PrintSeptember 7, 2011
Repeating FDR's mistakes
The liberal story line is that the recent recession and anemic recovery is different from previous economic downturns. It is claimed that a "different type" of recession drives a slow and weak recovery, just like the great depression. The liberal soothsayers claim that this type of economic downturn requires the government to keep spending or we're all doomed.
The liberal narrative fits quite nicely into the leftist political view of the world, more government, more government spending, and more government control. The problem with the narrative is that it ignores the facts. Massive government spending hasn't helped us now and massive government spending did not get us out of the great depression. In fact, government interference in the marketplace and New Deal policies extended the depression by seven years and hurt millions.
Our current administration's response to economic events of today is very much the same as the FDR's New Deal was 76 years ago and we should not expect different results. FDR heavily favored unions and ignored years of constitutional law when pushing through the National Recovery Act (NRA), a corner stone of New Deal policies. The National Recovery Act actually threw out decades of anti-trust law and allowed heavily unionized industries to collude to keep prices high and unionized labor paid well (and many unemployed). While the NRA was found unconstitutional in 1935, unions were still provided increased protection and power through the National Labor Relations Act, passed the same year. The granting of unprecedented power to unions and the strikes that ensured led directly to the 1937 economic downturn.
One of the first acts of the Obama administration was a government sponsored re-organization of two of the big three automakers. During the "bailout" the Obama administration ignored the rule of law, denying secured-bond holders their property rights, while providing political allies in the UAW an unprecedented windfall. When some of those bond holders cried foul the President publicly castigated them and portrayed them as anti-american villains. Untold billions of capital were sidelined by this one action alone. What sane person would invest when the rules of that investment could be rewritten for political expediency?
Both FDR and Obama increased the tax and regulatory burden of doing business. FDR referred to the "excessive profit" that companies earned and instituted tax policies that were confiscatory. FDR's policies favored the large well established companies and helped to keep competition to a bare minimum. In practice these policies destroyed any incentive people had to get into business, or to expand their businesses. Today Obama mimics these same policies and attitudes from his "you've made enough money" speech to the EPA imposition of regulations that will shutdown nearly 10 percent of our current power production in the US. From healthcare to the EPA the Obama administration equals FDR for job killing regulation.
Nefarious creations dreamed up during FDR's time in office are still haunting and hurting our economy today. For example, Fannie Mae the government-sponsored enterprise (GSE) at the epicenter of the housing meltdown was created as part of the New Deal in 1938. The National Labor Relations Act signed by FDR in 1935 is the reason we have the National Labor Relations Board. The National Labor Relations Board recently filed a complaint against Boeing for daring to build a plant in a right to work state. Like FDR before him, Obama's use of regulators and regulation is sidelining capital and preventing companies from being competitive. The result of an environment where companies aren't permitted to be competitive is stagnation and job loss.
We aren't witnessing a different type of recession, we're witnessing the same type of government action that leads to frozen capital and economic stagnation. We are witnessing a repeat of government hubris and failure. When anyone insists that the economy needs more government spending, remind them how it worked out last time - 7 extra years of suffering.
