Nkrumahism, The Can Of Worms I Opened – FDR (3)

Fri, 7 Aug 2015 Source: Baidoo, Philip Kobina

Continuing on the train wreck policies of the FDR’s administration, it is imperative to focus on the most important part of the jigsaw that plagued the American economy at the time. Now, you are in a depression where unemployment has become a problem. Theoretically, the demand for a product shoots up when the price is reduced. Labour is measured in price wages and more is demanded when the wages are reduced. Therefore, if you need more purchasing power to cure depression you would expect a policy that increases the total purchasing power within the economy rather than decreasing it. If, for example, employing ten people will yield $50 purchasing power and twenty, which in real terms will reduce the wages of the workers, yet yield $80 purchasing power what option will you go for? However, during the depression the U.S. government kept wages so high employers couldn’t hire more workers, which caused untold distress to the economy and the very people they were supposed to help.

The premise of their argument was that the distress of the American economy was caused by lack of effective demand. Therefore, in order to increase demand high wages will do the trick – drawing strength from the high wages paid by Henry Ford. This is what Professor Thomas Sowell refers to as ‘one stage thinking’ in cognitive analysis of economic policies, or any other problem, without rationalising the implication and ramification in its entirety. First of all, they failed to connect the idea that Henry Ford adopted the policy to cure his high turnover of staff, which cost more money to train replacement and bring them up to speed on the productive levels required of his workers. Secondly, they did not think through regarding the other variables in the equation. As a result of this flawed reasoning, they gave so much power to the trade unions, which only benefited those who were already employed. The activities of the Unions were so destructive, even Marcus Garvey and W.E.B. De Bois who were all socialists were dead against unionisation, because they knew that blacks will be at the receiving end of any negotiated deals. Some of the union bosses were so cunning. What they did during the initial stages was to court the voting power of the blacks already employed, and when they gain their union rights then shut out new black workers. Though I do not share the political and economic philosophies of the above mentioned black leaders, it turn out that they were right on that score. This is what socialism produces; it helps one group of people at the expense of the other. In this instance it was black people who were short changed in the silly ideas of socialism. Yet, an unvarnished ignorant person like Mr Kwarteng who crams all the information he reads without the ability to process them effectively will argue that capitalism is a racist ideology. I can assure him that if capitalism had been allowed to work without any interference in the 30s blacks wouldn’t have suffered as they did.

They say the road to hell is paved with good intentions. Just ponder over the example above. What is the point in paying the first ten people $ 5 while the additional ten gets nothing? It is only people with tunnelled vision who will advocate for such a policy. The problem with such economic quacks is that they only look at the success of the big companies to advance their argument, because they can pay. Ironically, most of the jobs in every economy are provided by small businesses that struggle each day with their cash flow. The good intentions of helping workers ended up punishing other workers including black people during the 30s. It is imperative to know that it wasn’t just black people who suffered, but all those who couldn’t have a job due to the high wages pursued by unions, and supported by FDR on the back of faulty economic theories. It is not everyone who has got the brains of Bill Gates or Steve Jobs to create jobs that pay very well. Some create very simple jobs, and you have some of these lefties seriously advancing arguments to the effect that those who create jobs that don’t pay that well do not deserve the right to exist in civilised societies.

I will digress a little bit and relate the scenario to our own country. Nkrumah instituted the idea of free education in the North – a good intention to help our unfortunate brothers in the North. Has that policy changed anything? The three Northern regions are still the poorest part of the country after almost two generations of that policy. Strangely, a policy that is meant to help the poor rather benefits the rich in the North. How many Southern Ghanaian parents wouldn’t appreciate a helping hand? A good intention instituted by a politician who thinks he can solve all societies’ problems with one educational silver magic bullet has now created deep seated bitterness, which drips copiously from the language of some of the articles published on ghanaweb and elsewhere. You might think of those people as bigots. On the other hand, if you know quite a few people in the South who had brains to pursue academic work, but couldn’t because of lack of resources you might reverse your position. Just tell me where the resources for this good intention come from? They come from poor cocoa farmers who cannot even send their own children to secondary school. The notion of the government providing fee free education is done and dusted; it is now beyond discussion. But when did the idea come that the government should take the responsibility of feeding other people’s children? This is subsidisation of irresponsibility. Why should somebody pay tax to feed other people’s children? Where does it end? People don’t even realise that they are paying those taxes, especially those who are not on payroll, but you do when the cedi in hands depreciate due the government’s irresponsible expenditures. Today the justification is mounted for feeding; tomorrow it’s going to be for free uniform, then sandals and, perhaps busing facilities. It is not beyond the realms of possibility, because if the government can secure loans to provide sanitary towels for girls what other silly ideas can’t these politicians think about? This is an injustice, yet no politician has the guts to stop it. However, to equalise the situation, Akufo Addo comes up with his free education instead of advocating for the end of the injustice. Of course, I don’t blame him because he needs the votes in the North to win, and as a matter of fact, he cannot slap them in the face and expect them to vote for him.

