Obama’s jobs plan is nothing new

Oct 17, 2011 20:58 UTC

“And that’s why FDR brains-trusters Rexford Guy Tugwell and Raymond Moley acknowledged later that Hoover “really invented” all the devices of the New Deal. Frederick Lewis Allen might not have recognized that in 1940, but Joseph Nocera should. And if we don’t want to relive the Great Depression, as Nocera worries, then we’d better learn what didn’t work in 1929-33 any better than it worked in 1933-39.”

–David Boaz
The CATO Institute
“The Hoover Myth Marches On”

President Obama’s latest jobs proposal, where infrastructure banks and public works projects are the rage, has been blocked by the Senate. But each day another paper showing the way forward appears and demands more government spending.

Avoiding the errors of President Herbert Hoover and not allowing deflation to roar unchecked by government is the chief argument for more stimulus. Liberal gospel states that Herbert Hoover did nothing from 1929 to 1932 to staunch the tide of deflation and debt liquidation in the run up to the Great Depression, and that FDR acted decisively and saved the day.

But is this popular thread in the American economic narrative really correct? Did Hoover do nothing compared with the bold “action” of FDR? Or are Hoover, Roosevelt and Obama equally all interventionists?

Joe Nocera made this popular but erroneous point in his last New York Times column. But my friend David Boaz of the CATO Institute caught him in the act. In fact, Hoover did all the things that Obama has proposed and more. And Hoover only made things worse. FDR accelerated the growth of government greatly thereafter, but did so based upon the actions of his nominally Republican predecessor. Obama offers more of the same nonsense.

Hoover was a big government Republican who sought the Democratic nomination in 1920, a fact that makes Democrats cringe even today. But in a new Cato Institute study economist Steve Horwitz notes what Hoover really did to expand the scope of the government in the period leading up to the Depression.

In the study, Horwitz says that Hoover almost doubled federal spending from 1929 to 1933, expanded public works projects to “create jobs,” and pressured businesses not to cut wages, even in the face of deflation. Hoover signed the Davis-Bacon Act and the Norris-LaGuardia acts to prop up unions, he signed the Smoot-Hawley tariff, created the Reconstruction Finance Corporation, and proposed and signed one of the largest peacetime tax increases in US history, the Revenue Act of 1932, which raised income tax on the highest incomes from 25% to 63%.

Our liberal brothers who deride President Hoover as inactive and use him today as justification for even more federal debt and deficits need to find another argument. Hoover was the greatest technocrat of his age and not at all against government intervention. FDR would later expand this fascist model of Hoover into dozens of other parastatal agencies like Fannie Mae, the housing agency that arguably enabled and led us into the subprime crisis.

Proponents of further government intervention in the economy as a remedy for imagined Hoover inaction should also ponder one of my favorite U.S. economists, Irving Fisher. In Debt-Deflation Theory of Great Depressions (1933), he notes that the open market operations started by the Fed in the middle of 1932 had begun to address the deflation prior to FDR’s election six months later. Fisher wrote:

In fact, under President Hoover, recovery was apparently well started by the Federal Reserve open-market purchases, which revived prices and business from May to September 1932. The efforts were not kept up and recovery was stopped by various circumstances, including the political campaign of fear.

The campaign of fear was FDR’s attacks on business, a deliberate strategy to spread panic in the business community while a Democratic Congress thwarted the ability of the Fed and other agencies to help the economy and lend to solvent banks. Obama’s attacks on business — Dodd-Frank and socialized health care — seem very similar to the anti-growth actions of FDR.

When FDR said in his famous inaugural speech that “we have nothing to fear but fear itself,” he spoke of fear he had himself orchestrated for political reasons.  Roosevelt pretended to be concerned about the plight of his fellow citizens, but the real agenda of FDR and the Democrats then, as today with Barack Obama, was to achieve and retain power by making Americans more dependent upon the state.

Once the private sector was in disarray, from 1933 through the start of WWII in 1939, FDR and his fellow travelers began to experiment in socialist engineering with the New Deal. His attempts to regiment American society in imitation of the fascist models of Europe actually made the Depression far worse, but many Americans still think of FDR as a hero. Quite the reverse is the case, but never forget that Hoover enabled FDR.

Fisher told the American Economic Association in December 1933: “We should have been further on the road toward recovery today had there been no election last year. Recovery started under Mr. Hoover but … a recession occurred because of fear over political uncertainties.” In the days of intimidation and fear following the election of FDR, Fisher’s public statement against the new president took courage.

