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History and the U.S. Economy

To some, education is one of the most valuable assets of individuals and society as a whole. To others, education is just a useless and misguided waste of time. Obviously, this blog site embraces education--numerous lessons learned from traditional schooling and/or the school of life can be readily applied to the challenges ahead.

One academic subject that is embraced by some and rejected by others is "history". History includes a review of cold, hard facts as well as interpretations and opinions. On one hand, there is a cliche that says, "History repeats itself." Mark Twain softened this stance by stating, "History doesn't repeat itself, but it does rhyme." On the other hand, history is just a bunch of names, dates, facts, and figures. As another cliche goes, "Don't dwell on the past."

As education should be embraced, the current U.S. economy reflects the importance of studying history. In his book Aftershock, Professor Robert Reich puts the current U.S. economy in the broader context of the long history of the U.S. economy. In doing so, Reich goes beyond a focus of just the present times and beyond the view of just the last 30-40 years. As most Americans have learned about from studying history, the Roaring '20s were followed by the Great Depression--periods that bear noticeable similarities to the improving-to-booming economy of the late 1980s and 1990s and the economic collapse of 2008.

During the transition from the Roaring '20s to the Great Depression, Reich notes that a successful, wealthy businessman named Marriner Eccles experienced the high volatility of the U.S. economy, losing his confidence in the highly speculative financial environment. Eventually, Eccles became one of the leaders of the revival of the U.S. economy, serving as the Chairman of the Federal Reserve Board for 14 years (1934-1948). His advice to President Franklin D. Roosevelt during the Great Depression matched with the emerging economic philosophy of Britain's John Maynard Keynes--with Eccles' and Keynes' stances now widely known as Keynesian economics or demand-side economics. At the time, this included "deficit-spending," in which the government took the responsibility of finding ways to inject money into the economy while consumers--i.e. the American people--lacked the funds to do so.

Twain's quote about history rhyming applies well here. That is, the dotted line details of 2008 or 2011 do not match exactly with details from 1929, 1933, or 1934. The current technologies are far superior to the technologies of the past, while the national and world populations have grown remarkably over the past 70-90 years. Yet, the underlying concepts of today's economic struggles strike a chord with the underlying problems of the Great Depression.

As it stands, Darwin's principle of "survival of the fittest" rings true regarding personal finances. Those who practice fiscal responsibility on a personal level more often then not spend less than they earn or have. As such, they can continue to purchase goods and services to fulfill food, clothing, and shelter needs. While this is obviously easier for those with more resources and more capital, this still applies to each and every American citizen.

Meanwhile, the U.S. economy runs on "consumption". That is, people, businesses, and the government must spend in order for the economy to survive and thrive. In finance, this makes sense: goods and services have to be sold in order for money to be made. In economics, this also makes sense: there is always an existing market with some sort of existing supply and demand in the nation and in the world.

However, taking a step back and looking at the grand scheme of things, this seems counterintuitive. For people to survive, either as individuals or as smaller groups of people (for example, as families), they must save money. Yet, for the economy to survive, people must spend money.

Regardless of short-term fixes in the here and now, the greater and more impactful concern is the overall economic system. Sure, technology is definitely better now than it was years ago. However, years ago, people were more apt to receive ample medical treatment, as the biggest limitations to medical treatment resulted from limitations in medical knowledge and medical developments--not insurance coverage or lack thereof. Likewise, retirement seemed to be much more stable in the past--maybe not sustainable for hundreds of years, but lasting more than one generation. Today, a substantial segment of today's American society finds much less stability and much less comfort despite contributing arguably more hours of work. Instead of seeing adequate repayment for their work, employees face potential tradeoffs such as health insurance for retirement savings.

Currently, arguments abound about the needs of balanced budgeting by the government, responsible financial management by individuals and families, and freedom of businesses to operate. There is definitely some truth to these arguments. However, stopping all systematic improvements to government practices, family practices, business operations, and the U.S. economy at these three issues is short-sighted.

As history has shown, the U.S. government--not the business world or financial sector--has saved Americans from the worst of financial tragedies. Government "deficit-spending" helped save the U.S. economy from the monstrous Great Depression. Ensuing business production built on the government contributions, not the other way around.

As history has also shown, despite the work of millions of people, income can easily get lost at the top of an organization or get abused by financial practitioners who essentially gamble with the money. It is one concept for a smaller business owner to retain a high percentage of company earnings due to his/her long hours of hard work. However, it is another concept when executives of much larger businesses retain the same fixed percentage of company earnings as the smaller business owners despite contributing a much lower percentage of the work, production, and services. Likewise, there is no stability in letting financial traders speculate and trade to the point that 401(k) investment dollars fail to adequately replace pensions as a primary vehicle for retirement funding. Historically, this did not work. Currently, this does not work. Systematically, this does not work.

With this in mind, all stakeholders in the U.S. economy must take notice of the complete current economy. As it stands, the words "economy", "finance", and "government" have become synonymous. Likewise, the word "business" has also become synonymous with "economy" and "finance". Although numerous comparisons have been made between the position of company Chief Executive Officer and the office of the President of the United States, the two positions are not the same. CEOs remain primarily responsible to one entity; they are evaluated accordingly, regardless of whether or not their decisions positively or negatively affect a myriad of other indirect stakeholders in the business world or in society in general. Meanwhile, the President of the United States remains responsible to all citizens and residents, even when decisions do not bear impact on all citizens and residents. Salarywise, it is not even close.

True, the government should not run every business and make decisions on everything that impacts businesses or citizens--history clearly shows that the United States of America promises its people freedom. Let the same be said about the business world and the financial sector--neither should make decisions on everything that impacts citizens. The American people are residents, citizens, consumers, and investors--not hostages. World War III is not wanted, nor is death through finance.

"Education." "Health." "Success." Let these guiding principles become the synonyms in the days and months ahead that help write a positive history of the U.S. economy from which the future generations can learn.

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