Saturday, January 10, 2009

could we do something so stupid again?

Excerpts from Rockwell's optimistic essay at LewRockwell.com on avoiding a reprise of the New Deal...

Rockwell certainly thinks we're capable of it, but that constraints will probably keep it from happening (his punchline at the end).

In Macro, we cover the Great Depression and students always ask whether it could happen again. I always say that I can't imagine us putting together so many bone-headed policies again. But recent history under Bush and now Obama (at least some combination of his proposals and what the Democratic Congress would like to do) indicates that massive bone-headedness is in play once more.

For years, many of us puzzled about how something so stupid and destructive as the New Deal could have happened. The stock market crashed because it was over-inflated. That's nothing new. History is filled with credit-filled bubbles that pop. Resources are reallocated to reflect economic reality and we move on.

The New Deal was different. It actually began under Hoover, who initiated new spending programs and jobs programs, and tried to inflate the money supply and bail out the banks. He was blasted by FDR for his big government policies, and FDR won the election. Once in power, FDR went nuts, instituting a program of central planning that combined features of the Soviet and Fascist models.

It was one idiotic program after another. They tried to raise wages when they should have fallen. They tried to save banks that should have collapsed. They destroyed resources when they were most needed. They encouraged spending when people should have been saving. They smashed the dollar at a time when it needed to be shored up. They cartelized business when competition was most necessary.

What were the results? Economic growth went nowhere between 1933 and 1939...Unemployment was at 17.2 percent in 1939....Taxes had tripled. Employing people became ever more expensive due to unions and national income guarantees.

Every time the economy would bottom out and genuine recovery would begin, policy would knock it back down again. Other seeming upturns were entirely artificial: make work instead of real work, for example. Regimentation was everywhere, so that business couldn't compete, farmers were destroying livestock and crops on command, and dissidents were being ferreted out through police-state tactics.

In other words, the whole project was a massive dud. It turned what might have been a short downturn into a decade-long national calamity...

(For a full account, with all the detail, in scintillating prose, see Flynn's Roosevelt Myth.)

Was it some sort of national insanity? No, it was a power grab, and the current political moment shows precisely how this happens....Sensible people try to point out obvious facts but their voices are drowned out....

To watch all this happening is like watching a slow-moving train headed over a cliff. The problem is that the engineers have earplugs in and blinders on.

And yet, I'm not that pessimistic....a difference this time. In the 1930s, technological limits put severe restrictions on information delivery. Government propaganda easily dominated the culture. All of that has changed. Despite everything, people simply do not trust the government as they once did....

4 Comments:

At January 10, 2009 at 7:46 PM , Blogger Martina said...

Do you believe people will constrain government this time? I guess I am more pessimistic. Today people have a much larger sense of entitlement than they did in the 30's. You were expected to pull yourself up by your bootstraps back then. Today, more people carry around the victim mentality and want big brother to bail them out of their stupid choices.

 
At January 10, 2009 at 8:40 PM , Blogger Eric Schansberg said...

That's a good counterpoint.

Paradoxically, idolatry toward government seems to be higher, but people don't trust govt as much either. Hmm...

 
At January 10, 2009 at 9:25 PM , Blogger Bryce Raley said...

Who was it that said a democracy cannot sustain itself over time because the people will learn they can vote themselves money from the treasury?

 
At January 10, 2009 at 9:56 PM , Blogger Eric Schansberg said...

Scottish historian Alexander Tytler. That quote is in my first book! ;-)

 

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