Barack Obama continues to apply the old failed policies of the past that he claimed George Bush was using. In fact, what is happening in government policy today failed during the 1930's and will continue to do so.
When Barack Obama campaigned on the subject of subject of the economy he frequently mentioned the need for action and at least once said that we cannot rely on the 'failed policies of the past." Unfortunately for American business and the people who are out of work he is doing exactly that. The lessons that America should have learned from the Great Depression and the Roosevelt administration's policies that were either enacted by a compliant legislature or carried out by the Justice and Treasury Departments carry, more or less, the same general attitude toward the economy and its parts that Mr. Obama and his lackeys have been displaying.
Those histories of the 1930's, which offer an objective analysis of events, cannot hide the fact that one of the major effects of the Roosevelt New Deal was to declare war on business. There were a number of incidents that displayed this attitude. Not the least of these was the Schechter Poultry case 295 U.S. 495 in which the government attempted to take control of small sized poultry butchers and distributors. The dispute made it all the way the US Supreme Court where the Justices struck the government's case down and ruled that the National Industrial Recovery Act was unconstitutional. Then there was the relentless assault on utilities such as Commonwealth and Southern that fought a running battle with the Tennessee Valley Authority for years before it was sold to the government entity. Or the antitrust case against Alcoa, which was prosecuted despite the fact that aluminum prices had been falling steadily despite Alcoa's near monopoly of the industry. Or the crusade against people who took legal tax deductions on the theory that they were denying the government tax revenues that they should have paid because they could afford it.
All of these incidents had a dampening effect on the economy. No one knew when he or she might become a target, so they took great pains not to attract attention. Businesses were also uncertain what future regulations might bring so they deliberately failed to hire new workers, expand their operations or become involved in new ventures. These factors led to stagnation. The best way to attract attention to a company was if that company made significant profits. Roosevelt and his associates regularly condemned these economic problems, but refused to credit themselves with any responsibility. When you shoot yourself in the foot you shouldn't complain about the pain, but the Roosevelt administration did so regularly.
Along with the above was an attitude that government was best equipped to handle difficult economic situations, and that where things were in trouble it was lack of regulation that had caused the problems. When individual citizens or groups of them found reasons for government to back off they rarely met with sympathy. One of the documented cases occurred in the Resettlement Administration farm at Casa Grande, Arizona where the farmers requested that they be able to use government funds to acquire milking machines in order to save time and money, while acquiring more milk cows to expand income potential. The administration of the farm refused and the potential for growth went unmet. (Reference Amity Shlaes, The Forgotten Man, Afterword to the paperback edition, page 393.)
Today we see similar phenomena. Not the least of these are the attempts at a nationalized health care system and the enactment of a national carbon tax. The former would create another massive bureaucracy with associated government expenses and significant costs imposed on private businesses. This would force many of them to close. The same would be the result of a carbon tax; it would raise the cost of energy to levels impossible for businesses to accept. The marketplace can only accept so much abuse before Atlas begins to shrug. Unfortunately the political left refuses to accept the idea that such behavior will occur. More recently the issue of the federal budget has come to the fore. In an address to a high school in Nashua New Hampshire Mr. Obama said that when times are tough you tighten your belts. At the same time he and his compatriots are proposing a record-busting budget, which will increase the national deficit to unheard of levels. Meanwhile, he engages in constant jet setting, holding weekly parties at the White House, and importing foreign gourmet chefs according to Sean Hannity 2/3/2010. Even the Huffington Post covered this practice. The excuse that this serves to show Americans how to cook healthy meals falls when we find that applications for food stamps are on a steady rise. See here and here. Then we have his wife's unheard of 20+ member staff. This doesn't include other proposed tax increases, along with the pending expiration of the Bush administration tax cuts, which will likely have a significant anti-growth impact.
Obama also said that "You don't go buying a boat when you can barely pay your mortgage," which advice should be taken in the form of massive federal budget cutting instead of raising spending to levels impossible to afford. He is still assuming that you can tax and regulate the country into prosperity. It never worked before and it won't now. The only possible conclusion is that the intention of this government is to bankrupt the nation, or to continue a relentless drive toward total power over everyone and everything.
