Posts Tagged ‘Second Great Depression’

Hedge Funds 2

Last night, on the BBC program Business Matters, I argued that the Securities and Exchange Commission’s settlement of the insider-trading case with SAC Capital Advisors was just a slap on the wrist—a fine of $1.8 billion that still allows Steven A. Cohen to keep the bulk of his estimated $8-9 billion wealth.

But it was a necessary slap on the wrist in the sense that it was intended to restore faith in markets, not unlike the law establishing insider trading as a crime when the SEC was created back in 1934. Cleaning up financial markets then, five years into the First Great Depression, was designed to rebuild confidence not only in financial markets but in capitalism more generally.

And it worked—alongside the other programs of the first and second New Deals, and of course the recovery created by World War II.

But, I added, I’m not sure it’s enough now. Yes, the SEC is seeking to levy large fines (on Steven Cohen’s SAC and probably on Jamie Dimon’s JPMorgan Chase). However, the people who have been most affected by the financial meltdown—who lost their homes and jobs, and are struggling to put food on the table and send their kids to college—have every right to say, “Been there, done that. We’ve tried investigations, fines, and regulations before and look at the mess we’re in again, in the midst of the Second Great Depression.”

And so maybe, they’ll be singing along with The Who:

And I’ll get on my knees and pray
We don’t get fooled again
Don’t get fooled again


Interest in Marx just doesn’t seem to go away.

Not after the Great Financial Crash of 2007-08. In the midst of the Second Great Depression, which also doesn’t seem to be going away.

And so Daniel W. Drezner [ht: sn] is the latest in a long line of professors and pundits who, in recent years, has been compelled to admit that Marx got at least a few things right.

Going beyond Smith and Ricardo, Marx stressed two important facets of the market that they did not. First, he stressed that crisis was endogenous to global capitalism. Marx acknowledged and admired the productive machine that was the capitalist system, but he also stressed that periodic busts were baked into the system. This is a point that spread into some corners of mainstream economics — see Hyman Minsky, Charles Kindleberger or even Reinhart and Rogoff – but could do with a little more emphasis in the old grad school syllabus.

The second dimension Marx stressed was power — which is why he’s still appreciated among those who study global political economy. A riff through The Communist Manifesto or the highly underrated Wage Labor and Capital shows the ways in which Marx appreciated how capitalism led to a redistribution and concentration of economic power over time. It’s not that hard to find recent empirical work that bolsters a Marxist analysis of economic power.

Then, as has become de rigueur in these kinds of pieces, there’s the facile reference to one or another of the tired refrains concerning Marx, in complete disregard of the scholarly literature. In this case, it’s Marx as an economic determinism, which even my undergraduate students are well aware is one of those oft-repeated but mistaken interpretations of what Marx and Engels were up to in formulating a materialist interpretation of history.

In any case, the real howler in Drezner’s piece is the following assertion: “We’re operating in a world where the core business interests in the United States — for kicks, let’s call them the “executive committee of the bourgeoisie” — are being ignored.” Really? What more could Drezner or the “core business interests” he refers to want? Even lower workers’ wages and higher corporate profits? Even cheaper money and larger interest-rate spreads for Too Big to Fail banks?

No one is arguing (certainly not I) that the Tea Partiers have been acting—in the first or even last instance—out of economic interests. Not even in the latest debt-ceiling showdown, which apparently they’ve lost. (Race, religion, and so much more play important roles in Tea Party ideology.) But at least some factions of American business did bet on the Tea Party—to criticize Obamacare, to attack transfer programs, to derail minimal government regulations—as long as it could be controlled. But then the Frankenstein monster they created got out of control.

And that’s one thing those core business interests do want: they may not be able to control an always-unstable capitalism but, as the self-appointed masters of the universe, they do want to be able to exercise their control over anyone who is appointed (or aspires to join) their executive committee.


As if to confirm my anti-economic determinist view of the Tea Party, Zack Beauchamp [ht: db] offers an important analysis of the role of racism in creating the government shutdown and the battle over the debt ceiling.

The basic cleavage between North and South, began by slavery, has set the fault lines of American politics again and again. This time, the crisis isn’t as severe as the civil war, nor as divisive as the battle over civil rights. But make no mistake: today’s Republican radicalism, with all of its attendent [sic] terrifying brinksmanship, is the grandchild of the white South’s devastating defeats in the struggle over racial exclusion.

help class

Most Americans (53 percent) think the government is doing more to help the rich at the expense of the poor and middle class, according to a new HuffPost/YouGov poll. And only two percent think it should do more to help the rich.

Given the policies that have been adopted (and, even when not adopted, proposed) in Washington, D.C. during the Second Great Depression, how could they think otherwise?

Note: if I had the time, I’d make the table into an actual chart.


The pathologies in our society are becoming more and more apparent as economic inequality continues to grow.

