A speech by the President which deserves close attention

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The President knows how to make a speech, both excellent rhetoric and powerful content.  I do not know when this speech will be broadcast, so I provide an excerpt from the transcript of the three key parts.  Bold emphais is added.

The Problem

You have been struck, I know, by the tragic irony of our economic situation today. We have not been brought to our present state by any natural calamity — by drought or floods or earthquakes or by the destruction of our productive machine or our man power. Indeed, we have a superabundance of raw materials, a more than ample supply of equipment for manufacturing these materials into the goods which we need, and transportation and commercial facilities for making them available to all who need them.

But raw materials stand unused, factories stand idle, railroad traffic continues to dwindle, merchants sell less and less, while millions of able-bodied men and women, in dire need, are clamoring for the opportunity to work. This is the awful paradox with which we are confronted, a stinging rebuke that challenges our power to operate the economic machine which we have created.

We are presented with a multitude of views as to how we may again set into motion that economic machine.

Some hold to the theory that the periodic slowing down of our economic machine is one of its inherent peculiarities — a peculiarity which we must grin, if we can, and bear because if we attempt to tamper with it we shall cause even worse ailments. According to this theory, as I see it, if we grin and bear long enough, the economic machine will eventually begin to pick up speed and in the course of an indefinite number of years will again attain that maximum number of revolutions which signifies what we have been wont to miscall prosperity, but which, alas, is but a last ostentatious twirl of the economic machine before it again succumbs to that mysterious impulse to slow down again.

This attitude toward our economic machine requires not only greater stoicism, but greater faith in immutable economic law and less faith in the ability of man to control what he has created than I, for one, have. Whatever elements of truth lie in it, it is an invitation to sit back and do nothing; and all of us are suffering today, I believe, because this comfortable theory was too thoroughly implanted in the minds of some of our leaders, both in finance and in public affairs.

… No, our basic trouble was not an insufficiency of capital. It was an insufficient distribution of buying power coupled with an over-sufficient speculation in production. While wages rose in many of our industries, they did not as a whole rise proportionately to the reward to capital, and at the same time the purchasing power of other great groups of our population was permitted to shrink. We accumulated such a superabundance of capital that our great bankers were vying with each other, some of them employing questionable methods, in their efforts to lend this capital at home and abroad.

… Let us not confuse objectives with methods. Too many so-called leaders of the Nation fail to see the forest because of the trees. Too many of them fail to recognize the vital necessity of planning for definite objectives. True leadership calls for the setting forth of the objectives and the rallying of public opinion in support of these objectives.

Do not confuse objectives with methods. When the Nation becomes substantially united in favor of planning the broad objectives of civilization, then true leadership must unite thought behind definite methods.

The solution

I believe that we are at the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer. Do what we may have to do to inject life into our ailing economic order, we cannot make it endure for long unless we can bring about a wiser, more equitable distribution of the national income.

It is well within the inventive capacity of man, who has built up this great social and economic machine capable of satisfying the wants of all, to insure that all who are willing and able to work receive from it at least the necessities of life. In such a system, the reward for a day’s work will have to be greater, on the average, than it has been, and the reward to capital, especially capital which is speculative, will have to be less. But I believe that after the experience of the last three years, the average citizen would rather receive a smaller return upon his savings in return for greater security for the principal, than experience for a moment the thrill or the prospect of being a millionaire only to find the next moment that his fortune, actual or expected, has withered in his hand because the economic machine has again broken down.

… We need enthusiasm, imagination and the ability to face facts, even unpleasant ones, bravely. We need to correct, by drastic means if necessary, the faults in our economic system from which we now suffer. We need the courage of the young. Yours is not the task of making your way in the world, but the task of remaking the world which you will find before you. May every one of us be granted the courage, the faith and the vision to give the best that is in us to that remaking!

