Tuesday, August 23, 2011

We’re doing the same things, and
expecting to get different results

Commentary by James H. Shott




On November 4, 2008, the day Barack Obama was elected President of the United States, Andrew B. Wilson presented five myths about the ten years of the Great Depression in an article for The Wall Street Journal, dispelling each in turn.

One of the myths he discussed is that Herbert Hoover, who was president of the U.S. from 1928-1932, was a laissez-faire, free market advocate. If only that had been true.

On the contrary, President Hoover ardently supported government intervention to solve economic problems, promoting make-work projects like the San Francisco Bay Bridge, the Los Angeles Aqueduct, and the Hoover (Boulder) Dam. He also had a bad habit of interfering in the natural flow of the business cycle, and increased both government spending and deficits during his term. Mr. Hoover gets credit for engineering the biggest increase in federal spending ever recorded during peacetime.

A second myth is that the 1929 stock market crash caused the Great Depression. The market crash was a substantial financial disruption, but it was not what caused the Depression. The reaction to the crash actually threw the country into depression, Mr. Wilson states. “What the crash mainly precipitated was a raft of wrongheaded policies that did major damage to the economy – beginning with the disastrous retreat into protectionism marked by the passage of the Smoot-Hawley tariff, which … was signed into law by Hoover in June 1930.” Smoot-Hawley was, in fact, the result of Mr. Hoover’s tinkering with agricultural policies.

“Hoover's disastrous agricultural policies involved the know-it-all Hoover acting as his own agriculture secretary and in fact writing the original Agricultural Marketing Act that evolved into Smoot-Hawley,” Mr. Wilson wrote. “While exports accounted for 7% of U.S. GDP in 1929, trade accounted for about one-third of U.S. farm income. The loss of export markets caused by Smoot-Hawley devastated the agricultural sector.”

Mr. Wilson also shatters the myth that greed caused the market crash by demonstrating how easy credit and the market speculation spawned by that foolish government policy caused the crash.

What remains after reading Mr. Wilson’s analysis is the realization that too much government intervention in the private sector drove the country into depression, and that it is as destructive today as it was in the 1930s.

He wraps up his myth-busting with this: “the Hoover and Roosevelt administrations – in disregarding market signals at every turn – were jointly responsible for turning a panic into the worst depression of modern times. As late as 1938, after almost a decade of governmental ‘pump priming,’ almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation. But that was not an even trade-off. As the root cause of a great deal of mismanagement and inefficiency, government was responsible for a lost decade of economic growth.”

Like today, the press of the Depression years and thereafter served as a willing accomplice for the big government faction of American politics. And Mr. Wilson concludes his article of Election Day 2008 with this: “With the vitality of U.S. and world economies at stake, it is essential that the decisions of the coming months are shaped by the right lessons – not the myths – of the Great Depression.”

Good advice, but unfortunately unheeded.

Many people believe that Herbert Hoover acted properly trying to prevent the Great Depression, but they are wrong. And many Americans believe that Barack Obama is acting properly to fix the economy. They, too, are wrong.

National GDP had bottomed out and was on its way to positive territory when Mr. Obama took office, but leveled out below 4 percent near the end of 2010, then began falling and is today about 1 percent.

Less than a month after his swearing in, the president signed into law a so-called stimulus bill spending $787 billion to fund “shovel-ready” projects and investments in health care, infrastructure, energy, education and, most importantly, job creation.

It didn’t work. Instead of stimulating jobs, unemployment rose, and a couple of months ago Mr. Obama came clean with the American people about jobs not being as shovel-ready “as we thought.”

Rather than create a better business environment Congress jammed ObamaCare through, making employers too nervous to create jobs. And two rounds of creating phantom dollars have failed to stimulate economic activity.

The administration banned oil drilling in the Gulf of Mexico after the BP disaster, and the ban continues today, de facto, keeping thousands unemployed. The EPA persists in taking actions that kill jobs and raise costs, ostensibly to clean our air, which today is cleaner than it’s been in a century, all at a time when Americans are suffering terribly.

We are still waiting for Recovery Summer 2010, and the promised upper unemployment limit of 8 percent was breached the month after Mr. Obama took office, and has remained above 9 percent ever since. The national debt is virtually double what it was when he was elected, and the country is on the brink of a double-dip recession, or worse.

The evidence is compelling: We have elected as the 44th President of the United States, Barack Hoover Obama.

Cross-posted from Observations

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