What do Fannie Mae, Social Security and the SEC have in common?
I mean, other than the fact that all three are obviously at the heart of our current economic woes. Sure, Fannie Mae used its implicit government backing to legitimize hundreds of billions in bad loans, the SEC provided an air of legitimacy to operations like Bernie Madoff’s, and some US$40 trillion in Social Security obligations hang over America’s head like some financial Sword of Damocles. But there’s something else they all share in common…
All three are creations of the original New Deal…you know, the one that helped us “get out of the Great Depression.” So with just a few days left before Obama takes office and begins a whirlwind of tax-fueled stimulus projects, perhaps we should look back and ask that taboo question; did the New Deal really work?
It’s taboo because of Americans’ short memory. According to Salon.com’s David Sirota, it’s ‘common knowledge’ amongst any and all educated professionals that the New Deal worked swimmingly. According to Sirota, the argument is a cheap front used by Republicans and the right-leaning members of Congress to block Obama’s planned stimulus. He cites Newsweek’s Daniel Gross, “One would be very hard-pressed to find a serious professional historian who believes that the New Deal prolonged the Depression.”
Hmm…really, Daniel?
How about this one: “only about half of the economists and three quarters of the historians disagreed fully with the statement that the New Deal lengthened and deepened the Great Depression.” That’s from a 1998 survey of history textbooks. So with some obvious disagreement between real academics and the mainstream media, let’s dig in to either side and see whose arguments really hold water.
New Deal supporters offer a relatively simple argument for why the programs worked. With the economy in shambles, investors weren’t investing and industry was slowing to a crawl. So instead of waiting for the market to bring those dollars out into circulation, FDR ramped up vice taxes and started some aggressive deficit spending. He started outlandish projects – from the memorable Hoover Dam to the gladly forgettable Agricultural Adjustment Acts – and had the government step in to fill the void in the marketplace left behind by private investors and entrepenuers.
And in doing so, he saved us from something that could’ve been much worse. Or did he?
A public opinion poll conducted in 1939 showed that 65% of business executives believed that Roosevelt’s New Deal policies had so affected business confidence that recovery had been seriously delayed. Indeed, you can even count the legendary John Maynard Keynes into this camp, “Keynes repeatedly criticized FDR for discouraging private business investment with his taxes, regulations and overheated rhetoric.”
Why did they disagree with the New Deal? For various reasons, not the least of which being a disdain for government interference in private enterprise. Without the rigorous forces of competition and the careful assessment of risk & cost that you find in the marketplace, the government’s policies were notoriously disruptive and inherently wasteful.
The best example would be the aforementioned Agricultural Adjustment Act. With the goal of increasing food prices, the AAA laid waste to over 10 million acres of crops and slaughtered 6 million pigs. The result? Famine deepened and became even more widespread.
And with the government rampaging about like an elephant on roller skates, it can be very hard to feel safe in the marketplace. Amid the allegations that these policies were fascist or even communist in nature, one can’t deny that the market wasn’t a safe place for investors. After all, what’s the real difference between FDR’s gold confiscation and Venezuela’s confiscation of the oil industry? Sure, they may be different in scale and scope, but they communicate the same message to businesses and corporations; this place is not safe enough for my money.
But aside from how the investors felt back then…in the long-term, didn’t the New Deal end the Depression?
Again, that’s a pretty romantic take on it. The cynical observer would point to the fact that unemployment persisted throughout the whole of the 1930’s – averaging 17% on the decade. After that, we spent the first half of the 1940’s annihilating the rest of the world’s industrial base (Germany, Japan) and then we muscled the entire globe into using our currency as a reserve.
And perhaps most importantly, the New Deal “ended” the Great Depression with the help of a few major economic distortions…like Fannie Mae and Freddie Mac. Over the course of the last several decades, these and other programs have created a towering balance of malinvestment and a worldwide disruption of wealth that helped plant the seed for today’s economic carnage.
So before we dive headfirst into the biggest fiscal deficit in the history of governing people, perhaps we should question “common knowledge” and ask about the potential consequences of such lavish government spending. After all, we’ll already be passing along over US$50 trillion in national debt and Social Security obligations to the next generation. Perhaps that’s enough.
