The Only Thing We Have to Fear Is Fear Itself

Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources…….

Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people’s money, and there must be provision for an adequate but sound currency.

No, this is not Barack Obama speaking, nor is it (evidently) José Luis Rodriguez Zapatero. It is Franklin Roosevelt (FDR to his friends), speaking in his First Inaugural Address on assuming the Presidency of the United States of America in 1933. Ominous, isn’t it, the resemblence between what he said then and what is being said now? You can read or (better) listen to the speech here.

Of course, with the benefit of hindsight it is easy to pick holes in some of what he did, as Harold L. Cole and Lee E. Ohanian do here.

Ohanian and Cole ask us: “Why wasn’t the Depression followed by a vigorous recovery, like every other cycle”, and I think the answer, as we are seeing to our consternation now, is because the Great Depression was about more than a simple cyclical crisis. It was a complex problem, and required complex and bold responses, just as our present problems do now.

Certainly the details of the New Deal policy may well have been far from perfect, and could well fall short of what we are able to come up with today, but it would be simply ahistorical to judge the efforts of then by gazing through the looking glass of the tools we have to hand now. We will not, or at least we should not, simply repeat previous mistakes, we should not be the prisoners of our own history.

At the same time I cannot help feeling there is more than a spoonful of ideological contorsion in the Cole and Ohanian view (which everyone should read for themselves, since the underlying issues are important), and in particular these seem to come to the fore when they fast forward to our present travails and how to deal with them:

President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries — including autos and steel — are no longer internationally competitive. Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn’t directly address the specific impediments that our economy faces is unlikely to achieve either the country’s short-term or long-term goals.

Especially the last sentence “a large fiscal stimulus plan that doesn’t directly address…..” would seem to get us to the heart of the matter. Reforms with very specific plans to update banking regulations or which confront an educational system that fails many of its constituents are surely badly needed, but they were as badly needed ten years ago as they are now. Investment in human capital and the stimulation of new technologies will definitely all be needed in any national recovery plans, but all of these will surely only work in the longer term, while what we badly need now are policies which will have immediate effect over the next twelve months. In the short term what we we need are very precise and specific forms of intervention, geered to our short term needs, to getting credit moving, to getting the US and Spain back to work, to restoring confidence among our populations, and to avoid the imminent danger of falling into ongoing price deflation. As I say have been saying in some of the comments sections lately, the most immediate first step in putting out a forest fire is not to start saving up for a new fire engine.

My argument here is addressed not to the United States, but rather towards the imminent danger of economic catastrophe in Spain, and towards those who shoulder some of the responsibility for trying to see that it does not happen. This year we will see between 4.5 and 5 million unemployed in Spain. Next year these numbers could rise to 6, or even 7 million. After two years standard unemployment insurance coverage runs out (in the best of cases) for Spanish workers, and there is no systematic system of social security in place as there is in the UK, France, or Germany. So if the worst gets to the worst, just how will these people live? How will they eat, let alone how will they pay their “oh so precious” mortgages. Here in Spain we need, desperately need, using Roosevelt’s words, political leaders who realise that now is “preeminently the time to speak the truth, the whole truth, frankly and boldly”, and we need them now. Otherwise we in Spain could drift off towards a climate where the only thing which is left is fear, the kind of fear which is itself nameless and unreasoning, an “unjustified terror which paralyzes needed efforts to convert retreat into advance”.

This entry was posted in A Fistful Of Euros, Economics and demography, Europe and the world, Governments and parties, History by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

6 thoughts on “The Only Thing We Have to Fear Is Fear Itself

  1. I added “Economics and Demography,” which I hope Edward agrees with.

    Thought that this was also from the first inaugural: “The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something. The millions who are in want will not stand by silently forever while the things to satisfy their needs are within easy reach. 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.”

    It’s from a campaign speech in 1932, but the diagnosis fits for Spain and many other places just now.

    Roosevelt also knew what to say to the Coles and Ohanians of his own day, many of them probably published on the op-ed pages of the WSJ:

    “We have not come this far without a struggle and I assure you we cannot go further without a struggle.

    For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. … Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.

    For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

    We had to struggle with the old enemies of peace–business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

    They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

    Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me–and I welcome their hatred.

    I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.”

  2. Well. Economic stimulus will achieve its Keynesian means: it will arrest deflation spiral. It is already happening:

    Well. It is good when such spending will do some good. Apparently, not with current POS (and I am talking not about color) as a POTUS.

    Recovery, IMO, would be sluggish and long. But I do not see catastrophic failure any more. Neither do I see any engine which could pull world economy out of the slum fast.

    As for Spain economy, I will do my best: I am planning my autumn vacation in here.

  3. “I added “Economics and Demography,” which I hope Edward agrees with.”

    Thanks Doug, trying to do too many things too quickly, as usual.

  4. Imagine that, not so long ago, an alien came to earth to study human behaviour. On earth he saw the factories, in which the working people were producing all kinds of products that humanity was eager to buy. Suddenly he noticed that the working people stopped going to the factories, bud instead stayed home, looking rather sad. In the society he noticed an increasing poverty, because the products that the people needed were not longer produced. The alien became puzzled because he could not find the reason for this. So he decided to interrogate a human worker, to shine some light on the matter. “Hello”, he introduced himself, “I am an alien who is investigating human behaviour. I noticed an rapid increasing poverty among the humans because they suddenly stopped producing the goods they needed, and I want to know why. Are the factories still in working order?” “Yes”, the human worker answered, “ they are in good working order”. “But are then the workers became ill?” “No”, the worker answered, “We workers are still fit to work.” “But then why do you stay at home being poor and unhappy, instead of going back to the factory to produce the necessarily products like before?” the alien asked again. “Its because of the system”, the worker answered. “then get rid of this dysfunctional economical system and replace it with an functional one.” the alien said. “Negative”, the worker replied, “our authorities say that they cant replace this system. They can only adjust the current one, but that wont stop this crises.”
    Back home the alien report to his superior; “Those humans have all the necessary hardware to have a good and comfort live, but just because the refuse to change their economical system, ‘their software‘, they let their factories go to dust and live in poverty. Humans seems to be a really stupid kind of species!”
    With this little story, I want to make clear that we now must not just fear the fear itself. But we must mostly fear the fear to destruct and replace the current economic system.

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