Posted by Andrew Davis on Nov 24, 2008
"The 1930s recession became the Great Depression because policymakers didn’t take the necessary actions," said Democratic economic adviser Jared Bernstein in a recent Washington Post article. "Nobody wants to make that mistake this time around."
This comment from Bernstein summarizes the prevailing mood of the Obama administration as it looks to take over the reins in January. So, what does this mean for you, the taxpayer?
Unfortunately, more government spending.
Obama has just recently announced plans to spend at least $700 billion in order to stimulate the economy. This figure includes New Deal-styled programs that will explode the size of government, and dramatically add to the national debt—money that will be owed by generations to come.
Talk about redistributing the wealth!
Despite the obvious problems with government spending even more money when it should be cutting spending, Obama is projected to sign into law a new "Raw Deal" for the taxpayers within days of becoming president—if not even on the day he is inaugurated.
The justifications you will hear for this new spending all revolve around the "New Deal" policies of the Great Depression, so we thought you should know the truth about Obama’s "Raw Deal" and the myths behind what really pulled the U.S. out of the Great Depression.
Here’s a hint: It wasn’t FDR.
Like Democrats, "many people are looking back to the Great Depression and the New Deal for answers to our problems," says George Mason University Economics Professor Tyler Cowen. "But while we can learn important lessons from this period, they’re not always the ones taught in school."
What Cowen means is that the conventional wisdom of the Great Depression is absolutely wrong: Government spending did not save the economy. "In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression."
Harold L. Cole, an economist at UCLA, agrees with Cowen:
"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes. Ironically, our work shows that the recovery would have been very rapid had the government not intervened."
This is the danger we face with Obama and his "Raw Deal" for taxpayers. Instead of staying out of the economy and letting it work itself out, Obama is continuing the same policies as those of FDR and the Bush administration and spending taxpayer money that will have no positive results.
And it’s not just the spending we have to be worried about under an Obama administration; it is the regulatory policy that may come as a result of using capitalism as a scapegoat for the recent economic crisis.
"There is a familiar urge to restrict those who got us into this mess, but regulation is a nasty business—nasty because the law of unintended consequences is always there to show us how we got it wrong," says Thomas F. Cooley, the Richard R. West Dean Of New York University’s Stern School Of Business, and Lee Ohanian, an economics professor at UCLA. "The danger we face at this fork in the road is the conventional wisdom that associates more regulation with better regulation and more restrictive policies with less risk. History teaches us that the opposite is usually true and that the costs of getting it wrong can last for decades."
If Obama is to learn anything about the economy from the lessons of the Great Depression, let it be that government intervention is like sending a car mechanic to perform open-heart surgery. The complications that arise will have long-term, catastrophic effects.
What better example of this than Fannie Mae—a product of the New Deal that is now at the heart of today’s economic problems.
The Libertarian Party and our members have been saying this from Day 1 of the economic crisis (and for many, many years before): Government is not the answer.
Our solution? Less is more. That is, less government is more economic prosperity.
Essentially, get government out of the way so that the market can adjust. This path will not be without its bumps and hardships, but it’s best for the long-term economic stability of the nation. What would have taken three or four years to fix through the market will now take at least a decade because of government intervention.
In the coming days of financial woe, and the coming years of the Obama administration, remember the lessons of history and challenge those around you to avoid continuing the myths of government effectiveness, especially when it comes to economic policy.