Skip to comments.Einstein's Definition of Insanity
Posted on 05/14/2009 11:57:57 AM PDT by Titus Quinctius Cincinnatus
Students of history are often surprised by the way history seems to repeat itself. Indeed, history seems to have a pronounced stutter at times. This has led some historians (like Toynbee, for instance) to postulate rather fanciful theories about civilizational cycles, attributing a determinism, and even a teleology, to history that I feel is unwarranted. Rather, I believe the reason for the appearance of repetition is that the primary agent of history is man and man, even across different time periods and allowing for some modification in different cultures, has the same set of motivations, wants, hopes, and desires. Man is also prone to making many of the same mistakes under similar circumstances.
To illustrate my point, as it particularly relates to America and to the present financial and economic crisis that afflicts us, lets go back to 1929. That year saw the stock market crash (October 29) known as Black Tuesday, which serves as a convenient starting point for the Great Depression. However, the Great Depression didnt start out being either great, or a depression. It started as a moderately bad recessionary correction in response to the situation that existed in the 1920s in which an over-inflated money supply induced by the Federal Reserve led to a rapid expansion in easy credit throughout the decade, which eventually imploded once the markets realized that all the goods and paper assets (stocks and bonds) were overpriced due to price inflation caused by the easy availability of money.
What turned this moderately bad recession into the Great Depression was the massive amount of government interference in the economy that was initiated by Herbert Hoover (1929-1933) and continued by Roosevelt (1933- 1945). Nobel prize winning Keynesian economist Paul Krugman (evidencing the devaluation of Nobel prizes) claims that Herbert Hoover was a supporter of laissez faire approaches to both economics and the 1929 financial crisis. This simply shows that Krugman is as ill-informed about history as he is economics, for Hoover was definitely no champion of the free market or a hands-off approach to the economy on the part of the government.
Hoover, who first entered politics in 1920 when he attempted to obtain the Republican nomination, came from the Progressive wing of the Party, and had supported Theodore Roosevelts Bull Moose Party run in 1912. He was a proponent of one of the primary areas of interest to the Progressives - the Efficiency Movement which argued that there was a technological and regulatory solution to every social problem. In other words, man can solve all of his own problems through the ever-increasingly applied powers of government regulators and experts.
Hoover did not win the nomination in 1920, but was selected to serve as President Hardings Secretary of Commerce. In this position, Hoover used his powers to advance the intrusion of government into finance and the economy, and to push for partnership between businesses and the government. He was actively pro-regulation in every area that his Department felt was its business (i.e. pretty much everywhere), and he used his position to push all kinds of tariffs and farm subsidies through Congress. One of Hoovers achievements at Commerce was his Own Your Own Home campaign, in which he collaborated with banks and other lending institutions to make credit more easily available to wider numbers of people, and which saw the invention of credit instruments intended to widen access to the easy money flowing through the economy throughout the 1920s.
As early as 1922, Hoover was on the record for his condemnation of the laissez faire approach to capitalism, which he felt was a relic of an unfair and unjust past, before equality of opportunity was extended to all by Abraham Lincoln (see Hoovers book American Individualism). This equality of opportunity, of course, involved quite a lot of economic leveling via government intervention into the economy.
Hoover eventually won the Presidency in 1928. When the stock market crash of 1929 and the subsequent economic downturn began, Hoovers responses to the crisis were typically interventionist. It was on his watch that the Smoot-Hawley tariff was passed in an attempt to protect American industry an act of government intervention in international trade that nearly destroyed the flow of goods and services across the world economy, as other nations followed suit and raised their tariff barriers as well. Far from preserving American jobs, Smoot-Hawley destroyed them, and unemployment hit 25% by the end of his term in office.
