Recently I have read opinions that FDR and Hoover made the Depression worse through intervention and the market should have been left (substantially) alone. Quien sabe? You can’t clone history, so we will never know for sure. There are obviously lessons for the present, but what are they?
Not long ago (Oct. 14) David Brooks predicted that Obama would be pulled both ways and side with the interventionists. He seems to have been at least partially correct in his prediction – Obama’s new fireside YouTube chat has the president-elect proposing an extensive program of job creation aimed at building up our infrastructure and creating energy independence.
It’s hard not to be sympathetic to the goals. (Our highway system appears to have gone backwards in recent decades.) It’s the means that are the problem. Can we afford all this? I guess we’re going to find out. Here’s the good part: There might be some pretty good poster art and some interesting architecture. For all our sakes, I hope this pans out.
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24 Comments
1. David Thomson:The evidence concerning Franklin D. Roosevelt’s actions during the Great Depression causing far more harm than good is beyond legitimate dispute. Any fair minded and rational person should easily be convinced that this is so. But if I’m right, why is there so much disagreement? That is very easy to explain: socialist policies provide “elites” with lots of power and money. A more libertarian economy has next to nothing to offer them. It really is just that simple. Never allow yourself to be conned that the so-called elites are worrying about the common folk. No, they are first, last, and foremost, worrying about themselves—and therefore gravitate toward doctrines that richly reward them.
Nov 22, 2008 - 11:54 am 2. Michael Smith:This won’t work now for the same reason that it didn’t work from 1929 to 1940: government does not have the ability to increase total employment.
Why? Because all government spending is ultimately done at the expense of private sector spending, for there is no other place for government to get money to spend.
To spend a dollar to hire people to work on bridges or roads, government must either take a dollar in tax from the people — which means the people can no longer spend that dollar — or government must borrow that dollar from the people, which also means the people can no longer spend that dollar — or government can simply print the dollar up from scratch — which simply serves to reduce the purchasing power of all the citizen’s dollars proportionally.
So, yes, the government can hire people to work on roads and bridges, but every dollar they spend paying the people they hire is, ultimately, a dollar that can no longer be paid to a person in the private sector. Thus, every job government “creates” results in the destruction of a job in the private sector.
That’s why, for an entire decade, massive federal works programs and massive budget deficits under Roosevelt did not cure the unemployment problem.
In 1939, after seven years of New Deal, the unemployment rate still stood at 20%. Henry Morgenthau, Secretary of the Treasury and personal confidant and friend of Roosevelt, testified before the House Ways and Means Committee to explain why unemployment was still so high. Here is what he said:
“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…..somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…. I say after 8 years of this Administration we have just as much unemployment as when we started…. And an enormous debt to boot!”
There is a “New Dealer” confessing the failure of the New Deal. Yet, apparently, we are about to start down that same road again.
Nov 22, 2008 - 12:13 pm 3. Paleo Pat:I think Before rendering Judgment, we should wait and see. This whole mentality of Liberals are stupid needs to stop. Let’s see if it works. THEN judge it.
Just a suggestion
-Pat
Nov 22, 2008 - 12:27 pm 4. The Obamassiah-Elect outlines his plan to create 2.5 million jobs by 2011 | Political Byline:[...] Pajamas Media, http://www.redstate.com, EconoSpeak (Via [...]
Nov 22, 2008 - 12:40 pm 5. davidingeorgia:Mr. Simon, check out Amity Shlaes’ “The Forgotten Man” if you haven’t already re: FDR’s (and Hoover’s…she doesn’t go easy on him either) actions mostly turning “a” depression into “The Great Depression”…there’ve been recent studies published at places like UCLA (not exactly a bastion of conservative economics) that estimate FDR’s policies make the depression/downturn last something like 7 years longer than it would have on its own…another irritating bit of history that seems to be repeating itself, too, is that the current lameduck admin and the incoming Obama admin are not even trying to cooperate to keep things from getting any worse before January 20, 2009…FDR refused to cooperate with Hoover, too (in fact, FDR admitted in private that he wanted things worse when he took office so there’d be more of a sense of panic to use to help him get his policies enacted by Congress, nevermind the damage it did to America in the meantime)…iow, this is going to get uglier, most likely *because* of the gov’t trying to “fix” things.
Nov 22, 2008 - 12:47 pm 6. Michael Smith:Just to add to my last post, not only can government not increase total employment, it is very likely that its attempt to create jobs will result in a net reduction in the number of jobs producing useful goods and services.
That’s because, not only are jobs lost on a basically one-for-one basis in the private sector as money is taken out of it to pay the new government workers, some of these new government workers produce nothing at all — they simply oversee the transfer of money from private to government.
So we won’t come anywhere near to breaking even in terms of real wealth that gets produced. Government’s attempt to increase employment will cause a decrease in the production of wealth, with a corresponding negative effect on our standard of living. How much damage is done will depend on the scale of the effort and how long they stick with it.
