Hitler vs. Bernanke: The Doldrums

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)

continue article at Counterpunch:

http://www.counterpunch.org/2013/07/19/hitler-vs-bernanke/