Can the "Green New Deal" Prevent Economic Collapse?

Published 28 Jul.2020 10:50(KST)

The American economy in the 1920s grew rapidly. It was so remarkable that the era was called the "roaring twenties." Stock prices set new records every year. From August 1921 to 1929, they increased sixfold. Since 1922, prices rose by nearly 20% annually. As a result, it was common to invest in stocks using borrowed money. With only 10% of the purchase price, one could borrow the remaining 90% from banks or brokerage firms to buy stocks.

However, by the late 1920s, the rapidly expanding American industrial production, including steel and automobile industries, reached saturation. Prices of agricultural products, especially wheat, which had been kept high due to World War I and European demand, began to fall due to decreased demand and overproduction. Businesses and farmers had no choice but to sell their output at a loss. Unemployment started to rise. Wages stagnated. Household debt and non-performing bank loans accumulated. Meanwhile, from August 1929, the Federal Reserve Bank of New York raised interest rates from 5% to 6%. Stock prices began to decline from September 1929.

The nervous sell-off and stock market crash began on October 24, 1929. It was a Thursday. However, intervention by related agencies concerned about the market collapse helped the week pass. The following Monday, October 28, 1929, the Dow Jones Industrial Average fell by 13%. This day is known as "Black Monday." The next day, the Dow fell by another 12%, known as "Black Tuesday." Bank runs occurred. Thus, the Great Depression began.

At the peak of the Great Depression in 1933, the unemployment rate in the United States was 25%. On March 4 of that year, Franklin Roosevelt was inaugurated as the 32nd President of the United States. Upon taking office, Roosevelt declared that his first priority was to restore jobs for the people, protect savings, and provide relief for the sick and elderly to promote prosperity. He promised to revive agriculture and industry. To achieve this, he passed 13 major bills within his first 100 days. Among these were laws that strengthened labor unions and included provisions that hindered market flexibility and competition.

The New Deal was a broad social reform policy. It is a dangerous misunderstanding to view it simply as a spending policy, like the "Green New Deal" currently being discussed in this country.

So, was the New Deal successful as a spending policy? Although unemployment in the United States declined after the New Deal during the 1930s, it was not as much as we might have thought. Despite the recession, unemployment was 20% in June 1938 and averaged 16.4% monthly in 1939. Even ten years after the stock market crash, the Great Depression was still ongoing. The New Deal as a spending policy was a failed policy. Why was recovery so slow? Scholars believe it was due to legislation that hindered competition.

Given these circumstances, is now the time for a New Deal? Currently, the government and its supporters in this country are loudly claiming that the "Green New Deal" will sweep away all economic problems. They seem addicted to reckless spending and show no sign of stopping. I am confident that if the government avoids missteps, our economy will quickly return to normal after the pandemic passes. What the government should do now is prevent the collapse of markets and the economy. It should protect small business owners and self-employed individuals and care for households on the brink. South Korea does not have the luxury to undertake unnecessary tasks now. Nor is there any need. Will the Moon Jae-in administration, which began with the madness of income-led growth and now with another madness called the "Green New Deal," ultimately devastate the national economy and leave?