I mean, other than the fact that all three are obviously at the heart of our current economic woes. Sure, Fannie Mae used its implicit government backing to legitimize hundreds of billions in bad loans, the SEC provided an air of legitimacy to operations like Bernie Madoff’s, and some US$40 trillion in Social Security obligations hang over America’s head like some financial Sword of Damocles. But there’s something else they all share in common…
All three are creations of the original New Deal…you know, the one that helped us “get out of the Great Depression.” So with just a few days left before Obama takes office and begins a whirlwind of tax-fueled stimulus projects, perhaps we should look back and ask that taboo question; did the New Deal really work?
It’s taboo because of Americans’ short memory. According to Salon.com’s David Sirota, it’s ‘common knowledge’ amongst any and all educated professionals that the New Deal worked swimmingly. According to Sirota, the argument is a cheap front used by Republicans and the right-leaning members of Congress to block Obama’s planned stimulus. He cites Newsweek’s Daniel Gross, “One would be very hard-pressed to find a serious professional historian who believes that the New Deal prolonged the Depression.”
Hmm…really, Daniel?
How about this one: “only about half of the economists and three quarters of the historians disagreed fully with the statement that the New Deal lengthened and deepened the Great Depression.” That’s from a 1998 survey of history textbooks. So with some obvious disagreement between real academics and the mainstream media, let’s dig in to either side and see whose arguments really hold water.
New Deal supporters offer a relatively simple argument for why the programs worked. With the economy in shambles, investors weren’t investing and industry was slowing to a crawl. So instead of waiting for the market to bring those dollars out into circulation, FDR ramped up vice taxes and started some aggressive deficit spending. He started outlandish projects – from the memorable Hoover Dam to the gladly forgettable Agricultural Adjustment Acts – and had the government step in to fill the void in the marketplace left behind by private investors and entrepenuers.
And in doing so, he saved us from something that could’ve been much worse. Or did he?
A public opinion poll conducted in 1939 showed that 65% of business executives believed that Roosevelt’s New Deal policies had so affected business confidence that recovery had been seriously delayed. Indeed, you can even count the legendary John Maynard Keynes into this camp, “Keynes repeatedly criticized FDR for discouraging private business investment with his taxes, regulations and overheated rhetoric.”
Why did they disagree with the New Deal? For various reasons, not the least of which being a disdain for government interference in private enterprise. Without the rigorous forces of competition and the careful assessment of risk & cost that you find in the marketplace, the government’s policies were notoriously disruptive and inherently wasteful.
The best example would be the aforementioned Agricultural Adjustment Act. With the goal of increasing food prices, the AAA laid waste to over 10 million acres of crops and slaughtered 6 million pigs. The result? Famine deepened and became even more widespread.
And with the government rampaging about like an elephant on roller skates, it can be very hard to feel safe in the marketplace. Amid the allegations that these policies were fascist or even communist in nature, one can’t deny that the market wasn’t a safe place for investors. After all, what’s the real difference between FDR’s gold confiscation and Venezuela’s confiscation of the oil industry? Sure, they may be different in scale and scope, but they communicate the same message to businesses and corporations; this place is not safe enough for my money.
But aside from how the investors felt back then…in the long-term, didn’t the New Deal end the Depression?
Again, that’s a pretty romantic take on it. The cynical observer would point to the fact that unemployment persisted throughout the whole of the 1930’s – averaging 17% on the decade. After that, we spent the first half of the 1940’s annihilating the rest of the world’s industrial base (Germany, Japan) and then we muscled the entire globe into using our currency as a reserve.
And perhaps most importantly, the New Deal “ended” the Great Depression with the help of a few major economic distortions…like Fannie Mae and Freddie Mac. Over the course of the last several decades, these and other programs have created a towering balance of malinvestment and a worldwide disruption of wealth that helped plant the seed for today’s economic carnage.
So before we dive headfirst into the biggest fiscal deficit in the history of governing people, perhaps we should question “common knowledge” and ask about the potential consequences of such lavish government spending. After all, we’ll already be passing along over US$50 trillion in national debt and Social Security obligations to the next generation. Perhaps that’s enough.
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