Among Hoover's other responses to the worsening financial crisis were the initiation of public works programs as a means of stimulating economic growth, and the fostering of publicprivate cooperation between businesses and the government. He tried to encourage banks to loosen up on loaning money so as to reliquify housing and other markets. The Congress and the Administration also raised taxes on businesses and the rich through the Revenue Act of 1932, which implemented a business tax of 13.75% and raised income tax rates across the board, with the highest income earners paying 63%. Contributing further to the monetary contraction caused by the credit implosion, a two cent check tax was added by the Revenue Act to all checking transactions.
None of these efforts to stem the economic decline were successful, but they did lay the groundwork for the even greater damage done by Roosevelt. Indeed, Rexford Tugwell, a prominent member of Roosevelt's New Deal brain trust would later state, ....practically the whole New Deal was extrapolated from programs that Hoover started. Even more ironic, Roosevelt campaigned against Hoover on the basis of the latter's reckless and extravagant spending and his centralization of power in Washington. John Garner, Roosevelt's Vice-Presidential running mate, even accused Hoover of leading America down the path of socialism.
Yet, Roosevelt continued and greatly expanded Hoover's responses to the economic crisis. Income taxes remained high, especially on businesses, and he began to apply much greater pressure on businesses to cooperate with government economic aims. He instituted the National Industrial Recovery Act in 1933 (eventually found unconstitutional in a unanimous decision of the Supreme Court) which forced businesses to work by consortium, establishing rules for production, wages, and competition that would be enforced upon all members of each particular industry thus mimicking the sort of corporatist public-private partnership seen later in Nazi Germany and in socialist Sweden. He vastly expanded public works programs, and accrued hithertofore unseen levels of debt and budget deficits. His stated goal for the New Deal, as given in his acceptance speech upon receiving the Democratic nomination in 1932,
Throughout the nation men and women, forgotten in the political philosophy of the government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth....I pledge you, I pledge myself to a New Deal for the American people....This is more than a political campaign, it is a call to arms.
And as happened with Hoover, so also happened with Roosevelt. The taxation of businesses and the wealthy stifled private sector job creation, and unemployment remained high throughout Roosevelt's time in office, until right before World War II. People remained unwilling to borrow money, and banks remained unwilling to lend. Debt and deficits continued to grow, and the vast collection of power over the economy and over private businesses into the hands of bureaucrats and politicians quickened.
Indeed, the economy remained in depression - a Depression which was maintained by Roosevelt's interventionism and economic policy. Far from saving us from the depression, Roosevelt prolonged it. Until 1941, unemployment never dropped below 14%. In fact, when unemployment reached a relatively low point in 1937, additional social security and undistributed profits taxes, as well as a boatload of new regulations on business, helped to drive it back up to 19% in 1938. Roosevelt and the Democratic Congress' policies were actively discouraging economic recovery. Even though there was economic growth during the Depression, it really was a true jobless recovery and mostly constituted a recovery of ground that had been lost since 1929 it was not true growth in the sense of increase beyond pre-Depression levels.
What eventually turned the economy around and got us out of the Depression were two things: Lend-Lease and World War II. As millions of young men were drafted into the armed forces, unemployment naturally (if artificially) dropped. Further, America's idle factories retooled and opened their doors so as to provide war materials for Britain, the Soviet Union, and eventually ourselves as war began and then exploded all over the world. The war and the need for billions of tons of manufactured goods provided the stimulus to private industry that taxation, debt, regulation, and coercion could not.
Now, fast-forward to 2008. Again, we see a credit-driven implosion starting with the housing market that has destroyed consumer confidence in the banking system of this nation, and which has contributed to a general economic slowdown as lending tightens, jobs are lost, unemployment rises, and economic growth is measured in negative numbers. This time around, government regulation of the faulty industry in question has made a major contribution to the economic downturn.