Nov 22, 2008 - 12:52 pm 7. Mike_K:After you read Amity Schlaes book, read Ron Chernow’s The House of Morgan. The parallels between 1929 and today are truly frightening. It was written years ago and it is hard to believe that the descendants of JP Morgan would be this foolish but they were.
Nov 22, 2008 - 2:17 pm 8. Lightnin' Hopkins:President-Elect Obama could go a considerable distance towards the road to recovery simply by announcing – right now – that he will not raise taxes of any kind for a period of 1-2 years. Additionally, supporting free trade with Colombia, and also perhaps stopping any costly new environmental restrictions from being implemented, at least until a recovery begins to take hold. Fat chance on all of that, I know, yet any of these steps taken now would help, well, now…not just in the first precious “100 days.”
Pat: Liberals (I prefer “progressive” – they have about as much to do with classical liberalism as Hugo Chavez) aren’t stupid; they’re just wrong. I hope Obama’s plan helps the country. I live here, after all. History, however, suggests that it will not work. Socialism, collectivism, whatever you want to call it always fails. Always. The incentive for success, the will and spirit of each individual American and their capacity for invention and reinvention is what makes the wheels spin ’round. Capitalism creates prosperity. Government creates next-to-nothing and merely appropriates everything else — ie; our hard-earned money.
Nov 22, 2008 - 2:51 pm 9. Newcomb Carlton:It may seem frivolous to note, but I’ve seen a couple of recent photos of Obama, including the one accompanying the article linked to the words “poster art,” where he looks like Nixon.
Nov 22, 2008 - 3:35 pm 10. Banjo:By his second term FDR was moving toward the same economic policies as Hoover. Strange but true.
Nov 22, 2008 - 3:56 pm 11. Michael Smith:By his second term FDR was moving toward the same economic policies as Hoover. Strange but true.
FDR was pursuing the same policies as Hoover from the moment he took office. In a very real sense, the New Deal originated with Hoover and was merely continued by FDR.
Hoover demanded that wages be kept high — regardless of unemployment. So did Roosevelt.
Hoover demanded that taxes on upper income individuals and businesses be raised — regardless of plummeting profits and shrinking investment. So did Roosevelt.
Hoover demanded that taxes on middle and lower income individuals be raised as well, which he accomplished by greatly expanding exise taxes to include things such as cars, movie tickets, radios, phonographs, telephone calls, telegrams, cosmetics, cameras, bank checks, stock transfers, yachts, jewelry furs and gasoline. So did Roosevelt, who kept these excise taxes in place so that excise collections went from $540 million in 1929 to $1.364 billion by 1935.
Hoover implemented massive increases in Federal spending and ran up huge deficits in the hope that this spending would boost the economy — he took over $2 billion in new tax money and spent it on public works. So did Roosevelt, except he took even more.
Hoover initiated a massive new tarriff — Smoot/Hawley — that raised import duties on over 3,000 items by more than 60%. Roosevelt kept the tariff in place.
Hoover inundated businesses with massive new controls, rules and regulations, coming from such new agencies as the Federal Reserve Board, the Agricultural Marketing Act, the Federal Farm Board, Smoot/Hawley Tariff, the Norris-La Guardia Anti-injunction Act, the Timber Conservation Board, the Federal Oil Conservation Board, the National Credit Corporation, the Reconstruction Finance Corporation, the Federal Employment Stabilization Board, the Emergency and Relief Construction Act and the Glass-Stegall Act. Roosevelt continued this with his NIRA, the AAA, the WPA, the PWA, the TVA and more.
Both men were throughly statist and attempted the same basic measures to end the Depression. They both failed, miserably.
Nov 22, 2008 - 5:07 pm 12. Paul from Florida:We know the future is coming.
Supposedly we live in a free country.
Which means that we will freely( politically ) build our own future.
So, why doesn’t the government stop income taxes for three years? Or cut out a business tax permanently? This way most everyone will be excited, the animal spirits of commerce will flow again, and we will organically get to what ever place we crazy Americans were supposedly going to get to anyways.
Why do we have to have Soviet style, elitist, pork barrel concrete pouring economy?
Both methods will result in debt. The first gets a supposedly free people where they were going anyways. The latter is just old style rebar bending. Been there, done that.
Come on. Have a little hope for a change. Let’s change! Tell Obama it’s not his FDRs 1930’s anymore.
Nov 22, 2008 - 7:43 pm 13. こども 身長:はじめまして。
Nov 22, 2008 - 11:41 pm 14. Tran from Dallas:ブログがんばってくださいね。
Build roads ? for what ? shipping goods from China and Mexico ?
Nov 22, 2008 - 11:47 pm 15. Walt:Well, I woke up in a 1930’s America after all! Having been born in 1939, my family and I (as other Americans) lived through the New Deal and more. I prefer JFK’s motto, “Ask not what your country can do for you; but what you can do for your country.” While campaigning, Obama said he would fix it (the problems facing us), but he never said “how.” Anyone want to buy a pig in a poke? I’ve got one! Differences? 21st Century New Dealers use the Internet!
