There’s this simplified view held by many, and put forth by many—cut taxes, cut regulation, and you will have growth, despite the fact that every stitch of data will show that to be false.’

“Raimondo said state governments and the federal government should create regulatory and tax structures that are hospitable to business. But it’s equally important to make large investments in education and in research and development… ‘And business leaders, technologists, and entrepreneurs need to amplify that voice,’ she said.” FastCompany.com, October 10^th.

One last note on our global competitive advantage. People rail against universal healthcare stating we cannot afford the cost, even though we are the only developed nation without it. Healthcare-starved workers tend to be less productive with greater absenteeism.

For example: It began in the 1980s, when our major carmakers faced the high-end healthcare policies negotiated by the United Autoworkers, the union that represents most of their employees. The cost of direct labor to make an average American car was identical in Michigan and Quebec or Ontario, Canada. But the average car cost to manufacture in the US was an extra $1500 when that healthcare package was amortized across the production line. In Canada, healthcare was zero, since it was already covered in what was being paid to the Canadian workers. So, US carmakers began shutting down US plants and buying or building plants in those two Canadian provinces. We lost a lot of jobs.

In the end, we are facing prolonging the depression that resulted from the pandemic, and our failure to contain it before it did the economic damage it has and will continue to be inflicted, potentially for a decade or more… or priming the pump to get America going again. And if you listen to Donald Trump, he sounds a lot like Herbert Hoover in the immediate post-Great Depression era, who proselytized that a free market, without major government interference, would fix itself. Hence Trump’s emphasis on reopening everything vs keeping us going and safe in the interim. Hoover’s successor, FDR, who took the opposite approach, was elected President to four consecutive terms. He died in office, and we now have terms limits for that office. Hoover was wrong. FDR was conclusively proven right.

            I’m Peter Dekom, and we can live with what may become the longest mega-economic downturn in American history, or we can learn the difference between investment and expenditure and prime our pump to restart that American economic engine.