Unlike the bust of 1929, which was a genuine bubble in the free market (though abetted by the Federal Reserve and its expansiveliquidation policies), the bubble this time around was actually engineered by the government. Highrisk loans, which put a lot of capital out there into expensive, high risk toxic assets, was fostered by the lending practices of the publicly-operated Freddie Mac and Fannie Mae. Contributory to this as well were the mandatory high-risk loans stipulated by Clinton-era applications of the Community Reinvestment Act of 1977, which required banks to maintain a certain percentage of their mortgage lending business to high-risk borrowers financially troubled people who normally would not have even gotten inside the door of a loan officer's office, must less have actually gotten a loan. Once the credit bubble began to burst and the easy money dried up, the defaults on these high-risk loans began and the bubble blew up in our faces.
Unfortunately, our political class (both Republicans and Democrats, just as in 1929) doesn't learn lessons well from history. George Bush decided to play Herbert Hoover to Obama's Roosevelt, and we're probably going to be in for another long ride as Obama turns what is now a moderately bad recession into a full blown depression. Bush pushed TARP the brilliant plan to purchase bad debt and toxic assets from banks which is now being used to bailout failed auto companies and generally provide walking-around money to Democrat politicians, but has otherwise not done much good at rescuing the financial industry. Obama has continued with his Porkulus spending plans, generating massive new levels of debt and deficit, promising make-work jobs on public projects while private sector employers continue to shed jobs by the hundreds of thousands each month. Plus, Obama and the Democrats plan to increase our taxes, especially rates on businesses and top income earners (you know, the people who actually employ the rest of us), so that we can see employers continue to shed jobs and move operations overseas where they don't have to deal with the taxes and regulations.
This is where Einstein's definition of insanity comes into play,
Insanity is doing the same thing over and over and over again, and expecting the result to be different."
The lesson of history is that Keynesian economic policies don't work. You cannot tax and spend yourself out of an economic slowdown. To revive an economy, you need good, private sector jobs. You need jobs that are a net credit to the economy, not a net debit, as public sector spending on works programs invariably are. You need companies to be able to hire people people who can then spend their money buying products that will then cause businesses to make profits, and expand their operations to meet greater demand, in turn hiring more employees. Companies can't do this unless they have the money available to pay more workers money that isn't taken in taxes or wasted on meeting oftentimes useless and counterproductive regulations.
Keynesianism failed in the 1930s. There is no reason to think it will succeed in this decade, either. There was a great deal of kerfluffle made a while back when Rush Limbaugh said he wanted Obama to fail. Well, it doesn't really matter whether Limbaugh wants this or not it will happen, because Obama is making the same foolish mistakes that prolonged the Great Depression. Sure, America may eventually recover, but Obama's policies could end up making sure this happens in 2015 instead of 2010. There is no reason to think that the Neo-Keynesianism being pushed in Washington will work any better. Indeed, Neo-Keynesianism is what got us into this mess in the first place, and it has singulary failed to get us out, even after months of emergency, imperative deficit spending. Since Obama was elected, layoffs have accelerated, business profitability continues to languish in the doldrums, and the stock market (despite the current bear market rally) has continued to shed asset value.
Those who fail to learn the lessons of history will be doomed to repeat the mistakes of those who came before them. Maybe Obama should spend more time reading some history, and less time reading Hugo Chavez's book.
Eisenhower, Nixon, Ford, Bush I, Bush II... EVERY RINO president was followed by a Democrat. Reagan was the only Republican since the Great Depression who was so popular that the GOP stayed in power.
You mean like electing ‘Dimocrats’ over and over again?
Yes, Socialism only spreads the misery around to all it touches.
So what was Einstein’s definition of insanity? I must have missed it in the first three paragraphs. Did he have a definition of ramble?
Doing the same thing over and over again, and expecting a different result.
It's down a ways. You have to read through to get to it. Sorry, this isn't a microwave article.
Just change the name and you have exactly what is happening today.
Good article. FWIW I read the whole thing. That! in spite of the fact that I already knew Einstein’s definition of insanity.
It has never been sourced to Einstein.
Given that Einstein had a son who was seriously mentally ill, which saddened Einstein greatly, it is very doubtful he would have cracked off a flippant soundbite like this one about such a subject.