Mark Thoma explains, as one example, how rising inequality is responsible for the current battle over the debt ceiling.

growing inequality has allowed one strata of society to be largely free of these risks while the other is very much exposed to them. As that has happened, as one group in society has had fewer and fewer worries about paying for college education, has first-rate health insurance, ample funds for retirement, and little or no chance of losing a home and ending up on the street if a job suddenly disappears in a recession, support among the politically powerful elite for the risk sharing that makes social insurance work has declined.

Rising inequality and differential exposure to economic risk has caused one group to see themselves as the “makers” in society who provide for the rest and pay most of the bills, and the other group as “takers” who get all the benefits. The upper strata wonders, “Why should we pay for social insurance when we get little or none of the benefits?” and this leads to an attack on these programs.

Even worse, this social stratification leads those at the top to begin imposing a virtue and vice story to justify their desire to stop paying the taxes needed to support social insurance programs. Those at the top did it all by themselves. They “built that” through their own effort and sacrifice with no help from anyone else.

Those at the bottom, on the other hand, are essentially burning down their own houses just to collect the fire insurance, i.e. making poor choices and sponging off of social insurance programs. It’s their behavior that’s the problem, and taking away the incentive to live off of the rest of society by constraining their ability to collect social insurance is the only way to ensure they get jobs and provide for themselves.

What this means, of course, is those at the top want to dismantle precisely those social programs that help those at the bottom—in the name of lowering deficits and debt.

Then, as a second example, there’s the ongoing spectacle of focusing on the “self-destructive habits” of poor people compared to everyone else. As Tina Rosenberg reports, behavioral economists are finding that people on the bottom “are less future-oriented than those with more money.”

According to these authors, one explanation for bad decisions is scarcity — not of money, but of what the authors call bandwidth: the portion of our mental capacity that we can employ to make decisions.

Worrying about money when it is tight captures our brains. It reduces our cognitive capacity — especially our abstract intelligence, which we use for problem-solving. It also reduces our executive control, which governs planning, impulses and willpower. The bad decisions of the poor, say the authors, are not a product of bad character or low native intelligence. They are a product of poverty itself. Your natural capability doesn’t decrease when you experience scarcity. But less of that capacity is available for use. If you put a middle-class person into a situation of scarcity, she will behave like a poor person.

Really? The explanation of growing poverty is based on the bad, “tunnel-vision” decision-making of poor people, which can be fixed by forcing people to save and providing better financial counseling?

Why not, instead, focus on the real problem—the tunnel-vision decisions of those at the top, to take as much as they could as quickly as they could, which created the conditions for the Second Great Depression in the first place—and then explore the kind of changes that would eliminate the obscene levels of inequality and the resulting poverty that exist today?

Not doing so is perhaps the real pathology of the existence of persistent and growing inequality in our society.

Poll of the day

Posted: 19 September 2013 in Uncategorized
Tags: ,


According to the latest Economist/YouGov Poll, the majority of Americans believe we haven’t recovered from the crash of 2008.

In other words, we’re still in the Second Great Depression.

wages-as-a-of-gdp_chartbuilder corporate-profits-as-of-gdp_chartbuilder

The unevenness of the current economic recovery is so obvious even mainstream economists have been forced to invoke the dreaded “c” word: class.

As I’ve pointed out many times on this blog, the more mainstream economists try to deny the relevance of class—after the crash of 2007-08, in the midst of the Second Great Depression—the more it rears its ugly head.

And so we have the spectacle of even the most vulgar of economists, such as Robert Samuelson, finding themselves in the position where they can’t ignore it. They really hoped the trend for labor’s share of national income to decline and capital’s share to rise would be reversed. But it didn’t. Not by a longshot.

Now, it’s true, mainstream economists like Samuelson have no idea why the two class shares are moving in opposite directions. But they do know that, as things continue in this direction, there are going to be real problems in terms of the fundamental unevenness and injustice of this recovery, and thus of the legitimacy of the current way of organizing economic and social life. That’s why they’re begging capital to do something about it:

What would improve the odds is more exuberance from the custodians of capital. CEOs seem content to sit on their profits and invest only when the needs and the returns are indisputable. Careless capital, which fostered the financial crisis, has given way to ultra-cautious capital, which is making a lackluster economy self-fulfilling.


Even the students at Harvard Business School are now enunciating the dreaded “c” word and admitting that class matters.

Update 2

And Goldman Sachs [ht: sm], it seems, has been busy creating its own in-house class divisions.


Clearly, American workers have not been able to shake the job worries they had back in 2009. And for good reason: their situation is only marginally better than it was in 2009.

According to the most recent Gallup poll, workers continue to express elevated concern about being laid off, having their hours cut, and having their benefits and wages reduced. Gallup found that of more than 2,000 respondents, most worried (43 percent) about having their benefits reduced this year.

The other major result is the 14-percentage-point increase in workers’ concerns about being laid off from August 2008 (just one month before the fall of Lehman Brothers that precipitated cascading problems on Wall Street over subsequent weeks and months) and now.


Low-income American workers’ concerns about this are up the most. Forty-four percent now say they are worried about being laid off, compared with 19 percent in 2008—a 25-point increase. Concern is also up more than the average among nonwhites (a 20-point rise), union members (19 points), and government workers (19 points).

