Friend and colleague Ari Michelsen (an economist) sent me this item from Mike Whitney. I am posting it 'as is'. Comments are welcomed!
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Why was Adolph Hitler able to lift Germany out of the Great Depression, when
policymakers in the US–particularly the Fed–have failed so miserably?
Let’s look at the facts: When Hitler came to power in 1933, the German
economy was in a shambles. Millions of people were out of work, a number of
large banks had collapsed, the market for German exports had dried up
overnight, and a US-led lending freeze (withdrawal of credits under the Young
Plan) had thrust German industry and finance into a severe slump. By 1932,
German industrial production was nearly half of what it had been a year
earlier. Unemployment soared from 1.5 million in 1929 to more than 6 million in
1933.
Enter Hitler, who had been sworn in as chancellor under President Paul von
Hindenburg in January, 1933. Hitler appointed German economist and banker,
Hjalmar Schacht, as President of the Reichsbank and Minister of Economics.
Schacht, in turn, launched a groundbreaking fiscal stimulus program that rebuilt
the nation’s worn infrastructure and put millions of people back to work. At
the same time, Schacht took steps to strengthen the currency, jettison the gold
standard, and impose capital controls, all of which served to reinforce
Germany’s economic independence. Here’s a little background from C.K.Liu’s Asia
Times article “Nazism and the German Economic Miracle”:
The Nazis came to power in Germany in 1933, at a time when its economy was
in total collapse, with ruinous war-reparation obligations and zero prospects
for foreign investment or credit. Yet through an independent monetary policy of
sovereign credit and a full-employment public-works program, the Third Reich
was able to turn a bankrupt Germany, stripped of overseas colonies it could
exploit, into the strongest economy in Europe within four years, even before
armament spending began.” (“Nazism and the German Economic Miracle,” Henry C.
K. Liu, Asia Times)
Clearly, “Depression expert” Bernanke’s performance pales in comparison to
Schacht’s
and for obvious reasons. While zero rates and bond purchases (QE)
have been good for risk assets, (Stocks are up more than 140 percent since
their March 2009 lows.) unemployment is still above 7 percent, real wages are
trending lower, GDP has shriveled to below 2 percent, 47 million people are on
food stamps, and inequality is greater than anytime since the Gilded Era. The
facts speak for themselves; Bernanke’s policies have only benefited the
investor class. The real economy is still flat on its back.
That’s not to say that Hitler was not a murderous psychopath. He was, but
there’s also reason why his policies have been applauded by leftist
intellectuals, like Counterpunch co-editor Alexander Cockburn, who spoke
admiringly of Hitler’s “progressive economic policies.” Here’s a quote from
Cockburn:
Hitler, genocidal monster that he was, was also the first practicing
Keynesian leader. … There were vast public works, such as the autobahns. He
paid little attention to the deficit or to the protests of the bankers about
his policies. … By 1936, unemployment had sunk to 1 percent. (Alexander
Cockburn)
Cockburn is not alone in his admiration for Hitler’s (or should we say
Schacht’s) fiscal policies. Keynes himself praised the policies although he
despised Hitler and Nazism. Writing in the foreword of the German edition his
magnum opus The General Theory of Employment, Interest and Money, Keynes said:
The theory of output as a whole, which is what the following book purports to
provide, is much more easily adapted to the conditions of a totalitarian state,
than is the theory of production and distribution of a given output produced
under the conditions of free competition and a large measure of laissez-faire.
