After the Corona War
It is the young and the poor who will bear the heaviest price in our war on the Corona virus. Their sacrifices may save hundreds of thousands of lives. The question is, will we repay them after this war is finally over, or will we return to a politics greed and austerity?
Of course, many will scream that we need to cut spending and balance the budget. With our Federal debt rising to levels not seen since the Great Depression and WWII, they will demand that we roll back government involvement in the economy, cut taxes and public spending in order to get the "free market" back to work.
There is an alternative. It is to follow the example set by our leaders during those two great crises of the mid-20th century. Instead of following the politics of austerity, we should increase taxes and use this money re-build our nation’s infrastructure, fund the equivalent of a GI Bill, and put people to work with a national public service program.
Instead of returning to a politics of “me,” we should follow the example of the so called “Greatest Generation” and build a politics of “us.”
America vs the Great Depression
FDR was elected in 1932 precisely because the President before him, Herbert Hoover, refused to acknowledge the depth of the economic crisis that was already raging. He and his Treasury Secretary, Andrew Mellon, pretended that the crisis would soon be over and the best thing they could do was to ride it out. More interested in saving Wall St. than average Americans, they offered tax breaks to capitalists, but nothing for the American working class.
Due to Hoover’s feckless leadership, Americans were eager for someone who would reject the politics of austerity and offer them hope instead. Roosevelt did just that. He saw that free markets would not simply right themselves and that government action was needed. “Our greatest primary task is to put people to work” He declared in his inaugural speech. “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.”
In his famous hundred days in office, he signed 15 bills which massively increased the scope of government in the economy and in the lives of millions of Americans. The Work Projects Administration (WPA), was perhaps the most iconic program in Roosevelt’s first term. It put nearly 8 million people to work building bridges, roads, schools, post offices, museums, swimming pools, parks, community centers, zoos, botanical gardens, gyms, and universities, and much more. There was hardly a community in America that did not see the immediate and apparent benefits of public action in the face of the Great Depression. By 1936 the United States had higher levels of social welfare expenditure (13.2% of GNP) than any country in the world – including Britain and even Sweden.
And how did they pay for all this? They increased taxes and they borrowed money. The top tax rate in 1931 was not far from where it is today at 25% (on incomes over $100,000[DJ1] ). But immediately upon entering office, Roosevelt raised the top rate on incomes over $1 million to 63%. As the crisis deepened, (second New Deal) the top rate was increased to 79%.
Then came the war
Americans did not want to enter WWII, but when the Japanese attempted to take advantage of what they perceived to be American weakness, they inadvertently proved the strength of the American character and the American political economy – when we worked together. Sacrifice was the order of the day.
In this context, few were willing to argue for cutting taxes or rolling back government. Instead, tax rates increased, public investment shot through the roof, and millions of Americans joined the service or went to work in factories to support collective effort.
As a consequence, deficit spending skyrocketed, peaking at over 26 percent of GDP in 1943.
Public debt rose over 100% of GDP. So, once again taxes were pushed up. America embarked on its famous “Taxes to Beat the Axis” campaign and introduced the Pay as You Go tax system. If we were going to win the war, everyone had to pay. Even lowest income earners paid 23%, while those at the top paid an astounding 94% by 1944.
Even the most powerful men in the country paid in. Charlie Wilson, for example, the head of the largest corporation in the world, General Motors, was perhaps most remembered for his statement "For years, I thought that what was good for our country was good for General Motors and vice versa." Few people remember that he also felt it was his duty to pay taxes. In 1949 he earned $586,100 in salary bonus and stock. That’s a lot of money. But so was the $430,350 he paid in taxes that year.
After the War
The classical economic thinking of the day was that the United States would sink into a deep depression at the war’s end. As millions of servicemen returned home to an economy that had been focused on the war and was profoundly in debt, many predicted that unemployment would rise at the same time that the lack of jobs would undermine consumption and thereby stifle investment and growth. Paul Samuelson, for example, predicted that after the war, millions would be thrown on the labor market and that without continued government planning and economic management, “the greatest period of unemployment and industrial dislocation which any economy has ever faced.”
Of course, we all know that American economy did not fail after the war. Instead, the next 20 years the American economy witnessed a miracle. In fact, consumption rose by 22 percent between by 1947 and gross private investment rose by 223 percent. There was six-fold real increase in housing expenditures as families settle down and started the Baby Boom. Still, the Right and their lackey economists demanded government roll back and tax cuts – especially for the wealthy. They got neither. Truman surprised the pundits and elite press by winning the 1948 election on the promise to increase taxes on the rich (which he did) and build a national health insurance system (which he could not get through Congress).
When Eisenhower entered office, many believed that the New Deal would finally be killed. But Eisenhower would have none of it. "Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things….. Their number is negligible, and they are stupid,” he wrote. So, instead of rolling back government, the first Republican President since Herbert Hoover, expanded Social Security, embarked on the largest peacetime public spending program in American history (the Interstate Highway Program) and refused to cut taxes on the rich. The top rate remained at 91% throughout his eight years in office.
And, the American economy continued to boom.
Pass the Buck? Or Pay the Bill?
It will not be long before we come to the end of the Corona War as well. We need to ask ourselves, should we continue the self-centered politics of austerity and tax cuts that have guided our nation for the past several years? Or should we instead follow the examples of those who led this country when it truly was “Great Again?”
Once again, it is the young and the poor who have paid for this war with their jobs, their start-up companies and their meager savings (if they had any at all). Even worse, unless we are willing help pay our own bills, the young will also be forced to pay down the public debt - while those whose lives they may have saved by their sacrifice, will continue to collect Social Security checks and have their health care paid for by the state.
President Trump’s Treasury was already warning Americans of our mounting debt well before the Coronavirus broke out. In their 2019 report they predicted a deficit of $984.4 and proposed that government’s debt-to-GDP ratio will rise from 79 percent in 2019 to 474 percent over the 75-year projection period, and will continue to rise thereafter, if current policy is kept in place. (They did not note that Trump’s $1.1 trillion tax cut contributed to this problem.)
Now is the time that we should prepare for the aftermath of the Coronavirus War. If we are responsible, we should do something like what the so-called Greatest Generation did. If we don’t, we will truly deserve the moniker, the Greediest Generation.
[DJ1]Maybe put these in present dollars too.