Yesterday’s papers.

The present recession has been compared to the 1980s and the 1930s, but both comparisons miss the point. Thirty years ago, US federal debt represented about a third of GDP and, eighty years ago, no more than a quarter. This meant that public borrowing and investments in the arms race could be envisaged and implemented on a large scale. With a federal debt that is larger than GDP there is no such leeway and the appropriate precedent is the recession that followed the end of WW2, when federal debt had also overtaken GDP (120%). The period needing scrutiny is the presidency of Harry Truman. 

The same causes producing the same effects, economic cycles of expansion and contraction repeat themselves inexorably. However, constant technological evolution changes the context in which successive phases of a cycle occur. In fact, there is so little to link the present with the world of the 1940s that it is difficult to find similarities and to predict their consequences. Then, GDP peaked in 1944, federal debt in 1946 and inflation in 1947. This time around, GDP peaked in 2007, federal debt is still growing and inflation has not yet taken off. Then, nuclear power promised mutual extinction and limitless energy, cheap crude oil was relegating coal, and synthetic materials were beginning to replace organic ones. Then, the whole male population of the developed world was or had been in military uniform. Then, the Soviet Union and its pseudo-communism could be built up as a credible threat to the Free World. Then, images were in black and white, and sound crackled out of radios and gramophones. Then, Europe and Asia were in ruins, the colonial powers held sway and America produced half the Earth’s wealth. How distant and different, and devoid of useful information it all seems. And yet, when Dwight Eisenhower took over in 1953, growth was back, inflation was under control and federal debt had dropped to three-quarters of GDP.

Harry Truman’s political ascension is particular, in that he was the last choice as candidate when all else had failed. This was the case when Missouri’s Tom Pendergast had him elected to the senate in 1934. And ten years later, when Roosevelt had to choose a vice-president for his fourth presidential campaign – the office was limited to two mandates in 1951 – Truman was the bland middle-man between the leftist Henry Wallace and the rightist Dixicrats, who would probably be president as Roosevelt was a dying man. It turned out that eighty-two days after being sworn in as vice-president he took the oath as president. Roosevelt had not deemed it necessary (the habits of twelve years in power?) to confide in Truman, who was in the dark about almost everything when he took command. Learning that the Manhattan Project had developed a new weapon, he decided to use it and brought the war with Japan to an early end. The axis powers had surrendered unconditionally and the fighting had stopped, but the suddenness of peace meant that nothing had been prepared for the demobilised troops and the end of war time consumption paid with federal taxes and debt. The recession that followed the war was not as deep as the one experienced after 1929, but it was more abrupt. In two years US GDP lost 15%. Coupled with high inflation and returning soldiers, the down turn provoked social unrest and demands by organised labour. 

Truman’s first term in office was not a sinecure. This inexperienced politician had to fill the space left by a giant, and was not immediately up to the job. Successive re-elections had allowed Roosevelt to govern without much interference from Congress. As a substitute president, Truman did not have the same aura, and a coalition of Republicans and Southern Democrats opposed him successfully on domestic issues, imposing tax cuts and a tightened control of labour unions. He found ample support, however, for his aggressive policy of “containment” aimed at the Soviet Union and its allies. The 1946 mid-term elections brought in a Republican majority and Truman’s popularity in opinion polls dropped abysmally. To the point where some leading Democrats suggested he should resign. Truman would have none of it and, having won over the 1948 Convention, he went on the campaign trail using a train to roam the country and giving hundreds of well attended speeches. He offered the nation a demagogic Fair Deal based on civil rights (he actually issued two executive orders on racial equality in the army and the civil service), national health insurance and the repeal of the Taft-Hartley Act restricting organised labour. Then in June, the Soviets blockaded Berlin and, instead of forcing a passage, Truman organised an air-lift that was an overall success. The result of the November election was a very comfortable victory over his Republican adversary Thomas Dewey, the predicted winner. 

Truman had weathered the storms of deep recession and mounting anti-communist hysteria. His second term in office was no calmer. In 1949 the green shoots of growth were not yet apparent, the USSR exploded its first atomic device and the Chinese Red Army chased the Nationalists off the mainland to Taiwan. And, when the North Koreans invaded the South in June 1950, the American led UN intervention was a good reason to triple the defence budget and kick-start the economy. And so it was to be. According to Howard Zinn, defence spending went from $12B in 1950 (in a total budget of $40B) to $40B in 1955 (total budget $62B). In five years it had more than tripled, whereas the rest of federal expenditures had been reduced from $28B to $22B. It was a return to a war time economy without the urgency of 1941, as the red forces had neither the naval nor the aerial means to threaten mainland America (submarines and missiles would come later). It was the beginning of the arms race against the USSR, a cold war that lasted four decades. Truman’s containment strategy would lead to armed interventions all around the world, and to military bases everywhere. Meanwhile the economy was growing again, jobs were being created and the surplus labour was busy killing and being killed along the 38th parallel. 

Making war to suppress social dissent in times of economic hardship has always been a standard practice. But modern warfare cannot mobilise the nation. Its asymmetric nature forbids mass battles on land, sea and in the air, and their heavy consumption of hardware and soft flesh. The naval fleets, the planes and the tanks exist, but are of little use against a mountain insurgency. The recourse to unmanned remote controlled aeroplanes, for surveillance and attack, is the military response to a difficult terrain. It is hard to imagine, however, that these new weapons can have any effect on America’s stagnant economy. The US military budget is reported to be equal to the sum of military spending by the rest of the world. It would have to increase significantly to influence growth, which seems highly unlikely without a serious warm up. Some do believe that the world is plotting against America, aided and abetted by homeland conspirators. This paranoia has not spread, however, and cannot be compared to the fear of Communism that was whipped up by McCarthy and Nixon sixty years ago. Then, China and the Soviet Union could be bloated into a credible menace. No amount of hot air – and there is plenty – could create that illusion to-day. So Truman’s solution of expanding the military-industrial complex cannot be repeated, and the past is of little or no use for resolving the present dilemma. For once in human history, the cyclical crises provoked by the unjust distribution of wealth cannot be settled by declaring war. Capital can no longer blame its own failings on external causes. The 1% are as naked as the legendary emperor. This is much more a new millennium.