11 Mar 1937; Our Greatest Resource – Our Children*

1937

1937 is not a notable part of a 20^th Century history course. If you asked a history professor the events in 1937 that students should integrate into their knowledge-base, perhaps the Hindenburg disaster would receive first mention. Some would say that it changed the course of commercial aviation. The professor might next point out that 1937 was the year of Guernica and the ongoing horrors of the Spanish Civil War. That war was fascism’s warm-up to WWII. 1937 also was the year when Amelia Earhart disappeared, an important event for international journalism. If our history professor was a film buff, he would add that 1937 was the year when Snow White and the Seven Dwarfs debuted. And if our professor was an especially diligent student of economics, the dismal science, he might note in passing that 1937 marked a turning point in the Great Depression when, after a slow 8-year recovery from the 1929 Crash, the American economy plunged to new depths. Interestingly, it was the latter plunge that is of the greatest historical significance. It has had the longest-lasting and most significant impact. Globally, it was one of the causes of WWII and led to a subsequent golden age of Western growth and capitalism and to a Pax Americana that lasted for over 70 years. Of significance, how governments and Central Bankers handled the economy in 1937 and thereafter provides important insights into our 21^st Century future.

The economic events of 2008 have been likened to those of 1929, although each had far different consequences because each was handled far differently by Central Bankers and their governments. The Crash of 1929 caught Central Bankers and governments by surprise and, as well, they were unfamiliar with ways in which to address the fallout and cautious in using the tools at their disposal. Importantly, Central Bankers were influenced by government officials keen to do whatever it might take to stay in power reverse the slide. The result was a deepening Great Depression and a rising tide of nationalism (including rising tariffs and an increasing number of socialist and America First adherents). The Central Bankers’ unsuccessful decisions of 1936-37 then led to a deeper Depression. In contrast, in 2008-09 the Central Bankers acted quickly and forcefully, addressing the Great Recession by, among other things, printing almost unlimited currency and reducing interest rates to and below zero. The U.S. government also allocated hundreds of billions of dollars to economic stimulus packages. Because of those actions, the current consensus is that the world avoided, and will continue to avoid, a Second Great Depression. The U.S. Federal Reserve was the leader in pursuing these policies and, as a consequence, the U.S. has been the global leader in the Great Recession’s recovery, experiencing slow and steady growth over the past 10 years. In 2008, we were fortunate to have Ben Bernanke as Federal Reserve Chairman. Bernanke was the world’s leading expert on the Great Depression. It was Bernanke who, prior to serving as Federal Reserve Chairman, coined the term “helicopter money,” advocating unlimited money-printing in order to offset the consequences of an economic crash. (Helicopter money might be viewed as a sub-set of what has become known as Modern Monetary Theory.) As a result of his policies, adopted by the Federal Reserve as well as by his successors and Central Bankers in Europe, Japan, China, etc., unemployment in the U.S. in 2019 has reached historically low levels and banks and businesses appear to be on a firm economic footing. Because centralized economic management by the Central Bankers has successfully manipulated the U.S. and global economies around what in the past would have been a serious “bust cycle,” there is a growing belief in the efficacy of centralized economic management and a greater level of trust in the ability of Central Bankers (and governments) to successfully control economic cycles. This is a subject we’ve touched on in prior writings and one to which we will return. However, the question for today is whether Central Bankers and their governments indeed have succeeded in banishing depressions and recessions … or at least in delaying and muting their negative impact. 1937 provides a useful perspective.

Throughout human history, economies have experienced boom-and-bust cycles. Economic cycles are the norm, whether in market-based or centrally-managed economies. Causes include insufficient data that would enable businesses/governments to plan for fluctuations in supply and demand and parochial nationalist policies, including protectionism. The global economy in 1929 was fragmented with virtually no shared data, no international economic coordination, little historically-shared economic learning, fierce protectionist beliefs, and a free-wheeling market-based ethic. The global economy in 2008 had the benefits of massively-shared data, instantaneous communication, a treasure-trove of learning gleaned from the Great Depression, an activist global Central Banking system, and a shared belief in capitalism. That data, communication, learning, and Central Banker expertise continue today. What has changed is a shared belief in both capitalism and globalization. Central planning has seen success in China, leading some to favor more government management rather than less – something Americans have disfavored since before the Revolution –, and nationalism has replaced internationalism. The Smoot-Hawley tariffs of 1930 have often been pointed to as a reason for deepening the Great Depression. On the other hand, the rise of fascism and socialism have been credited by some for lifting countries out of the Great Depression. In the long run, however, tariffs, fascism and socialism all proved disastrous for their followers … and for the world at large.