Now, coming back to FDR, the question is what makes people like Mr Kwarteng think that FDR saved the American economy? Is it because of the photogenic Norris Dam that makes Mr Kwarteng drool or what? Government involvement in a free enterprise is nothing, but absolute disaster. Don’t think that it is only in Ghana that corruption is rife when the government gets so close to the day to day running of the economy; it happens everywhere so long as human beings are involved. I will entreat my readers to go and read about why the Hatch act was passed in 1939. It was due to the increasing influence of government in the running of the American economy that led to the enactment of the act. You will be surprised to know that even some democrats who stood to benefit supported the bill, because they felt it was damaging the democratic process. Just like what happens in Ghana where government largesse is channelled to winning of votes, the same thing happened in America during the FDR’s administration. Surprised? It is not only black African politicians who are corrupt; white Anglo Saxons can also be corrupted when the conditions are just perfect. That is why I am diametrically opposed to the government involvement in the running of the economy. Just look at the American postal service, Amtrack, New York Subway, TVA nuclear plants having the worse maintenance record etc. and those in American knows what I am talking about, but the die-hard socialist will deny it. I bet you are not surprised.

The notion of deficit spending embarked on a wholesale by FDR, which later that communist Keynes provided its theoretical foundation, to cure the American Depression is the inevitable denouement of government meddling in capitalism. National economic recession is just like an individual losing his job. Under such circumstances the dynamics of your finances will have to change fundamentally. You cut down on your expenditure and perhaps free certain assets to embark on a new trajectory towards recovery. It is the same way the government needs to free up assets through tax cuts, interest rate reduction for the broken arteries of the economy to reconnect. These things are not sufficient, because the welfare bill is so huge; it is literally like a ton of weight tied to a drowning man.

For those of you who are out there who believe in Christianity, yet share the views of Paul Krugman this is what the bible says in Proverbs 13:22, ‘A good man leaveth an inheritance to his children's children...’ However in the philosophy of Paul Krugman, we have the right to burden our children with debt. It is only a mad man who will advocate such stupidity, because they hate private property. But these people are so short sighted they don’t know that it is through the accumulation of private capital that unleash future creativity and productivity. If a fisherman passes on and does not leave a canoe to his heir where is the next generation going to have the canoe to go fishing? Immediately, the son of the fisherman will have to struggle like his dad to accumulate enough capital to start off while the general society is bereft of his productive potential until he is able to acquire a new canoe.

Currently, anybody who answers a question regarding how to get out of depression by suggesting high taxes, high interest rate risk getting zero for his effort. Yet, this is the policy FDR followed when he came to office to solve the Great Depression. Using just employment statistic, which is the only statistics that matter in times of recession. How can Paul Krugman categorical conclude that FDR solved the American depression when during his period in the White House, until the Second World War absorbed the unemployed to the battle field, unemployment never went below 14%? The irony is that just after the 1929 crash within two month unemployment peaked at 9% and started coming down and touched 6.3%. It was when the Federal Reserve decided to intervene when the downward trend of the unemployment figures reversed. To be fair when FDR came in March 1933 unemployment was at an eye watering level of 24.9% and it slowly went down to 14% in 1937 then what his critics refer to as Roosevelt recession hit in 1938 and went up again to 19%. What is there in these figures that make FDR the saviour of the American economy, he made things worse with his soup of alphabet agencies.

Federal insurance did not stop bank failures. The Social Security he introduced has now been dabbed the third rail of American politics, which is inherently a Ponzi scheme, is heading for a big bust unless something drastic is done to save it. FDR was just an agony aunt. His fire side charts just reassured Americans to hold on much longer for the salvation, which came by way of war. He is a hero in other areas, but not in economic management. Thank you

Philip Kobina Baidoo Jnr



Columnist: Baidoo, Philip Kobina