Nov 23, 2008 - 6:21 am 16. gippergal:He’s going to have to create some new jobs, in order to generate enough income tax to cover all these projects!
The new president also can’t afford not to intervene in the economic crisis: both sides of the aisle will be at his throat in 2012 if it appears he didn’t act when he needed to in order to help stem the crisis. I’m betting the leftist illuminati don’t want the possibility of a Hillary challenge in four years, not because they’re against her, but because it would be so divisive to the party.
Nov 23, 2008 - 10:35 am 17. irishlad317:We have two problems: lack of jobs, and a need for domestic energy (even as gas slips back down to $2 per gallon, the lion’s share of that $2 still goes out of the country and we have little control over a rise in prices). Doesn’t it make sense for Pres. Elect Obama to unleash the oil companies and their billions to explore for and drill for oil? Thousands of jobs would be created and the government wouldn’t pay a dime. Yes, also invest in green technologies. It seems to me that it is quite rediculous to ignore the fact that releasing the oil companies to do what they want to do, what we need them to do, would go a long way toward solving two of our biggest economic problems, on their dime, and nobody is talking about it anymore.
Nov 23, 2008 - 11:35 am 18. Michael Smith:It seems to me that it is quite rediculous to ignore the fact that releasing the oil companies to do what they want to do, what we need them to do, would go a long way toward solving two of our biggest economic problems, on their dime, and nobody is talking about it anymore.
Yes, it’s ridiculous, but bear in mind that not only is Obama NOT going to do anything to unleash the oil companies, he has promised to punish them — punish them by seizing a portion of their profits to provde “energy rebates” to “middle class Americans”.
Nov 23, 2008 - 1:49 pm 19. stu:I agree with most of the comments with the exception of the fact that federal spending will crowd out private investment. The difference between now and the 30’s is the integrated world economy. Our new public debt will be purchased by the Chinese and the oil exporters and thus should not as greatly effect the potential private capital investment.The greatest fear I have is that there would be an attempt to monetize the debt, producing significant inflation.
Nov 24, 2008 - 5:37 am 20. stu:The best long term policy would be a dramatic reduction in corporate tax rates. Lowering the marginal rates for individuals would be an instant boost to the economy, but probably not politically feasible given our lurch to the left with the election.
Nov 24, 2008 - 5:42 am 21. Boojum:Lower or remove the capital gains tax. That should get investment going again.
Stop all foreign aid and spend the money on Americans. It’s their cash after all.
Nov 24, 2008 - 9:28 am 22. Insufficiently Sensitive:It’s hard not to be sympathetic to the goals. (Our highway system appears to have gone backwards in recent decades.)
It’s hard not to think that the urban ‘enlightened’ who dominate the political class have much to do with that highway decay. Much of their thinking is anti-individual and collectivist, and tends to light on massive ’solutions’ to congestion such as light rail schemes. Those not only get lots of publicity, but soak up a lot of tax dollars which can be then spread through their hierarchies to benefit consultant groups and unions, from which many votes can later be harvested.
Tax dollars going to support road networks would also support freedom of choice of individual travellers, to determine their own routing and scheduling. But those wise urban elites also largely combine to punish people who use and depend on cars, saying loudly that their mass-transportation schemes are far superior than any one driver’s misinformed choice of where and when to go. It’s no wonder that the highway systems are in decay, since the tax dollars which might have maintained them are siphoned off for mega-transportation schemes no matter how financially unproductive.
We may expect the collectivist Obama administration to accelerate and exaggerate this sort of thinking – all those millions of ‘new jobs’ are unlikely to go into highway maintenance.
Nov 24, 2008 - 2:21 pm 23. Nobody:I think we can debate the merits of improving infrastructure and its effects on the economy. However, I hope we can all agree that this doing it “to create jobs” as in the construction jobs of the infrastructure is a terrible thing. I grew up in Canada. That is how Government created jobs, by making more government projects. It is not pretty, and does not create jobs.
Nov 24, 2008 - 2:47 pm 24. hermie:Obama is simply following the pattern he learned while in the Illinois Senate.
Governor Ryan came up with his ‘Built Illinois’ program that dictated infrastructure improvements, which coincidentally were performed by politically connected contractors in politically-connected districts. (Which is why many call it the ‘Bilk Illinois’ program.)
The problem was that the taxpayer was forced to pay for this by raising ‘fees’, ‘licenses’ and other ‘revenue-enhancements’. Obama went along with this, even though he knew that the rest of the Illinois obligations towards the pension system, the Medicare system, and school system were about to bring a financial disaster to the state.
Of course, he was able to get himself another job which he grew too weary of doing, so he started running for the Presidency, where he could always blame Congress, his advisors, and of course, George Bush for any problems which might make him look bad for lack of leadership.
Nov 25, 2008 - 11:31 am