Skip to comments.Barack Obama and the FDR-Great Depression Myth
Posted on 11/27/2008 11:17:39 AM PST by SeekAndFind
|Barack Obama and the FDR-Great Depression Myth
Posted 11/26/2008 ET
The cover of Time magazine has Barack Obama photoshopped into Franklin Delano Roosevelt’s famous convertible, complete with oval-shaped glasses and cigarette holder held between the teeth. “The NEW New Deal,” The cover reads. Surely many who voted for Obama saw him as potentially the new FDR, the man to lead us out of hard economic times. But they’ve been misled, for even FDR wasn’t FDR. He is a quasi-mythical creature who not only didn’t end the Great Depression but probably greatly prolonged the nation’s economic agony with his New Deal programs and a menagerie of other foolish measures.
Just look at the numbers. Unemployment from 1923 to 1929 averaged a mere 3.3%. In FDR’s first year, 1933, it hit its high point of 24.9%. Joblessness did decline for the next three years to 14.3% in 1936, but that’s still deep in depression territory. Then the next year unemployment actually spiked up and didn’t fall to 1936 levels again until 1941. “By June 1937, writes Marquette University economic historian Gene Smiley in The Concise Encyclopedia of Economics, “the recovery...was over.”
Even FDR Treasury Secretary Henry Morgenthau admitted the New Deal had failed. “We are spending more than we have ever spent before and it does not work,” he declared in 1939. “We have never made good on our promises...I say after eight years of this Administration we have just as much unemployment as when we started...And an enormous debt to boot!”
Finally war came to the rescue. America began exporting huge amounts of food and equipment first to Britain and then the Soviets, even as it geared up its own war machine that was practically non-existent in 1940. Joblessness inevitably plummeted as over eight million Americans joined the military in less than two years.
Was it really The New Deal that doubled the GDP from 1939 to 1943 or that slashed unemployment by two-thirds just from 1940 to 1942 and then cut even the 1942 figure by more than half the next year?
The grotesque reality is that it wasn’t an American aristocrat who led us out of the Great Depression but a monstrous Austrian corporal.
Sources: Bureau of Labor Statistics, Survey of Current Business, April 2000
One reason the New Deal couldn’t end the Depression and probably extended it is because it wasn’t merely a quick economic boost or the shoring up of vital institutions that, once fallen, might set off a domino effect on other businesses. Rather, over many years its programs merely swiped money from the relatively efficient private sector and gave it to government programs that were often deliberately inefficient. Anybody familiar with the architecture of structures built under the Works Progress Administration knows they are readily identified by their use of too much material, too much space, and hence too much labor.
As free-market economist Henry Hazlitt observed in his classic 1946 book, Economics in One Lesson: “For every public job created by [a] bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work...But there are other things that we do not see, because, alas, they have never been permitted to come into existence.”
Yet Obama apparently either doesn’t know his history or doesn’t care. He’s just proposed what one news outlet called “a monster new 'new deal,'” supposedly a two-year plan aiming to create or protect 2.5 million jobs with massive deficit spending.
FDR also spooked entrepreneurs, corporations, and would-be stock market investors with a tremendous tax attack. The income tax top marginal rate increased to 79% between 1930 and 1940, the corporate income tax rate doubled from 12 to 24%, and Roosevelt tacked on an “excess profits” tax to boot. He imposed an excise tax on dividends, liquor taxes, and a capital stock tax, while increasing liquor taxes. Finally, he instituted the Social Security payroll tax with a 2% rate.
UCLA economists Harold L. Cole and Lee E. Ohanian assert that but for New Deal anti-free market measures, the Depression would have ended in 1936. In a paper for the Federal Reserve Bank of Minneapolis, they observed Roosevelt believed excessive business competition led to low prices and wages. Therefore, FDR “came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25% above where they ought to have been, given market forces. “The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies," Cole said in separate comments.
Other economists, including Nobel Laureate Robert Lucas Jr. and the late Leonard Rapping concluded that the steady expansion of the money supply, but for FDR’s influence, should have ended the Depression in 1935.
And for all the talk about the uplifting effect of his “fireside chat” pep talks on the common man, he scared away those he needed to reassure most -- those with money to invest -- with his blame-business rhetoric and his incessant new economic experiments. The market abhors uncertainty; the New Deal was uncertainty incarnate.
Only the most obstinate Democrat-hater hopes the economy won’t recover during Obama’s first term. But to the extent he imitates that guy with the cigarette holder -- and he’s seems determined to do so -- brace yourself for Great Depression II.
Obawan hasn’t even been sworn in and the MSM has already declared that he’s the greatest president in history.
More factual data:
FDR’s policies prolonged Depression by 7 years, UCLA economists calculate
“After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.
“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”
In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.”
Note that Obama is planning to institute exactly the measures that FRD introduced, which proplonged the depression.
As if to add insult to injury, I feel certain that not only will Obamaite make work programs have the same dilatorious effect on the economy that FDR’s did, but they won’t give us any beautiful public buildings: WPA art deco, what I like to call ‘American fascist architecture’, was the last gasp of beautiful American architecture. Anything now will be Bauhaus at best.
Yes, but even that didn’t tell the real story, after lengthening the depression for seven years it was only WWII that actually refocused America, restarted it’s industry and stopped the depression in it’s tracks. If it hadn’t been for WWII, we would still be living in Kenyan huts on $12 a day.
After WWII, American industry was then turned onto consumer goods, and improving life for all.
Ronald Reagan,’s economy, in eight yeras, created 15 million good paying jobs, proving that the correct formula is trickle down economics, not trickle up poverty.
Right, like Freidman mentioned the other day where an “immigrant” in California who couldn’t speak English, earning $14,000 a year qualified to buy a $720,000 home.
