On Monday and Tuesday, this column and my other one will be roughly the same. Starting on Wednesday, this column will differ from the other. I hope you'll continue to visit both.
Amity Shlaes' book about the Depression (The Forgotten Man: A New History of the Great Depression) talks a great deal about the real strengths -- and the real weaknesses -- of Presidents Herbert Hoover and Franklin Delano Roosevelt.
The big question she faces is: Why on earth did the Depression last so long (from 1929-1940)? The answer is that, first Hoover, and then Roosevelt, pursued policies that made a sustained recovery impossible. Roosevelt cultivated groups, such as consumers, who had many votes and scapegoated producers, who had few votes. He looked at voters not as individuals but rather as members of groups, a Democratic tendency that continues to the present day.
Regarding Franklin Roosevelt, Shlaes reminds us that very rich man gained his wealth from inheritance. He was not in any sense a self-made man. Frankly, he knew less about business than most people who put in a stint at 7/11 or Burger King. Hoover wasn't much better, believing that a balanced budget would cure all economic woes.
Why is what Amity Shlaes says important? BECAUSE OBAMA IS MAKING THE SAME MISTAKES THAT PROLONGED THE DEPRESSION. Shlaes says:
". . . The biggest problem was the intervention, the lack of faith in the marketplace. Government management of the late 1920s and 1930s hurt the economy. Both Hoover and Roosevelt misstepped in a number of ways.
"Hoover ordered wages up when they wanted to go down [because of deflation, which is what we have now]. He allowed a disastrous tariff, Smoot-Hawley [think: "buy American"], to become law when he should have had the sense to block it. He raised taxes when neither citizens individually nor the economy as a whole could afford the change. After 1932, [many nations, including Japan, Sweden, Greece, Denmark, and others] began seeing industrial production levels rise again -- but not the United States.
"Roosevelt's errors . . . were equally devastating. He created regulatory, aid, and relief agencies based on the premise that recovery could only be achieved through large, military-style efforts . . . [Some] new institutions, such as the National Recovery Administration [NRA], did damage. The NRA . . . [over-relied on] price-setting. NRA rules were so stringent they perversely hurt business. They frightened away capital, and they discouraged business from hiring workers. Another problem was that the laws . . . were so broad that no one knew how they would be interpreted. The resulting hesitation in itself arrested growth.
"Where the private sector could help to bring the economy back -- in the area of [electric] utilities, for example -- Roosevelt and his New Dealers often suppressed it . . . . [As a result of Roosevelt's intimidation tactics] business decided to wait Roosevelt out, hold onto their cash, and invest it in future years. Yet Roosevelt retaliated by introducing a tax -- the undistributed profits tax -- to press the money out of them.
"Such forays prevented recovery and took the country into the depression within the Depression of 1937 and 1938 . . . . The high [union] wages [for some] made possible by New Deal legislation helped those workers who earned them. But the inflexibility of those wages also prevented companies from hiring additional workers. Hence the persistent shortage of jobs in the latter part of the 1930s . . . . Fear froze the economy, but that uncertainty itself might have a cost was something the young experimenters [of the New Deal] simply did not consider.
"Roosevelt's move[s overall were] so profound that they changed the English language. Before the 1930s, the world 'liberal' stood for the individual; afterward, the phrase increasingly stood for groups."
Tomorrow on my blogs, I'll talk about how Obama has turned out to be someone who doesn't know or understand economic history and thus seems hell-bent on repeating it. Like Hoover and FDR, he doesn't understand business -- how could he? -- and so he's advancing policies, especially in taxes, that make it impossible for private enterprise, especially small businesses, to create a sufficient number of jobs. That's not his intention, of course, but neither was it the intention of Hoover and Roosevelt.
How does Sarah Palin fit into this discussion? Unlike Obama, she doesn't believe government is the solution to all our problems. She recognizes that while government might create jobs on a temporary basis, the creation of wealth -- and of economic growth -- depends on the private sector. She recognizes that if the producers fail, consumers cannot succeed. She understands that if supplies decline, prices invariably shoot up. Finally, she's aware that just printing money generates short term gains . . . and long-term pains. If Obama knows any of these things, he now acts as if he doesn't.