Posted by
mlutko on Saturday, March 28, 2009 8:48:20 PM
President Obama has frequently argued
that America is facing the worst economic crisis since the Great Depression,
even though the more logical statement is that America is facing the worst economic
crisis since the Carter Administration. It is also important for Americans to understand the implications
of the actions of the federal government during the 1930s. In the words of the late historian,
George Santayana, “Those who cannot
remember the past are condemned
to repeat it.” Unfortunately, the
Obama administration is pursuing the same economic policies of Herbert Hoover
and of Franklin Roosevelt that prolonged the Depression.
The conventional historical interpretation of the period
is that Herbert Hoover’s “laissez-faire” policies led to the collapse of the economy and that
government intervention, in addition to economic recovery programs (often
referred to as the “New Deal”), rescued America. Neither of these assertions is correct because Hoover
actively intervened into the economy and because Roosevelt’s policies
ultimately exacerbated the Depression.
The recession that resulted from the 1929 Stock
Market Crash did not become a depression until Hoover signed into law the
Smoot-Hawley Tariff, which substantially raised the tariffs on many goods that
were imported into the United States.
An atmosphere of global protectionism and trade wars was created as
foreign countries responded with retaliatory tariffs. As global trade stalled, a worldwide depression ensued. Hoover worsened the economic situation
in the US by signing the Revenue Act of 1932, which doubled income taxes on
many Americans. He also doled out substantial government subsidies to farmers
and businesses.1 One of Roosevelt’s top aides, Rexford Tugwell, went
on to claim in 1974 that, "practically the whole New Deal was extrapolated from
programs that Hoover started."2
Although
Roosevelt’s government programs were well-intentioned, the New Deal ensured the
continuation of the economic crisis by discouraging investment, stunting job
growth, and creating additional economic hardships for the American
people. From 1933 to 1936,
Roosevelt increased government spending by 83%. Even though Hoover recklessly
increased income taxes on the upper class from 24% to 63%, Roosevelt decided to
push taxes even higher by increasing the rate to a 79% tax on the income of the
wealthiest Americans.1 Unbelievably high taxes on personal and corporate
income, as well as on “excess profits,” removed any incentive for private
investment or the creation of capital during these years.
The New Deal did not revive the economy, as evident
by the average of 17% unemployment during the 1930s and by the further slowdown
in 1937, which amounted to a depression within a depression.3 It was
not until the early 1940s, that World War II and sound monetary policy rescued
America.
It
is frightening that the Obama Administration is making these same mistakes as
Hoover and Roosevelt. President
Obama wants to punish companies that send jobs overseas and to raise taxes on
the wealthy. He has already signed a trillion-dollar “Stimulus” Bill with a
“buy American” clause. In
addition, he supported a budget that burdens the middle class with a hidden
energy tax. Yet, protectionism, tax hikes, and government spending are
precisely what worsened the Depression.
Capitalism is often wrongly accused of igniting the
Depression when the underlying cause was actually government actions. However, history has shown that the
combination of liberalizing trade, lowering taxes, reducing government
spending, and encouraging private investment is the recipe for economic
growth. During this financial crisis,
America must heed Santayana’s warning and not pursue policies that failed in
the past.
Sources:
1. Reed,
Lawrence. “ Great Myths of the Great Depression.” Mackinac Center for Public
Policy 2005.
< http://www.mackinac.org/archives/1998/sp1998-01.pdf>
2. Hoff, Joan. Herbert Hoover, Forgotten Progressive.
Library of American biography. Boston: Little, Brown, 1975.
3.
Powell, Jim. “FDR’s Folly:
How Franklin D. Roosevelt and His New Deal Prolonged the Great Depression?(Crown Forum, 2003).” Video. The
Cato Institute. 3 December 2003.
< http://www.cato.org/event.php?eventid=592 >