My brother wonders why the American people are not outside the White House with torches and pitchforks.
So do I. Although I do not own any torches or pitchforks. I believe in devastating your opponents with superior arguments and behavior.
Ah yes – the current economic crisis. The majority of the American electorate voted for “hope and change”. Fair enough. And even before the election were looking to the federal government for leadership and a way out of this mess.
Which is also fair enough. Even though they are the ones who largely got us into this mess by (1) imposing absurd rules on lending institutions and (2) spending money like drunken sailors. (With apologies to drunken sailors everywhere.)
References are being made to the New Deal and the economic theories of John Maynard Keynes. The government can spend us out of a recession. And huge government spending can “create jobs” and “stimulate the economy”. President Franlin Delanor Roosevelt saved America.
Actually no.
I wish I had been keeping a list of all the articles I have seen explaining how the New Deal both exacerbated and prolonged the Depression. But let me direct you to just one recent example which is especially good because it is short precise and composed by two professors of economics.
In their column for the Wall Street Journal Profs Harold Cole and Lee Ohanian succinctly explain how the New Deal “choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s”. And how the scaling back of the most damaging New Deal policies in 1938 coincides with the beginning of the recovery. The whole article which is not long is well worth reading. Let me share just the two final paragraphs:
The main lesson we have learned from the New Deal is that wholesale government intervention can — and does — deliver the most unintended of consequences. This was true in the 1930s, when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk.
President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries — including autos and steel — are no longer internationally competitive. Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn’t directly address the specific impediments that our economy faces is unlikely to achieve either the country’s short-term or long-term goals.
Read the whole thing at WSJ.Com. You do not have to register.