Reagan didn’t need no stinking war, it’s only the rats that cause war. Republicans have brains.
What’s that line of Reagan’s -— Oh here it is ... “It isn’t that Liberals are ignorant. It’s just that they know so much that isn’t so.”
After reading Jonah Goldberg’s book “Liberal Fascism” I realized just how similar Obama may very well be to not only FDR but also Woodrow Wilson (read: the sedition act) FDR and Wilson proudly installed fascist policies. In fact, Hitler and Mussolini themselves wrote communications to FDR after his inauguration about how impressed they were with his socialistic ideas.
There are at least 5 reasons why Obama will deepen the depression:
(1) President Obama will institute policies that will prevent wages from dropping to market rates. This is exactly what Herbert Hoover and his successor Franklin Roosevelt did in the 1930s. Such policies by Hoover and Roosevelt dramatically increased the unemployment rate. By preventing wages from adjusting to market forces during the Depression, businesses were unable to afford to keep people employed. As a result, the unemployment rate skyrocketed to 25%. Barack Obama is of the same ilk, and he will not be able to resist policies that keep wages, and thus, unemployment higher than the free market would dictate. In this cycle, an unemployment rate between 10 and 15 percent is a very real possibility.
(2) He will raise capital gains taxes. We are in a period when capital is desperately hard to come by. Great American companies are begging our own government and foreign sources for capital. Raising the cost of capital by raising the capital gains tax rate is exactly the opposite of what we ought to do. It will choke off capital and deepen the depression. In addition, every notch upward in the capital gains tax rate will bring a notch downward in the stock market. Every notch downward in stocks will add more fear and will keep Americans from spending to support the economy.
(3) Obama and his pals in Congress will raise taxes not only on the upper echelon but also on the middle class. He has promised free health care, free college, free child care, free this and free that. Guess what. There is no free lunch. The working class will be hit with higher taxes along with the employer class. According to the National Taxpayers Union, Obamas fiscal agenda will cost $344 billion per year. This agenda will force higher taxes on everyone. Herbert Hoover dramatically raised taxes in 1932 during the Depression. Economists now recognize this as perhaps the biggest tax blunder in American history. This sucked money out of the productive economy and sent the economy into a death spiral. The handwriting is on the wall; Obama will repeat the mistakes of the Great Depression.
(4) Obamas policies will skyrocket the federal deficit. It is clear that his spending priorities far outweigh his revenue enhancements. Under normal circumstances, our economy can handle more debt during a recession. But in a period of asset deflation and credit contraction which began when debt was already too high, to balloon the deficit further is to risk the very foundation of our economy. His spending policies will expand the already incredible deficits created by the Bush TARP program. The risk is worldwide loss of confidence in the US government and its debt and a potential collapse of the bond market.
(5) Obama is committed to spending huge amounts of money on uneconomic venturessuch as the auto industry and solar energy. The American auto industry is hopelessly uncompetitive against the Japanese manufacturers.
In large measure because of the monopolistic power of labor unions, American manufacturers suffer a $1500 per car cost disadvantage. Throwing more money at the problem will not help unless the unions capitulatean unlikely event. Government loans to the auto industry will never be paid back. It is a black hole. As for solar energy, it will account for only around 5% of the U. S. energy needs by 2020. And it is multiples more expensive per kilowatt hour. Every dollar spent by the government to support this industry, like other government wasteful spending, is money down a rat hole. And no doubt, Obama will find many other uneconomic projects to support.
These things will be explained to President Obama. But he will reject them because of his ideology. Obama is a left-wing ideologue. Other Democrat presidents have been fairly utilitarian. But not this man.
Nothing will stop Obama from pushing leftist/socialist economic policies on our country. And the results will be disastrous.
Mr. Meek can be reached by email at firstname.lastname@example.org.
BTTT & Happy Thanksgiving!
The world of the '30's is not the world of today. The big thing in using FDR is to justify handouts.
“The Politically-Incorrect Guide to American History” actually addresses the belief that WWII was what brought us out of the depression, denying said belief as false.
According to the book, it was the return to normal free-market capitalism and the death of FDR (and thus, no more reason to live in fear of what new economic outrages he would do) that brought back prosperity.
Good summary......as P.J. O’Rourke said at a 93 Gopac speech on DEMONRATS and the Impeached, treasonous, bent-crank violent rapist;
They are dung beatles in legislation, legislators in the bed-chamber, Chamber-maids on the battlefield, and Field-marshalls in the war against everything reasonable and decent.
Such like has not been seen in the Executive branch since Franklin Delano Roosevelt was wheeled up the disabled access ramps to the gates of HELL.
The unemployment rate went down dramatically by 1942 and stayed down. The good news is FDR was dead when the war ended, and America and it’s the economy prospered. Even though up until RR the income tax was set at confiscatory rates, near 90% for the top marginal rate. When Reagan cut that way back, the economy took off.
New Deal II is a scam ... Reject Obamunism.
(6) He's said he wants to "renegotiate NAFTA" and is opposed to the free trade agreement with Columbia. The affects of such a protectionist trade policy could be the similar to that of the Smoot-Hawley Tariff of 1930.
the reason why WW2 ‘worked’ has to do with the Laffer curve. Usually you can’t raise taxes and expect maximum revenue. People decide they might as well just work less or try to shelter their income. But in the case of a total war, everyone does their patriotic duty to work for the defense of the country even with maximum tax rates.
On the other hand, if it is for an unpopular war such as Vietnam, it won’t work.
Gird your loins. Obama wants to be a ‘great’ president, and every ‘great’ president has to have a ‘great’ war.
Nobody remembers the presidents that simply built a lot of bridges and roads.
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