American workers are under assault in the midst of the Second Great Depression. And they know it.


During the First Great Depression, the United States spent a lot of money creating poverty. Americans also spent a lot of time thinking and writing about poverty, which produced some real classics, such as Walker Evans and James Agee’s Let Us Now Praise Famous Men.

Now, in the Second Great Depression, we’ve also created a great deal of poverty—and are finally beginning to think and write about it (although I can’t say we’ve yet reached the level of Evans and Agee or, for that matter, Steinbeck, Caldwell and Bourke-White, or Blitzstein—and I don’t think Hunger Games counts).

But we have learned, thanks to the Associated Press, that 4 out of 5 U.S. adults struggle with joblessness, near poverty, or reliance on welfare for at least parts of their lives.

While racial and ethnic minorities are more likely to live in poverty, race disparities in the poverty rate have narrowed substantially since the 1970s, census data show. Economic insecurity among whites also is more pervasive than is shown in government data, engulfing more than 76 percent of white adults by the time they turn 60, according to a new economic gauge being published next year by the Oxford University Press.

The gauge defines “economic insecurity” as experiencing unemployment at some point in their working lives, or a year or more of reliance on government aid such as food stamps or income below 150 percent of the poverty line. Measured across all races, the risk of economic insecurity rises to 79 percent.

“It’s time that America comes to understand that many of the nation’s biggest disparities, from education and life expectancy to poverty, are increasingly due to economic class position,” said William Julius Wilson, a Harvard professor who specializes in race and poverty.

There are also, as Tyler Durden explains, at least 5 things nobody tells you about being poor.

Being poor is like a game of poker where if you lose, the other players get to screw you. And if you win, the dealer screws you. . .What I am saying is that people are quick to tell you to pick yourself up by your bootstraps and just stop being poor. What they don’t understand is the series of intricate financial traps that makes that incredibly difficult.

Finally, Alanna Shaikh [ht: sm] confesses that she would suck at being poor.

This is all a really long way of saying that maybe the most important thing I have learned in my career is this: poor people are still people. It’s not surprising when they make bad choices, because we all make bad choices. Being poor teaches your some very specific skills for facing a hard life, but it doesn’t make you immune to mistakes and poor choices. It just makes the consequences of those bad choices worse.

I’d only add that, when poor people make mistakes, it only affects them and their children. But one of the pathologies of the rich is that their mistakes affect large numbers of people, especially when their desire to acquire as much money as possible creates a Great Depression.


This chart, by the Center on Budget and Policy Priorities, gets filed under the category “why is this anything other than the Second Great Depression?”

Sure, there are now fewer unemployed workers (11.9 million) than in 2009 (4.3 million), when the official unemployment rate peaked. But in 2009, 9.2 million unemployed workers received unemployment insurance benefits, which left 5.1 million jobless workers with no such benefits—as against today, when there are 6.7 million unemployed workers not receiving unemployment benefits.

As the folks at the CBPP explain,

A smaller share of unemployed workers now receive UI for several reasons.  One is the length and depth of the protracted jobs slump, which has left many workers unable to find work before their UI benefits run out.  In addition, a number of states have cut the number of weeks of regular, state-funded UI benefits in recent years; these changes also shorten the number of weeks of federal UI benefits a person can subsequently receive.

In addition, the duration of federal UI benefits (which go to long-term unemployed workers) has fallen.  This reflects several factors.  One is the decline in the official unemployment rate in many states, which itself leads to automatic reductions in the number of weeks of federal UI benefits available in those states.  Another factor is federal changes implemented in 2012 in the number of weeks of federal UI benefits provided irrespective of improvements in economic conditions.  A third factor is the disappearance from every state except Alaska of another source of long-term UI benefits, the federal Extended Benefits program (which is designed to “trigger on” automatically when a state’s unemployment rate is rising rapidly, but under the same formula, ceases to remain available once unemployment stops rising even if the state continues to experience a long period of severely elevated unemployment).

Thus, in the midst of the Second Great Depression, while the number of unemployed workers has fallen, the number receiving unemployment benefits has fallen faster, which means the number of unemployed workers without benefits has risen.


We taught “The Cradle Will Rock,” a superb musical by Marc Blitzstein (no, not the 1980 Van Halen song) and a WPA project, in our course A Tale of Two Great Depressions this past spring. It wasn’t the students’ favorite section of the course (some students simply don’t like musicals, others didn’t like this particular musical, and the politics of the play were difficult for most of them). But we’ll teach it again the next time we offer the course because it is such an important example of the cultural representations in and of the First Great Depression.

Is it any surprise it’s being revived at the New York City Center in the midst of the Second Great Depression?

Here are the lyrics for the final scene from the original 1936 script:

That’s thunder, that’s lightning,
And it’s going to surround you.
No wonder those storm birds
Seem to circle around you…
Well, you can climb down, and you can’t sit still;
That’s a storm that’s going to last until
The final wind blows…and when the wind blow…
The cradle will rock.

Here’s another song from the 1964 Off Broadway production: