LIBERTY POST

Do We Really Want Another New Deal?
New Deal nostalgics forget the elements of Roosevelt’s program that were frankly absurd and economically ruinous.

By Rich Lowry

Barack Obama’s lefty admirers are agitating for a new New Deal. We’ll know that we’ve achieved that blessed state when the government destroys 6 million baby pigs—turning many of them into grease and fertilizer (anything but food)—to prop up the price of pork. Or when it plows under a quarter of the South’s cotton and slaughters pregnant cows.

American agricultural policy remains perverse to this day, but nobody is calling for the willy-nilly destruction of American crops and livestock as a means of checking deflation and fostering economic recovery. New Deal nostalgics forget all the elements of Franklin Roosevelt’s program that were frankly absurd and economically ruinous.

Should we want Obama to propose a quasi-militaristic program to empower business cartels to set prices, on the model of FDR’s National Recovery Administration? Should he take his cue from FDR and prosecute businesses that discount their products, giving strapped consumers a break? Should he triple taxes, hiking excise taxes on common consumer goods and imposing an entirely new payroll tax on employment? Should he crib from FDR’s speeches and demonize business and investors? Should he create government make-work jobs and pay people to clear trails in the national parks and unemployed artists to paint murals in post offices?

The New Deal has been much discussed lately as the country has plunged into its worst financial crisis since the 1930s. And an amazing event has occurred: The Left has admitted that the New Deal in fact did not—as all Americans learned in their schoolbooks—end the Great Depression. For the longest time, the New Deal coasted on a glorious reputation that shielded it from its record. As Mark Twain remarked, “Once a man acquires a reputation as an early riser, he can start sleeping until noon every day.”

In 1938, the unemployment rate was back to 19 percent, as the country swooned into “the depression within the depression.” FDR’s advocates say the problem was that, after economic gains, he pulled back too soon on his program of deficit spending. As Jim Powell, author of FDR’s Folly, points out, this concedes that FDR had failed to foster a business climate strong enough for recovery. (Have any of Obama’s boosters noticed, by the way, that a program of massive deficit spending that will be quickly rolled up as soon as the economy begins to recover is exactly what Obama is proposing now?)

The worst mistake of the New Deal was keeping wages and prices artificially high, thus suppressing employment and consumer demand. UCLA economists Harold L. Cole and Lee E. Ohanian calculate that FDR’s pro-labor policies kept both wages and unemployment 25 percent above what they would have been otherwise. (The old saw was that the Depression wasn’t so bad—if you had a job.) “Salaries and prices fall when unemployment is high,” Ohanian has explained. “By artificially inflating both, the New Deal policies short-circuited the market’s self-correcting forces.”

Most analysts agree that World War II ended the Depression. The Left tries to appropriate the war for the New Deal by characterizing it as simply a public-works program writ large—as if global cataclysm, with millions killed, countries overrun by invading armies, and major cities reduced to rubble were just the thing we needed to get an economy moving again. During World War II, 12 million men were conscripted into the military, food was rationed, and people couldn’t buy consumer goods like cars and appliances. Suffice it to say, its utility as a model for economic recovery is quite limited.

FDR was a prodigious political talent, whose high spirits and well-chosen words inspired the public, and a man of great personal courage. He left his imprint forever on American government, for better or worse. He was an exceptional wartime leader. Much can be said in his favor—but he didn’t end the Great Depression. Barack Obama, take note.

Obama's Trojan Horse

by Ken Blackwell

Possible problems with President-elect Barack Obama’s economic stimulus plan must be thoroughly vetted. While only a few details are known, one overlooked issue is that it could create a major electoral advantage for Democrats at taxpayer expense. That would be unacceptable for what is being touted as a nonpartisan measure, and gives Republicans yet another reason to oppose it if not restructured.

President-elect Obama is constantly emphasizing the need for Congress to pass his stimulus plan. The details are vague. All that is certain at this point is that it is approximately one trillion dollars and Mr. Obama says it will create three million new jobs.

Government cannot create self-sustaining jobs. Government doesn’t create value; it takes it from us as taxes. While a government job involves work and earns a paycheck, every government job is a burden on the private sector because it takes money away from the people. While some of those jobs, such as military personnel or FBI agents, are essential for our nation, it’s no secret that government is full of countless bureaucratic and wasteful jobs that the private sector can better perform.

Indeed, massive government spending sometimes destroys more jobs than it creates. Every dollar the government takes in through taxes is a dollar taken out of circulation from the economy. It’s a dollar that does not go to your local restaurant, or hardware store, or movie theatre. When government spends massive sums financed through taxes, it can destroy more jobs in the private sector than it creates in the public sector.

The only other way to finance massive government spending is through simply printing more money. Government can do that; it controls the printing press. However, creating money out of thin air doesn’t create wealth. If the money supply rapidly expands while the amount of goods and services being produced declines (the definition of a recession, which America is in) the result is massive inflation. This inflation penalizes saving and investments and burdens long-term financial planning and capital formation, worsening the economic situation.

So whether it’s through massive taxes or massive injections of new money, a major spending bill entails consequences. And when this amount of money is at stake, the sheer size of it could make the consequences severe.

But what may be most objectionable with Mr. Obama’s plan is its potential for political mischief. The first such shenanigans come from earmarks. One of the proposed projects to receive this federal largesse is a museum on organized crime located in Nevada. Doesn’t Democrat Senate Majority Leader Harry Reid live in Nevada? Is that the kind of project that requires emergency federal funding? Is it irrelevant that Mr. Reid is facing a tough reelection next year?

Even if the earmark issue is somehow resolved, however, there is another issue that it seems no one is discussing.

A week ago, Senate Minority Leader Mitch McConnell, a Republican, mentioned Mr. Obama says his goal is for 80% of these three million jobs to be private-sector. That means, Senator McConnell continued, that 20% would be public-sector, meaning this bill would create 600,000 new federal government jobs. For comparison, Mr. McConnell noted this would be the size of the entire Postal Service workforce.

Once government creates a job, it rarely eliminates it. Government swells by nature, feeding on tax dollars taken away from private citizens and employers until it becomes a bloated, sprawling bureaucracy.

So if Mr. Obama creates 600,000 new government bureaucrats, those jobs should be expected to be kept around permanently, long after this economic crisis is resolved. After all, eliminating those jobs means laying off 600,000 people. Who wants to take responsibility for that?

But most federal employees, that are not political appointees, vote Democrat. Since Washington, DC is the seat of government, whenever new federal bureaucrats are created many live in Maryland and Virginia. In 2008, Virginia went Democrat for the first time since 1964, and Mr. Obama won it by 130,000 votes. Creating 600,000 new jobs might help cement Virginia in the Democrat column, making it harder for Republicans to retake the White House.

So this bill, as currently designed, has serious flaws, some of which convey a partisan advantage. These must be thoroughly discussed and understood, and any major legislation cannot be allowed to benefit one party in what must be a bipartisan solution.