Friday, February 21, 2014

Aluminum, then and now

The achievement of the New Deal, as my forthcoming book helps to show, was to harness the industrial era in the service of the nation.  Roosevelt and his leading subordinates felt that the history of their whole lives in general and the great depression in particular illustrated the limitations of the private market.  They did not expect it to fulfill all the nation's needs, and they thought government had to step in to fill the gaps that it left.  That meant not only that the government, in the form of Harry Hopkins's WPA (Works Progress Administration) and Harold Ickes PWA (Public Works Administration) became the employer of last resort, but it meant that the Reconstruction Finance Commission (RFC--a creation of the Hoover Administration) would finance worthwhile projects that could not attract private capital.  It also meant bringing electricity to rural areas that private companies didn't find profitable, and building huge dams to provide public power.

 The same philosophy, I show in No End Save Victory, allowed them to prepare for war  Roosevelt thought that air power would decide the Second World War, and he proposed an air force of enormous size in May 1940.  Private aircraft companies were content to produce hand-crafted civilian aircraft, but the Administration managed to arrange for mass production and assembly lines.  That meant more jobs.  It also meant more aluminum was needed. This raised a series of complicated, interlocking questions.

The nation's aluminum production was largely in the hands of one company, ALCOA.  After 1937, when FDR lost control of the Congress, he did what President Obama is now trying to do: to use executive power under existing laws to realize his goals.  Antitrust actions were one way of doing that, and the Antitrust Division of the Justice Department moved aggressively on many fronts.  One was to file suit against ALCOA as an illegal monopoly.  That suit was pending when the rearmament program began, and nearly all the major officials of the Administration disliked the company on principle.  They also had a useful lever with which to redirect production: the public power generated by the Tennessee Valley Authority, and also by the Bonneville and Grand Coulee dams in the Northwest.  Secretary of the Interior Ickes worked used that lever to distribute new contracts.  Some went to ALCOA, but others went to Reynolds Aluminum and Kaiser Aluminum, founded by industrialist Henry Kaiser (no relation.)  One new plant, contracted for in the spring of 1940, was operating by the end of that year.

Aluminum is in the news today.  Once again, perhaps the most powerful institutions in the country want it--but not to provide for the national defense, or to make useful and necessary goods.  Th leading institution is Goldman Sachs, a combination commercial and investment bank of the sort that the New Deal had prohibited.  As this remarkable article in Rolling Stone details,  they have taken advantage of loopholes in the Gramm-Leach-Biley Act--the 1999 law that repealed the 1933 Glass-Steagall act that separated commercial and investment banking--to become the major players in the nation's aluminum market.  They have bought warehouses and raw aluminum, held on to it to raise the price, charged users in all sorts of new ways, and, meanwhile, offered aluminum futures to customers who cannot possibly know as much about supply and demand for the product as they do.  This is slowing our economy and redistributing yet more money from the productive sector the financial one.  No one, as of now, is doing anything about it.

I am always struck by how any sector of our national life, when studied across a significant lapse of time, illustrates the broader changes that we have been going through.  "National purpose" in the first two thirds of the twentieth century was more than a slogan in every major nation.   In an era when all nations were preparing for a great war, it had to be.  That became a lever which enlightened government could use for all sorts of beneficial purposes, as the New Deal did.  Even in the 1950s and 1960s during the Cold War, the struggle with the Soviets helped the civil rights movement, because the nation had to show that it meant what it said about freedom to win hearts and minds in third world.  It now seems that by far the biggest result of the end of the Cold War was drastically to shift the balance between public and private power.  Perhaps it is no accident that Russia and the United States, the major protagonists in that conflict, are now, I believe, the nations with the highest rates of income inequality among advanced countries.  All the energy which earlier in the twentieth century went into making their nations great now goes into making individuals and institutions rich.  The results are not very inspiring.


ed boyle said...

"Scholars from a number of disciplines have argued that the massive expansion of the welfare
state in the post-war period was at least in some part a by-product of the Cold War and the
associated political competition between two rival regime blocs. However, the question of
whether regime competition fuelled welfare state growth has never been subject to systematic
examination. Applying spatial econometrics, this paper offers the first empirical test of this
argument. Our findings support the notion that regime competition stimulated the expansion of
the welfare state on both sides of the Iron Curtain in the post-war period.

“War is the father of all things”. This famous statement by Heraclitus arguably holds true for the welfare state as well. For example, concerns on the part of national militaries regarding the
wellbeing of young men were among the reasons for the introduction of health insurance and
worker protection legislation in the late 19th century

“All that made Western democracy worth living for its people – social security, the
welfare state, a high and rising income for its wage earners […] – is the result of fear.
Fear of the poor, and the largest and best organized block of citizens – the workers; fear
of an alternative that really existed and that could really spread, notably in the form of
Soviet communism. Fear of the system’s own instability. […]. Whatever Stalin did to the
Russians, he was good for the common people in the West. It is no accident that the
Keynes-Roosevelt way of saving capitalism concentrated on welfare and social security,
on giving the poor money to spend, and on the central tenet of post-war Western policies
– and one specifically targeted to the workers – full employment.”6

Paper is from 2011, so case closed and proven.

Nowadays a big problem in Germany is the subsidizing of industrial energy(exemption from eco-tax) while the household sector has to pay very high costs for energy. This is a heavy burden for the little guy. Electricity being cut off to poor people who can't pay increaing costs for wind enery subsidies spread across the population while aluminium producers get gigawattts on the cheap. The EU commission is thinking of going against thsi practice. I once researched a bit on German energy use and found they use a lot more than any other EU country by far in total so the hypocrisy about being on the cutting edge of the eco-energy movement is very high while excepting their energy intensive export industries(gas guzzling Mercedes autos). Industrial policy is everything and monied interests. To say, by the way, that bankers should be hung up by the lampposts, is superfluous, but the Arab springs and food poverty globally can similarly be followed back to GS, Deutsche Bank, et al. grain speculation.

"An important and credible new study, discussed at length in a recent Scientific American Article, seems to have penetrated all the hype and confusion about derivatives and about the causes of the food crises world wide that have caused famine, death, and revolt.:

The study concludes that ethanal has indeed been a major factor but also that the role of commodities market speculation is undeniable.

American and EU central banks and the biggest EU and American Banks are firmly commited to derivatives and resolutely opposed to any regulation, to any clearing houses or any changes that would fundamentally alter the current global free market in derivatives. Derivatives are an essential tool in global risk management, but if this studyis true are we allowing a systemic crime against humanity in not making least those corrections that would remove price distortions.?"

tructor man said...

Please send your Blog and the reference to the Rolling Stone article to Senator Elizabeth Warren.

Bruce Wilder said...

all the major officials of the Administration disliked the company on principle

I wonder if there's anyone high up in the Obama Administration, who "dislikes" any bankster or disaster capitalist?

I wonder if Alcoa's association with the Mellon family helped encourage the animosity.

Zosima said...

You’ve got to admit that a nation willing to spend this kind of dough, year in and year out, is definitely demonstrating a significant national purpose, and maybe even aspiring to greatness. Plus, one would also think that at least some of its citizens must be inspired by this great national effort, especially since there appears to be no popular movement to change course.