Don’t We Ever Learn?

Posted by Larry Miller on May 19, 2010 under How | Be the First to Comment

herberthooverHere is a quote to consider:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action… No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times.

Sounds like something coming out of the White House, Congress or the Treasury Department during the waning days of the Bush Administration. If you close your eyes, you can most likely imagine the words spilling from the mouth of Hank Paulsen. You would be wrong! They came from Herbert Hoover during his 1932 presidential campaign. They did not get Hoover re-elected.

His Republican administration was replaced with a Democratic regime… as was George W Bush’s. Like Bush’s successor, Hoover’s built on his profligate spending, using it as a spring board to further governmental excesses and intrusion into the citizen’s lives. What followed the Hoover-Roosevelt economic fiasco was a depression on a scale never before seen in the United States. What catastrophes await our great nation under the hostile hand of a man who is still a community organizer at heart, agitating for redistributionist schemes, only time will tell.

The fact is that despite all the machinations of the progressives from both parties, the Great Depression went on and on and on… only moderated by World War II until it came to an end when the returning GIs built the world at home they fought to save. More accurately, it would be said that because of all the, hopefully, well intentioned efforts of these progressives, the Great Depression extended, what seemed to be indefinitely. Why is this?

Books have been written on this subject… few with the insights of Murray Rothbard when he wrote America’s Great Depression. Most people believe that the 1920s were a time of stability and prosperity, that the prosperity of the time was the norm, and the glitch in the system came when the market came tumbling down. The reality is that the period was actually an inflationary period, even though prices remained stable, only because of the productivity gains roughly compensated for the damage done by the artificially increased money supply.

This was a time of expanding influence of labor… expanding money supply and expanding government efforts to achieve permanent prosperity. It was a time when money was pumped into the system beyond the system’s ability to handle it efficiently and wisely. Money was invested that would not have been under normal circumstances. Politically connected businesses prospered as costs fell and prices held steady. It was a time of inflation, but hardly anyone noticed. The result was the inevitable implosion of a system built upon the fantasy that government inspired expanding money supply combined with artificially low interest rates could provide better results than people who actually knew something about business.

Rothbard explains that every effort to contain the economic holocaust had exactly the opposite effect. Instead of easing the plight of the land, every step took the country further and further toward economic collapse. He goes further by illustrating how counterproductive government spending actually is by diverting funds from individuals whose spending will actually stimulate the economy far more effectively, while the attendant higher taxation absorbs capital that is needed by businesses to expand operations and higher workers.

He describes the solution this way:

Only if there is no interference, direct or threatened, with prices, wage rates, and business liquidation will the necessary adjustment proceed with smooth dispatch. Any propping up of shaky positions postpones liquidation and aggravate unsound conditions. Propping up wage rates creates mass unemployment, and bolstering prices perpetuates and creates unsold surpluses. Moreover, a drastic cut in government budget – both in taxes and expenditures – will of itself speed adjustment by changing social choice toward more saving and investment relative to consumption. For government spending, whatever the label attached to it, is solely consumption; any cut in the budget therefore raises the investment-consumption ratio in the economy and allows more rapid validation of originally wasteful and loss-yielding projects. Hence, the proper injunction to government in a depression is cut the budget and leave the economy strictly alone. Currently fashionable economic thought considers such a dictum hopelessly outdated; instead, it has more substantial backing now in economic law than it did during the nineteenth century.

Considering the similarity between government efforts to stop the depression and the steps taken and philosophy of the Obama regime, there is little to make us believe that the results would be any different. All we can do is remember what George Santayana told us, “Those who cannot remember the past are condemned to repeat it.”

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