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".