Quack Remedies and Magical Medicine Men
O. Max Gardner III

The stock market has had a lot of bad days since January 1, 2008. By any standard, it has not been a good year on Wall Street. And, for that matter, it has not been a good year on Main Street. During some of the really bad days, the reflex among financial-news editors and TV talking heads has been to compare our current situation with 1987 and wonder if a "Black Monday" type of financial meltdown is on the horizon. This is really a false analogy because it misses the fundamental “financial truth” that America faces serious and protracted financial problems. Or, as they say at NASA when things go real bad, “Houston, we have a problem!”

This brings us to the late Governor of North Carolina, O. Max Gardner. If Gardner was still alive, he would probably agree with some observers who have drawn a darker metaphor, noting that much of what we are seeing now also took place in 1929. For example, right now the total public and private debt load is about $47.8 trillion, or about 343 percent of the $14 trillion national economy. That number compares poorly with the similar 260 percent imbalance that existed on the eve of the Great Depression.

O. Max Gardner became Governor of North Carolina on January 11, 1929 and served the State during the early years of that Great Depression. The 1929 financial meltdown -- unlike the 1987 crash -- was not followed by a happy ending, but rather by a decade of foreclosures, high unemployment, massive drops in the standard of living, outright poverty, shantytowns and sporadic famine.

Popular imagination has the Great Depression opening with a bang in October 1929. We forget that even by December of that year, the stock market had no idea what was really in store for the United States of America. After a period of wild, bipolar volatility, stocks had taken two big tumbles (a 12.8% drop on Oct. 28 and an 11.7% fall the next day) while the top bankers and "captains of industry" rushed to shore up the market. By November, the Dow had hit its low for the year at 198, down from the giddy September high of 381.

But, the financial pundits and government leaders of the day insisted the economy's fundamentals were still strong and sound. Mass unemployment was, for many months after the 1929 stock crash, still just something that went on in Germany and Britain. America was strong and merely needed a little financial push to keep the financial markets from harming the broader economy. “This is a temporary problem, a bad little financial patch,” said President Herbert Hoover shortly after his inauguration.

With that thought in mind, Herbert Hoover -- only nine months into his presidency -- assembled leaders from the public and private sectors to create an economic-stimulus package. Among the measures, Time magazine reported, was a promise from Congress to offer bipartisan support for a tax-cut package. The proposal called for $160 million in tax relief -- only about $22 billion if adjusted against the gross domestic product at the time, and therefore much smaller than the 2008 plan under consideration by the Bush Administration and the Congress. At the same time, the 1929 Federal Reserve assured the Hoover Administration that it would provide cheaper credit by lowering the prime interest rates. Granted, the Fed had much less power over the money supply in those days, mainly because the amount of liquidity it could create was limited by the supply of gold it held to back the dollar. Since we went off the “gold standard” in the Nixon Administration, this lack of liquidity is no longer a problem since Bernanke and the Fed can just print as much new money as they deem necessary.

At the peak of the financial crisis in late 1931, Governor Gardner, speaking to the President’s Business Committee of 100 in Miami Beach, warned the group against “quack remedies and magical medicine men” on the one hand and “following the ideas of ultra-conservatives who sit around the abandoned campfires of 20 years ago” on the other. Gardner advocated a massive readjustment of the costs of government and what he saw as the crying need of the hour, creating good jobs and putting men and women back to work. He was against the “quick fix” but stressed the implementation of long range plans that focused on jobs, education and increasing the hourly wages of American workers. He criticized President Hoover “for a general attitude of too little and too late, for hesitating to lead, and for not seeking extraordinary powers in a financial crisis.”

In a letter to then Governor Roosevelt of New York, Gardner stated: “If the leadership of this Nation is so blind that it dismisses the discontent and restlessness of our people as springing from nothing fundamental, I predict a tidal wave of aroused public opinion which will bring about not only a new type of thought and speech but in fact a new kind of government. I am satisfied that we are in the day of a new deal and that many of our preconceived ideas and formulas are going to be thrown into the discard.” Years later famed columnist Drew Pearson would assert that President Roosevelt based his “New Deal” on this very letter.

As things turned out, nothing that President Hoover proposed worked. Nothing. Not one single plan. Consequently, what was first seen as a speed bump to the expansion of American economy turned into a massive and bloody train wreck. The Dow continued falling, hitting 157 in 1930, 73 in 1931 and finally a mere 41 points in 1932. It did not reach its 1929 high again until 1954, a full generation and one World War later.

Certainly, our economy now has far more differences than similarities with the economy of 1929, and only a minority of the current “experts” expect a new depression for the decade ahead. But it's also worth remembering that the best laid plans of presidents, chief executives and senators can sometimes come to nothing. After all the corporate leaders of such revered institutions as Citigroup, Merrill Lynch and J.P. Morgan’s great Chase Manhattan Bank & Trust Co. never anticipated having to write-off mortgage losses of almost $100 billion dollars last year, with billions more on the way for 2008. And, if you remember, it was these same corporate leaders who proclaimed last May that the “mortgage problem” was a temporary matter that would have no impact whatsoever on the larger economy.

It would seem, therefore, that a very good argument can be made that it is time for another “new deal” for the American economy, the American people and the American government. The proposed Bush stimulus plan is really a sick joke that will only make the eventual suffering much worse and the misery more prolonged and severe.

And, it seems clear that we need to act boldly and quickly. Time, as they say, is of the essence. Such ideas as extending unemployment insurance benefits, increasing Social Security payments for the next 12 months, expanding the Food Stamp program, imposing a 12 month moratorium on home foreclosures, creating a government corporation to buy and modify the existing mortgages, and establishing a massive jobs program to rebuild our crumbling infrastructures should be implemented by immediate action. If we fail to implement these changes, if we fail to act boldly, if we fail to listen to the American people, then we will not be able to avoid the pain and suffering of many dark years of depression.

In short, we need another new deal. We don’t need any more quack remedies and the economic plans of modern day financial medicine men like Greenspan and Bernanke. We don’t need any more false promises and bizarre financial “ideas” from Bush and Paulson. We don’t need new leaders like John McCain who claims to know nothing about the economy but assures us he has Greenspan’s book, which presumably he has not yet read. We don’t need any more visions of how things should be but a real plan to deal with the way things really are. We need fundamental and structural changes in the way our government plans to deal with these massive problems. We need to replace uncertainty with certainty. We need direction not more diversions.

We desperately need a man or a woman of great courage and of great leadership who has been called to action with a firm commitment to new and bold ideas. We need a leader who will act and not just talk. We need someone who they say can walk the walk and not just talk the talk. If we fail to act, if we fail to bring such new leadership to Washington, if we fail to bring about another new deal, then I fear that our country is starring down a very dark and exceedingly deep hole. And, make no mistake about it this extremely black hole has no hope of any light for a very, very long time.