Where some histories reach a compromise with reality is when they credit World War II with bringing America out of the Depression. They are partly right in this, but they generally fail to recognize why it worked. There are several contributing factors, but the most important was probably that the government needed to make peace with business in order to ramp up America's industrial capacity to supply the military. It had to call off its dogs and give business a relatively free hand to work as it had in the past. It is not clear whether the current administration intends to get involved in a war as an excuse for loosening the reins on business, while attempting to get the public to rally round the president. Regardless, doing this would be a mistake. The military is not presently prepared to undertake a serious large-scale war effort. Much of our equipment is being manufactured overseas and we do not have sufficiently developed energy resources at home to supply our needs. It would, almost certainly, result in chaos at home and defeat abroad.
What Barack Obama needs to do is abandon the failed methods of the past, namely tax, spend and regulate. He needs to invoke new, revolutionary methods such as cutting government, opening up our natural resources, and deregulating small business. Then the national economy will recover of its own accord.
When Bush “stayed the course,” he was roundly criticized for his apparent inflexibility and uncreative mind. Now Obama pesists in trying to pass as much of his oroginal agenda as possible despite the increasing unpopularity of his policies. I’m already seeing praise in the media for his “resolve” and his “commitment to doing the right thing.” Ugh.
Steve,
I believe the real problem is one of economic ideology. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector.
Keynesians feel there’s no difference between private sector spending and public sector spending. They ignore that public sectors (i.e. government) cannot create wealth only expropriate wealth already created. Taking money out of the economy, in order to redirect it into ‘favored’ industries or programs cannot work.
You state; ” Businesses were also uncertain what future regulations might bring so they deliberately failed to hire new workers, expand their operations or become involved in new ventures.” This is exactly the case today. Who would hire a new worker today; not knowing what the tax rate may be, or the health care cost, or the energy cost; especially if any of these could not only be raised but raised retroactively?
Just wait until the federal government ‘adjusts’ its unemployment figures at the end of this month.
What I find especially frustrating are the constant assertions from the Obama administration that they have somehow rescued the country from a far worse economic fate. Have they finally given up on the “jobs saved” statistical nonsense? Just get out of the way and let American business do what it does best.
I really believe that a serious case may be made that the TARP was a mistake. It hasn’t done the taxpayer much good to save companies such as AIG. Especially when you find out most of that money went to pay off, at 100% the toxic CDO’s and Debt Swaps AIG sold to the investment banks.
Hold onto you wallets everyone.They’ll drive this market up once more, maybe twice, so the investment banks can harvest the profit once again. Then comes the trouble. The FED and the treasury have no idea how to unravel what they’ve done. they are trying to keep a lid on all that money they injected into the banks. At some time all that money HAS to hit the economy. Can you say hyperinflation?
Great article, Steve. I would like to focus on one sentence: “It is not clear whether the current administration intends to get involved in a war as an excuse for loosening the reins on business…” because it highlights a significant difference between Obama and his idol FDR. You pointed out that, in order to prepare for and prosecute WWII, FDR backed off from his relentless and vicious attacks on American business. He called off the dogs because he knew that he had to “give business a relatively free hand to work” so that it could “ramp up America’s industrial capacity to supply the military.” This implies that FDR understood, if only instinctively, that economic growth and productivity resulted from an unconstrained free market system rather than from government programs. But prior to the war, that knowledge was superseded in his mind by his ideology upon whose altar he was more than willing to sacrifice economic growth for the sake of his egalitarian goals.