We currently are seeing a rising tide of nationalism, an increased reliance on tariff barriers, and an embracing of socialist/anti-capitalist beliefs. (Witness a notable statement from AOC over the weekend: “[T]o me capitalism is irredeemable.”) Central Bankers continue to wield incredible power and influence, albeit under growing government pressure and, in some countries, government control. There are increasing similarities among the centralizing policies pursued by China … and by India … and by the U.S. With a tip of the hat to Mark Twain, if history is not repeating itself in our current era, at least it is rhyming. If so, we could be “living in 1937” for a good many years.

Our Greatest Resource – Our Children

Among the greatest achievements of American democracy has been our system of education, both lower school and university. Both are now failing America’s youth. Truly. Instead of educating our children to their highest and best use, furthering economic equality and reinforcing the values of our uniquely American culture, quality public education, as well as quality higher education, has become a victim of politics, pensions, special interests, social media and apathy. Free, high quality education was a major factor in making America the greatest nation on Earth and in distinguishing the American Way. In addition to making our country the most literate, among its many accomplishments was to inculcate in every American the belief that he or she could climb the economic ladder. That’s the American Dream. It gave Americans faith that the economic playing field could be leveled, that academic accomplishments could lead to better lives. Quality education was key in that meritocratic ethic. It isn’t that way any longer.

The United States once had the best public school system in the world and, as a result, American children scored highest on global standardized exams. Thirty years ago, our universities occupied almost all of the 50 top spots on global rating charts. No longer … and the trend isn’t our friend. Too many schools that once focused on merit no longer do so. Some can’t afford to. Others have become distracted. Private schools all too often grab the better teachers. A public-private school dichotomy increasingly separates the wealthiest Americans from their less fortunate peers, to the detriment of American values and to the virtues of diversity … and, most importantly, to the detriment of developing our greatest resource, our children. Privileged and underprivileged children all too often have no contact with one another, furthering class distinctions in a society intended to blend classes and all the more furthering inter-class resentments. Too few schools offer the same high quality education to disadvantaged children as they offer to those with advantages. And when a quality education is on offer to underprivileged children, it’s more and more offered on a randomized, rather than a meritocratic, basis. That’s no way to develop our most valuable resource. As well, too few institutions focus on training and hiring the best educators.

Winston Churchill famously stated that “Americans can always be trusted to do the right thing once all other possibilities have been exhausted.” Will we wait until our education system is truly bankrupt – the evidence of subpar performance in relation to other nations irrefutable, the decline in our younger generations irreversible – before we recognize that there is a problem and address it?

The beginning of a solution is to acknowledge that there’s a problem. That problem transcends philosophical and political differences. It’s both national and local. It should be a priority at both levels. The longer we delay, the more we damage America’s future and the opportunities that we bequeath to younger generations.

Finally (from a good friend)

An old physician, Doctor Gordon Geezer, became bored in retirement and decided to re-open a medical clinic. He put a sign up outside that said:

“Dr. Geezer’s clinic. Get your treatment for $500 – if not cured, get back $1,000.”

Doctor Digger Young, who was positive that this old geezer didn’t know beans about medicine, thought this would be a great opportunity to get $1,000. So he went to Dr. Geezer’s clinic

Dr. Young: “Dr. Geezer, I have lost all taste in my mouth. Can you please help me?”

Dr. Geezer: “Nurse, please bring medicine from box 22 and put 3 drops in Dr. Young’s mouth.”

Dr. Young: ‘Aaagh! — This is Gasoline!”

Dr. Geezer: “Congratulations! You’ve got your taste back. That will be $500.”

Dr. Young is annoyed and goes back after a couple of days after figuring out how to recover his money.

Dr. Young: “I have lost my memory, I cannot remember anything.”

Dr. Geezer: “Nurse, please bring medicine from box 22 and put 3 drops in the patient’s mouth.”

Dr. Young: “Oh, no you don’t — that’s Gasoline!”

Dr. Geezer: “Congratulations! You’ve got your memory back. That will be $500.”

Dr. Young (after having lost $1000) leaves angrily and comes back after several more days.

Dr. Young: “My eyesight has become weak — I can hardly see anything!”

Dr. Geezer: “Well, I don’t have any medicine for that so here’s your $1000 back” (giving him a $10 bill).

Dr. Young: “But this is only $10!”

Dr. Geezer: “Congratulations! You got your vision back! That will be $500.”

Moral of story – Just because you’re “Young” doesn’t mean that you can outsmart an old Geezer.

*┬® Copyright 2019 by William Natbony. All rights reserved.