Friday, January 23, 2009

Making the Economy Worse

By Alan Caruba

Watching the former Bush administration and now the Obama administration try to deal with the worsening economy is like watching old newsreels of the Roosevelt administration announcing its many experimental programs—the New Deal—between 1933 and the start of World War II in 1941.

The Great Depression began with the crash on Wall Street in 1929. Herbert Hoover struggled with the impact this had and, when he was unable to deal with it, Franklin D. Roosevelt was elected. A charming man with an eloquent speaking style, FDR mesmerized Americans with his fireside chats and stirring speeches, but he surrounded himself with a bunch of academics who had no more idea how to solve the growing loss of jobs and related problems than he did.

FDR had never run a business, had invested in a number of ventures that all failed, and was, for his entire life, on an allowance from his mother who tended the family wealth. He was a spoiled rich kid and indifferent student with the time and money to engage in politics where competence is not always high on the list of a candidate’s attributes.

President Barack Obama was certainly not a rich kid, but thanks to his grandparents he was able to attend an exclusive school in Hawaii and by means of support that is impressively vague, went on to attend Columbia University and Harvard. A lawyer and community organizer, Obama like FDR, has never run a business, met a payroll, had to make a profit, et cetera. He chose politics as his profession and, like FDR, appears to be quite good at it.

Politics, however, is not business. It doesn’t rely on making a profit and it doesn’t seem to matter if huge debts occur as the result of an imbalance between imports and exports, so-called “entitlement:” payments, or even if taxes actually impede growth instead of stimulating it.

Making its way through Congress is a huge $825 billion so-called “stimulus” bill that has no more relationship to stimulating the economy than my computer has to a parking meter. It is pork, pork, and more pork.

It will spend an insane amount of money on projects that are totally unrelated to the real problem, a breakdown of credit liquidity. Until the banks begin to make loans again of the type that facilitate the operation of businesses large and small, nothing Congress does will affect the economy, except probably to make things worse.

A group of elite politicians, Congress and the White House will feel compelled to “do something” when they actually should do as little as possible. We have already seen billions disappear into a black hole of bailouts. Why would we continue that practice without some restraints, transparency, and accountability? Why, in fact, continue to do that at all?

Some bankers are acting like greedy, heedless pigs which is, of course, what they normally get paid to do. Whatever prudent behavior we normally associate with bankers, hedge fund managers, and financial advisers seems to have been jettisoned long ago.

After studying the Roosevelt years, two UCLA economists concluded that it dragged on for a dozen years after 1929 because New Deal policies virtually ensured that the economy would be paralyzed.

In an article in the August issue of the Journal of Political Economy, Harold l. Cole and Lee. E. Ohanian blamed anti-competition and pro-labor measures that FDR signed into law on June 16, 1933.

“President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,” said Cole. The result was a law that allowed businesses in every industry to collude to set prices and workers to demand salaries above what they should have been, given market forces. People were sent to jail for offering their products or services for less than the amount set.

Excise taxes on all manner of things sucked money out of the pockets of the poor and middle class.

What does this tell us today? It tells us that government, the cause of the present financial crisis (as the result of mortgage loan practices it required) should get out of the way of the business and financial community except to purchase the bad loans, allowing banks to clear their books, and get back to normal lending practices.

The economy will get worse and, in time, people are going to look at the White House and blame it and Congress for the great troubles so many people will encounter.

Why do I keep thinking that the successful businessman and governor, Mitt Romney, is beginning to look very good right about now?


libertyforusa said...

I believe the only compelling reason to do anything by those now "in charge" is done solely for votes.
If Obama follows through on his expressed policies, this recession will certainly become a depression and spread world wide. Based on his early executive orders, he intends to do just that, despite any negative effects!

mikiwud said...

Just a friendly dig, WW11 started in 1939 for the rest of us and the USA joined in our fun and games in 1941. I don't know, but I would have thought the US recovery would have started then and would have been improving by Dec 7 1941, as you prepared for the inevitable.I may be wrong.(probably am!)

Alan Caruba said...

Yes, the war did start in Europe in 1939 with the invasion of Poland by Germany, but many in the US resisted getting involved until the Japanese attack on Pearl Harbor in 1941. Then Congress declared war on both Japan and Germany. It was, by the way, the last time Congress formally issued a declaration of war.

Guy said...

Again, I find it impossible to believe that both of these administrations, and the whole of congress can't understand the simple concept of capitalism. Hundreds of writers, talk show hosts, economists, and everyday hacks like myself are fully aware of what needs to be done to stop this tailspin we're in, yet with each passing day, these morons act as if they're clueless. So, we have to ask the question "why are they pursuing this course?", and as usual, the answer can be found by simply following the money. Nobody in government profits when your business or my business is successful. Yes, there would be the inevitable increase in tax revenue and overall economic well being down the road, but that takes years, and these crooks are looking to profit NOW. What better way to get FILTHY RICH than to tap DIRECTLY into the billions of taxpayer dollars at their disposal? Why wait for us to profit, and then pay our taxes, and THEN tap into those dollars when they can steal them right now, feed their OWN businesses and interests, and profit exponentially in the same time period? In the coming years, we're going to hear hundreds of stories about how this bailout money has been traced to this politician or that politician, through pork barrel contracts, sneaky land deals, and the usual graft and corruption. And of the small percentage we find out about, 90% of them will already be out of office, will have already hidden most of the money, and will have left us holding the bag. These people would have us believe that they love this country, and have it's best interests in mind, but that HAS to be a lie, or else they would be doing what we all know needs to be done. Money is power, and if you look at what happened to the richest people in this country who had control over the bulk of the money during the depression, they all came out of it smelling like a rose, after buying up everything they could get their hands on at fire sale prices. I have a strong feeling that we are about to see history repeat itself ....

Bluegrass Pundit said...

Bill Gates throws Americans under the bus

Hard economic times are forcing job cuts at many businesses. Most Americans understand that; even if they deplore it. This economic downturn has even hit Microsoft. They are downsizing 5000 jobs. Of the 1400 they cut immediately, 873 were in the Puget Sound area where the company is headquartered. None of the cuts are going to be in India.