The current Republican and Democratic economic stimulus plan is the latest version of a much tried and repeatedly untrue liberal-progressive panacea.
Stimulus packages first surfaced in this country under President Herbert Hoover as a product of the liberal-progressive-socialist doctrine of the early 20th century. They failed miserably throughout the Depression and haven't worked anytime since then.
The bottom line is that stimulus packages don't do the intended job of jump-starting the economy. (See "Why Tax Rebates Are Delusional.") Instead they work against righting misallocation of economic resources and add to inflationary pressures that rob people of the value of their savings.
Tax cuts, coupled with reduced government spending, are the only effective and non-inflationary economic stimulants.
Why then have one-shot stimulus packages?
Socialist theory since its inception in the first decades of the 19th century had always preached that industry could best be managed by intellectuals, working through industry councils and bureaucratic managers. Imposing public regulatory control (what was called socialization) on business was presumed to make it more efficient and thereby to raise wages and employment.
20th-century American business itself ironically was partly responsible for the popularity of the idea of scientific management in government and its manifestation in stimulus packages.
As corporations grew to hitherto unimaginable size around the time of World War I, management became more structured. The professional manager came into being, and scientific management techniques came into vogue. To that end, the Harvard Business School was founded in 1908. Business leaders and the general public alike believed that the same highly successful business management approach should be applied to local, state, and national government.
Such was the essence of early Progressivism and its love affair with experts. Note that Progressivism was embraced by both liberal Republicans and liberal Democrats.
President Herbert Hoover was a leading exponent of Progressivism in government, despite his characterization by liberal historians as a laissez-faire conservative. So much so that Austrian School economists date the inception of the New Deal to the inauguration of Hoover in 1929. Much of what President Franklin Roosevelt did with disastrous results, from 1933 until late 1940, was merely a continuation and expansion of President Hoover's policies.
As Amity Shlaes wrote:
The premier line in the standard history is that Herbert Hoover was a right-winger whose laissez-faire politics helped convert the 1929 Crash into the Great Depression. But a review of the new president's actions reveals him to be a control freak, an interventionist in spite of himself. Hoover signed the Smoot-Hawley Tariff Act, which worsened a global downturn, even though he had long lived in London and understood better than almost anyone the interconnectedness of markets. He also bullied companies into maintaining high wages and keeping employees on their payrolls when they could ill afford to do so. Perhaps worst of all, he berated the stock market as a speculative sinner even though he knew better. For example, Hoover opposed shorting as a practice, a policy that frightened markets at an especially vulnerable time.
Stephen W. Carson, on the Mises.org website, writes about the first stimulus package. Read it here. And be sure to read the 1929 Time Magazine article linked in Mr. Carson's post. It's accessible here.
viewfrom1776@thomasbrewton.com
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Dear Mr Brewton, as usual, you hit the economic nail on the head.
You’d think we would have learned something from Germany’s post-war ‘revival’.
As I have no doubt you are acutely aware, it was free-market policies that initiated the whole business.
Ludwig Erhard introduced a price 'decontrol ordinance’ which eliminated price controls.
Thereafter, through the summer of 1948, "directive followed directive removing price, allocation, and rationing regulations."
Instead of interfering with the economy, Erhard's rationale seemed to be - "Don't just sit there; undo something."
Perhaps today the rationale should be “don’t touch anything!” But that would be ever so ‘callous’, would it not? Politicians just have to indulge themselves in a good ol’ dose of ‘conscience relief’. The fact that it only makes matters worse does not concern them – at least they have a ‘clear conscience’.
These days, politicians look more to the Rawls’ concept of ‘social and economic justice’. May I remind readers of Rawls’ Theory of Justice, just to see if anybody out there can tell me what exactly it means. Here are his Principles (which please ‘compare and contrast’ to the Ten Principles of Freedom):
"First Principle: Each person is to have an equal right to the most extensive total system of equal basic liberties compatible with a similar system of liberty for all.
"Second Principle: Social and economic inequalities are to be arranged so that they are both, a) to the greatest benefit of the least advantaged, consistent with the just saving principle, and b) attached to offices and positions open to all under conditions of fair equality of opportunity."
Then we have the Priority Rules. Here they are:
"The First Priority Rule (The Priority of Liberty). The principles of justice are to be ranked in lexical order and therefore liberty can be restricted only for the sake of liberty. There are two cases: a) a less extensive liberty must strengthen the total system of liberty shared by all; b) a less than equal liberty must be acceptable to those with the lesser liberty.
"The Second Priority Rule (The Priority of Justice over efficiency and Welfare). The second system of justice is lexically prior to the principle of efficiency and to that of maximizing the sum of advantages; and fair opportunity is prior to the difference principle. There are two cases: a) an inequality of opportunity must enhance the opportunity of those with the lesser opportunity; b) an excessive rate of saving must on balance mitigate the burden of those bearing this hardship."
Isn’t that wonderful? Rawls, of course, arrived at this Theory of Justice – social and economic – by hiding a load of people behind a theoretical “veil of ignorance”.
I don’t know why he bothered with a ‘theoretical’ ignorance when all he had to do is visit Washington to get the real thing!
Mr Brewton, if only there were a few like you in Washington!
Joseph BH McMillan http://www.freedomvrights.com
Comment by Joseph BH McMillan | February 9, 2008