Sad to say, after four years of bank bailouts, incompetence, and trillions in wasted federal stimulus spending, we could say the same thing about Barack Obama. Americans need to focus on rapid restructuring and building sustainable economic renewal based on reality. If we do this we can break the cycle of boom and bust, end deflation in housing, and restore public confidence.

COMMENT

Obama has no job plan and never will.

Posted by Rial | Report as abusive

Why the US debt crisis is a good thing

Jul 27, 2011 15:29 UTC

I must politely disagree with Felix Salmon of Reuters, Ben White at Politico and others who wring their hands and fret about the undoing of the world in the prospective debt default by the US. The damage is done, Felix declared on Reuters.com. I have heard similar views from many friends and colleagues, but I must disagree.

First the debate over the budget, pathetic as it may seem, represents an increase in the intensity of the public discourse over the nature of the American economy. Debate is good. It is the essence of checks and balances, the key feature that separates American democracy from the authoritarian states of Europe and Asia.

For too long Americans have been on auto pilot, relying upon elected representatives and various flavors of hired agents in Washington and on Wall Street to manage our money and our nation. It’s time to start paying attention again.

Second and more important, the debate over federal spending and the tradeoff between higher taxes and greater fiscal discipline begins a larger discussion about the nature of the American political system. After 80 years of borrow, spend and inflate to finance the Cold War, Housing Bubbles and the rest of the world’s growth needs, the US economy has reached an endpoint. The experiment in corporate statism begun by FDR in the 1930s and extended through and after WWII has brought us to the brink of insolvency.

Political gridlock in Washington means not only an end to growth in government spending, but also that we are no longer willing to serve as the overdraft account for the world in terms of demand for imported goods and services. As I noted in my 2010 book Inflated, the US has bailed out the no growth states of Europe three times since WWI. Each time our allies in western Europe have defaulted on their debts. Bring the US troops in Europe home, I say, right now.

Asia, likewise, has grown at the expense of American jobs, the bitter legacy of owning the world’s reserve currency. As the US reins in spending and the monetary excesses that created the illusion of economic growth since the 1980s, an illusion funded with inflation and vast amounts of public debt, our ability to bail out the EU will fade. Remember George Washington’s warning about “European entanglements.”

But the third and most important side effect of the fiscal crisis in Washington is that people around the world will start to diversify both commerce and financial transactions out of dollars and into other currencies. Far from being a threat, I welcome such an evolution. The less of world trade and finance that flows through dollars, the less easy it will be for the Treasury to issue debt or for the Fed to monetize this borrowing on the backs of US consumers and businesses via steady, unrelenting inflation.

Of course Nobel Prize winning economist Paul Krugman rightly notes that a reduction in federal spending will result in pain for many Americans. But what he fails to tell these Americans, especially low income working people he pretends to love, is that the cost of the borrow and spend policies advocated by second generation New Dealers is persistent inflation, a diminution of purchasing power that is just as surely killing the hopes and dreams of all Americans.

I have long argued that a low growth, low inflation environment is better for the working people that the manic, boom and bust cycles caused by big federal deficits and following accommodative Fed policies to make this all seem to work in a nominal sense. Alan Greenspan, after all, was at best a tool; a cog in the machine.

Americans need to understand that we face not a mid-cycle slowdown, to paraphrase the economist Richard Alford, but a post-stimulus adjustment to economic reality. Think post WWII in fact. If this crisis helps to break the cycle of debt and inflation, that is a big plus for America’s long term prospects.

The right choice for Americans is to say no to ever more debt and to instead embrace debt reduction and restructuring of insolvent banks and markets to restore economic solidity. Both in the EU and the US, debt levels by governments and consumers must be reduced to restore national and personal solvency, and thereby start the great growth game all over again.

Do Americans have the courage to make the tough choices, cut spending and also generate more revenue, and thereby set an example for the world? I think the answer is yes, but it may take some time. That is why I am in no hurry to pass the new debt ceiling. A few days or weeks of pain will raise the political temperature in Washington even further and bring all Americans into the proverbial kitchen for a long overdue family discussion about money. And that is a very good thing.

 

COMMENT

The Author should recognize the pattern of cut, retrench, attempt to restructure and final collapse that brought about the end of the Soviet Union after its disastrous term in Afghanistan.

The fall of the USSR brought about the break up of its territory, the collapse of it creaking social support system and opened the door to years of chaos and economic power grabbing by insiders in the emerging political order.

The trick for the aspiring oligarchs here will be finding the insiders that somehow manage to keep their heads and influence in what will no doubt be a very “fast paced and exciting environment” for the most treacherous and greedy bastards one could possibly imagine.

They will simply never be able to set foot outside their armored limousines and securely gated compounds without armed escorts.

Posted by paintcan | Report as abusive
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