Making the Economy Worse

Watching the former Bush administration and now the Obama administration try to deal with the worsening economy is like watching old newsreels of the Roosevelt administration announcing its many experimental programs—the New Deal—between 1933 and the start of World War II in 1941.

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The Great Depression began with the crash on Wall Street in 1929. Herbert Hoover struggled with the impact this had and, when he was unable to deal with it, Franklin D. Roosevelt was elected. A charming man with an eloquent speaking style, FDR mesmerized Americans with his fireside chats and stirring speeches, but he surrounded himself with a bunch of academics who had no more idea how to solve the growing loss of jobs and related problems than he did. FDR had never run a business, had invested in a number of ventures that all failed, and was, for his entire life, on an allowance from his mother who tended the family wealth. He was a spoiled rich kid and indifferent student with the time and money to engage in politics where competence is not always high on the list of a candidate’s attributes. President Barack Obama was certainly not a rich kid, but thanks to his grandparents he was able to attend an exclusive school in Hawaii and by means of support that is impressively vague, went on to attend Columbia University and Harvard. A lawyer and community organizer, Obama like FDR, has never run a business, met a payroll, had to make a profit, et cetera. He chose politics as his profession and, like FDR, appears to be quite good at it. Politics, however, is not business. It doesn’t rely on making a profit and it doesn’t seem to matter if huge debts occur as the result of an imbalance between imports and exports, so-called “entitlement:” payments, or even if taxes actually impede growth instead of stimulating it. Making its way through Congress is a huge $825 billion so-called “stimulus” bill that has no more relationship to stimulating the economy than my computer has to a parking meter. It is pork, pork, and more pork. It will spend an insane amount of money on projects that are totally unrelated to the real problem, a breakdown of credit liquidity. Until the banks begin to make loans again of the type that facilitate the operation of businesses large and small, nothing Congress does will affect the economy, except probably to make things worse. A group of elite politicians, Congress and the White House will feel compelled to “do something” when they actually should do as little as possible. We have already seen billions disappear into a black hole of bailouts. Why would we continue that practice without some restraints, transparency, and accountability? Why, in fact, continue to do that at all? Some bankers are acting like greedy, heedless pigs which is, of course, what they normally get paid to do. Whatever prudent behavior we normally associate with bankers, hedge fund managers, and financial advisers seems to have been jettisoned long ago. After studying the Roosevelt years, two UCLA economists concluded that it dragged on for a dozen years after 1929 because New Deal policies virtually ensured that the economy would be paralyzed. In an article in the August issue of the Journal of Political Economy, Harold l. Cole and Lee. E. Ohanian blamed anti-competition and pro-labor measures that FDR signed into law on June 16, 1933. “President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,” said Cole. The result was a law that allowed businesses in every industry to collude to set prices and workers to demand salaries about what they should have been, given market forces. People were sent to jail for offering their products or services for less than the amount set. Excise taxes on all manner of things sucked money out of the pockets of the poor and middle class. What does this tell us today? It tells us that government, the cause of the present financial crisis (as the result of mortgage loan practices it required) should get out of the way of the business and financial community except to purchase the bad loans, allowing banks to clear their books, and get back to normal lending practices. The economy will get worse and, in time, people are going to look at the White House and blame it and Congress for the great troubles so many people will encounter. Why do I keep thinking that the successful businessman and governor, Mitt Romney, is beginning to look very good right about now?

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