This doesn’t mean that Keynes supported autocratic government. He didn’t. He
was merely acknowledging that “demand management” (which is essential for
minimizing the negative effects of the business cycle) is more easily achieved
with a strong central government, since government spending is required to take
up the slack in aggregate demand during a slump. Government has an important
role to play when demand is weak and the economy slumps. The government can
(and should) use deficit spending to increase activity, put idle resources to
work, boost output, lower unemployment, and put the economy back on a solid
growth-path. Hitler may not have grasped this, but surely Schacht did. Here’s
more from Liu’s article:
From the very outset of his rule, Hitler, whose main short-term goal was
the economic revival of Germany with the help of German nationalist bankers and
industrialists, won popular support of the nation. Hitler adopted an aggressive
full-employment campaign. Between January 1933 and July 1935 the number of
employed Germans rose by a half, from 11.7 million to 16.9 million. More than 5
million new jobs paying living wages were created. Unemployment was banished
from the German economy and the entire nation was productively engaged in
reconstruction. Inflation was brought under control by wage freeze and price
control. Besides this, taking into account the lessons learned during 1914-18,
Hitler aimed at creating an economy that would be independent from foreign
capital and supply, and be well protected from another blockade and economic
war. For Germans, all of the above was proof that Hitler was the one who had
not only brought Germany out of economic depression but would take it directly
to prosperity with new pride. German popular trust in the Fuehrer rose
dramatically.” (“Nazism and the German Economic Miracle,” Henry C. K. Liu, Asia
Times)
Hitler was no friend of labor, but he knew that full employment would widen
his base of popular support. In contrast, Bernanke and his colleagues at the
Fed could care less about popularity or jobs. What they want is to slash critical
safetynet programs that protect the old, the sick and the needy. That’s what QE
is really all about; it’s a way of redistributing wealth upwards (through
rising stock prices) while Congress and the Obama administration “starve the
beast” via budget cuts. Reactionary elites have created a bogus deficit crisis
so they can impose their neoliberal agenda of deregulation, privatization, low
taxes, and austerity on working people.
Hitler garnered support for militarization through labor intensive public works
projects that transformed the nation in an economic powerhouse. Schacht played
a crucial role in the recovery. Along with strict capital controls and other
protectionist policies, Schacht stopped the private issuance of money and
“launched a new land-backed currency”. Here’s how author Ellen Brown sums it up
in a passage from her masterpiece Web of Debt:
Hitler began his national credit program by devising a plan of public
works. Projects earmarked for funding included flood control, repair of public
buildings and private residences, and construction of new buildings, roads,
bridges, canals, and port facilities. The projected cost of the various
programs was fixed at one billion units of the national currency. One billion
non-inflationary bills of exchange, called Labor Treasury Certificates, were
then issued against this cost. Millions of people were put to work on these
projects, and the workers were paid with the Treasury Certificates. This
government-issued money wasn’t backed by gold, but it was backed by something
of real value. It was essentially a receipt for labor and materials delivered
to the government.
Hitler said, “for every mark that was issued we required the equivalent of a
mark’s worth of work done or goods produced.” The workers then spent the
Certificates on other goods and services, creating more jobs for more people…
Within two years, the unemployment problem had been solved and the country
was back on its feet. It had a solid, stable currency, no debt, and no
inflation, at a time when millions of people in the United States and other
Western countries were still out of work and living on welfare. (“Thinking
Outside the Box: How a Bankrupt Germany solved its Infrastructure Problems”,
Ellen Brown, Web of Debt, Third Millennium Press)
This is the largely unknown story of Hitler’s rise to power, an ascent that
depended on “an independent monetary policy of sovereign credit” rather than
the issuance of loans by privately-owned banks. (Public money vs private money)
Hitler took the bankers out of the equation and rebuilt Germany in just four
years.
Why doesn’t Bernanke do the same thing? Why doesn’t Bernanke purchase
Infrastructure bonds or Education bonds instead of Mortgage Backed Securities
(MBS) which only benefit the bankers. Why doesn’t Bernanke practice what he
preached to the bigwigs at the Japan Society of Monetary Economics, in May 2003
when he outlined steps for monetizing tax cuts. Here’s what he said:
The Bank of Japan should consider increasing still further its purchases of
government debt, preferably in explicit conjunction with a program of tax cuts
or other fiscal stimulus… Consider for example a tax cut for households and
businesses that is explicitly coupled with incremental BOJ purchases of
government debt–so that the tax cut is in effect financed by money creation.
Now there’s a novel idea; printing money to help the average working stiff.
That ought to increase activity and boost growth, don’t you think? So why is
Bernanke still dumping $85 billion per month into a black-hole financial system
instead of following his own advice and using his power to put people back to
work and get the economy back on track?
Why?
The economy is in the doldrums because that’s where Bernanke and Co. want it
to be.
MIKE WHITNEY lives in Washington state. He
is a contributor to Hopeless: Barack
Obama and the Politics of Illusion (AK
Press). Hopeless is also available in a Kindle edition. Whitney’s
story on declining wages for working class Americans appears in the June issue of
CounterPunch magazine. He can be reached at [email protected].
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"Don't shoot the messenger." - Unknown
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