The distinction between FDR and Obama is that the latter doesn’t even have an instinctive understanding of the relationship between free markets and economic growth. He has spent his entire life at the feet of Marxist teachers who preached the evil of capitalism and the superiority of a government controlled economy. I do not believe that, even if he had to prosecute a major war (which is unlikely as “surrender” and “negotiation” are in his vocabulary while “victory” is not), he would call off his dogs. In his mind, business is evil. He will continue his business-bashing tirades and the pursuit of economically crushing policies (e.g., health care “reform,” cap and trade, higher taxes on business and the “wealthy”) regardless of how many polls tell him that the American people think he is on the wrong track.
Ron,
Not only does Obama not have; “…even have an instinctive understanding of the relationship between free markets and economic growth.” For Obama business is nothing more than a revenue stream for expanded government. Unlike FDR, Obama is prosecuting a ‘limited’ conflict. The fact that he’s doing a poor job of that is a subject for a later time. He doesn’t need to; “give business a relatively free hand to work” so that it could “ramp up America’s industrial capacity to supply the military.” He’s not fighting a world war, at least, not in the terms that historically defined WW II. What Barack Obama believes is that he needs temporarily needs business to finance his redesign of American society. Once that is complete, business can go scratch!
What happened at Chrysler was proof enough. His denigration of the secured credit holders who, because of over 100 years of settled bankruptcy law, had every right to expect full payment before anyone else got a dime; plus his insistence that the unsecured debt of the unions would be settled with company shares prior to any ‘private’ interest getting anything was demonstration enough of his willingness to use federal power to remove wealth from all others in order to line the pockets of ‘protected’ interests.
Steve’s point regarding what the Commander-in-Chief says, as opposed to what he does is prescient. When Obama says things like; “…when times are tough you tighten your belts.” or; “You don’t go buying a boat when you can barely pay your mortgage.” But still insists Congress work on his agenda of universal health care, cap & trade, killing the Bush tax cuts, and mandating new fees on banks which he has to know will only be passed onto customers proves it is all just populist rhetoric.
All this evidence leads to only one possible conclusion. Anyone that believes that Barack Obama is so ignorant of markets that he’s just making misstep after misstep is dead wrong. He knows exactly what he’s doing. He’s going to make it incredibly difficult for any company to borrow money. First by browbeating the banks to the point that they literally ‘check with him’ before lending. The government, in essence, becomes the lender of last resort because you cannot get a loan without his ‘approval’. The administration has already become the lender of last resort for education as you may no longer go anywhere but the government to get a college loan. How long will it be before they have approved lists of majors and colleges?
Businesses like GE that get heavy into ‘green’ technology will be awarded with access to capital; businesses that don’t get on the ‘green’ bandwagon like Exxon will literally get the shaft. Deficit spending of course, will continue.
Saul Alanski said the old system had to collapse before any new system may supplant it. The administration has already issued a document outlining the idea that the federal government needs to step in to help people ‘properly’ plan for retirement. The plan is to force the conversion of all privately held 401(k) accounts. The federal government will ‘guarantee’ a set level of interest in these accounts by forcing the purchase of Treasury Notes. The plan is to do to the private 401(k) accounts what they’ve already done to the social security system: Namely extract the estimated $4 trillion plus in 401(k) assets and replace them with federal IOU’s in the form of Treasury Notes, backed by the full faith of the federal government, of course.
Steve is correct. Soon the ‘producers’ in society will refuse to give sanction to this behavior. The ‘producers’ will go on strike. Atlas will shrug.
The entire world is salivating at the possibility they will get to divide up the estimated $14 trillion that is the total of US GDP amongst themselves. That the rest of the world thinks we’d keep generating wealth at that pace once they start vacuuming it off astonishes me. Do they really think I’ll keep working my fingers to the bone so they can siphon off fifty or sixty cents of each dollar I earn? To all those who actually believe I will, I have four words for them: Who is John Gualt?
I know my claim of the government grabbing the assets out of 401(k) accounts might have made me seem like a card carrying member of\f the ‘black helicopter’ crowd to some. Here is a reference to begin your own research. I also apologize for stating the value of the 401(k)s at $4 trillion plus. This article says $3.6 trillion.
http://whiskeyandgunpowder.com/will-the-feds-fund-deficits-with-401ks/
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