Sunday, November 30, 2008

Groundhog Day - Over and Over and Over

People are making lots and lots and lots of comparisons between the Herbert Hoover/FDR handoff of the presidency to the current Bush/Obama handoff. One of mine can be found here.

Most Free Market/Small Government types are of the opinion that FDR did a whole lot to make things worse, and are afraid that Obama will do the same. (Note Rahm Emmanuel's recent comment that one should never fail to take advantage of a crisis, Geithner's desire to undertake bold new experiments, etc.)

George Will summed up my fears nicely in a Real Clear Politics editorial this morning. BTW, you don't have to scour the 'Net for the best Left, Right, Center, Overhead, and Underneath opinions if you look at RCP every morning.....They find them for you.

Here's George:

....The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending -- President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt -- unemployment was 17.2 percent.

Here's more George:

"I say after eight years of this administration we have just as much unemployment as when we started," lamented Henry Morgenthau, FDR's Treasury secretary. Unemployment declined when America began selling materials to nations engaged in a war America would soon join.

If I haven't convinced you to just hit the link and read the whole thing yet, here's another spoonful of George:

Furthermore, Hoover's 1932 increase in the top income tax rate, from 25 percent to 63 percent, was unhelpful. And FDR's hyperkinetic New Deal created uncertainties that paralyzed private-sector decision-making. Which sounds familiar.

WTF? I mean, WTF? Isn't it supposed to help everything when you raise taxes on the rich? It doesn't change their behavior, does it? It doesn't slow down their productivity and willingness to invest?

Bear Stearns? Broker a merger. Lehman Brothers? Death sentence. The $700 billion is for cleaning up toxic assets? Maybe not. Writes Russell Roberts of George Mason University:
"By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."

That link for Russell Roberts goes to the "Cafe Hayek" blog, where Roberts and his colleague at George Mason U dispense indispensable wisdom daily. Cafe Hayek has been blogrolled on this site since Day 1. There's simply no good reason for people who can read in English not to look at Cafe Hayek once a week.

Here's the last of George:

Obama's "rescue plan for the middle class" includes a tax credit for businesses "for each new employee they hire" in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies -- labor costs not justified by value added.
Here we go again? A new New Deal would vindicate pessimists who say that history is not one damn thing after another, it is the same damn thing over and over.

It probably is the same damn thing over and over. When the economy got really bad in the 1930's, our government came up with infamous Smoot-Hawley tariff. It raised taxes on imports to ridiculous levels, in order to Perteckt Amurrican Jobs. The unintended consequences? It shut down growth everywhere for about 10 years. (Regarding the unfortunate Mr. Smoot and Mr. Hawley, here's a video of the coolest thing Al Gore ever did....)

So here's my prediction. We don't learn from the past. We're throwing huge amounts of our kids and grandkids' money at this problem. (The problem: investors have lost money at the Wall Street Blackjack table, and wish to be made whole again.) So far, that hasn't worked. The next thing we're going to do is shut down NAFTA and other Free Trade agreements. Then we're going to put prohibitive tariffs into place.

I think we've seen this movie before.

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