National Planning as a powerful tool

… we cannot review carefully the history of our industrial advance without being struck with its haphazardness, the gigantic waste with which it has been accomplished, the superfluous duplication of productive facilities, the continual scrapping of still useful equipment, the tremendous mortality in industrial and commercial undertakings, the thousands of dead-end trails into which enterprise has been lured, the profligate waste of natural resources. Much of this waste is the inevitable by-product of progress in a society which values individual endeavor and which is susceptible to the changing tastes and customs of the people of which it is composed. But much of it, I believe, could have been prevented by greater foresight and by a larger measure of social planning.

Such controlling and directive forces as have been developed in recent years reside to a dangerous degree in groups having special interests in our economic order, interests which do not coincide with the interests of the Nation as a whole. I believe that the recent course of our history has demonstrated that, while we may utilize their expert knowledge of certain problems and the special facilities with which. they are familiar, we cannot allow our economic life to be controlled by that small group of men whose chief outlook upon the social welfare is tinctured by the fact that they can make huge profits from the lending of money and the marketing of securities–an outlook which deserves the adjectives “selfish” and “opportunist.”

… Of these other phases, that which seems most important to me in the long run is the problem of controlling by adequate planning the creation and distribution of those products which our vast economic machine is capable of yielding. It is true that capital, whether public or private, is needed in the creation of new enterprise and that such capital gives employment.

But think carefully of the vast sums of capital or credit which in the past decade have been devoted to unjustified enterprises–to the development of unessentials and to the multiplying of many products far beyond the capacity of the Nation to absorb. It is the same story as the thoughtless turning out of too many school teachers and too many lawyers.

Here again, in the field of industry and business many of those whose primary solicitude is confined to the welfare of what they call capital have failed to read the lessons of the past few years and have been moved less by calm analysis of the needs of the Nation as a whole than by a blind determination to preserve their own special stakes in the economic order. I do not mean to intimate that we have come to the end of this period of expansion. We shall continue to need capital for the production of newly-invented devices, for the replacement of equipment worn out or rendered obsolete by our technical progress; we need better housing in many of our cities and we still need in many parts of the country more good roads, canals, parks and other improvements.

Do you recall this speech?

FDR gave this speech to the graduating class of Oglethorpe University on 22 May 1932.  Here we see the elements of the New Deal, both the parts that worked well — and those that failed utterly.

Hindsight

With the benefit of hindsight — and 70+ years of development in economic theory — we can see which elements worked.  As Bernanke explains in his Essays on the Great Depression (2004), the New Deal programs did not cure the Great Depression, they just mitigated the pain (e.g., job programs, fiscal stimulus).   The most effective New Deal program might have been the programs that promoted bank lending and resturctured debt burdens.  From pages 62 –  63:

It might be argued that the federally directed financial rehabilitation — which took strong measures against the problems of both creditors and debtors — was the only major New Deal program that successfully promoted economic recovery. In any case, the large government intervention is prima facie evidence that by this time the public had lost confidence in the self-correcting power of the financial structure. … Although the government’s actions set the financial system on its way back to health, recovery was neither rapid nor complete.

FDR’s generation confronted the Great Depression without any useful economic theory.  Just like us.

Afterword

If you are new to this site, please glance at the archives below.  You may find answers to your questions in these.

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For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp relevance to this topic:

Post on the FM site about implications for the future, about structural changes to America and the world:

  1. Treasury Secretary Paulson leads us across the Rubicon, 9 September 2008
  2. Say good-bye to the old America. Welcome to our new socialist paradise!, 17 September 2008
  3. Another voice warning about the nationalization of AIG, 18 September 2008
  4. Another step away from our Constitutional system, with applause, 19 September 2008
  5. America appoints a Magister Populi to deal with the financial crisis, 21 September 2008
  6. Legal experts discuss if the Paulson Plan is legal, 21 September 2008
  7. German Finance Minister Peer Steinbrück explains how the world is changing, 30 September 2008
  8. America has changed. Why do so many foreigners see this, but so few Americans?, 1 October 2008
  9. America is changing. Read some chillling words from a liberal economist, 2 October 2008

Originally published at Fabius Maximus and reproduced here with the author’s permission.