Great Depression Redux: How Hoover x FDR = Obama

History is often like a demonic-deja-vu-all-over-again merry-go-round, with various ignorant or naive fools taking various nations on the same awful rides again and again. The same folly can bring down a thousand different generations, but there will always be someone who will float to the surface to bring that tally to one thousand and one.

Barack Obama is promising a “new” New Deal. And we are about to go on a ride we will deeply regret – like a motion sickness-prone grandmother finding herself on some colossal gravity-defying roller coaster.

Like the grandma and the roller coaster, we should have known better before we climbed aboard.

Here’s the current story, in the words of Stuart Varney of The Wall Street Journal:

I must be naive. I really thought the administration would welcome the return of bank bailout money. Some $340 million in TARP cash flowed back this week from four small banks in Louisiana, New York, Indiana and California. This isn’t much when we routinely talk in trillions, but clearly that money has not been wasted or otherwise sunk down Wall Street’s black hole. So why no cheering as the cash comes back?

My answer: The government wants to control the banks, just as it now controls GM and Chrysler, and will surely control the health industry in the not-too-distant future. Keeping them TARP-stuffed is the key to control. And for this intensely political president, mere influence is not enough. The White House wants to tell ’em what to do. Control. Direct. Command.

It is not for nothing that rage has been turned on those wicked financiers. The banks are at the core of the administration’s thrust: By managing the money, government can steer the whole economy even more firmly down the left fork in the road.

If the banks are forced to keep TARP cash — which was often forced on them in the first place — the Obama team can work its will on the financial system to unprecedented degree. That’s what’s happening right now….

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.

Think about it: If Rick Wagoner can be fired and compact cars can be mandated, why can’t a bank with a vault full of TARP money be told where to lend? And since politics drives this administration, why can’t special loans and terms be offered to favored constituents, favored industries, or even favored regions? Our prosperity has never been based on the political allocation of credit — until now.

To summarize, the banks can’t repay their government loan money for one very obvious reason: the government wants to maintain its control over the banks. And why does the government want to maintain its control? Because it wants to impose a political ideology onto the banks and force them into policies that either favor a liberal agenda or liberal constituencies.

Wow. Does that sound like anything that ever happened before?

Yep. In the late 1920s and throughout the 1930s.

There have been three credible causes cited to explain how Americans slid into the worst economic crisis ever: 1) The financial and social catastrophe that resulted from World War I, which among other things had the result of spiraling the US national debt from $1.3 billion to $24 billion in just three years; 2) The Smoot-Hawley Tariff Act, which was passed during 1929-30, that instituted the highest tariff ever in US history and created a trade war among our trading partners; 3) The incredibly poor performance of our Federal Reserve, which had been created in 1923 to prevent a depression by regulating interest rates and lending money to banks.

Dr. Burton Folsom, Jr. discussed Herbert Hoover’s role in causing the Great Depression:

Furthermore, Hoover’s response to the Great Depression was thoroughly repudiated. First, he supported and signed the Smoot-Hawley Tariff Act, which, as we have seen, was one of the [three] causes of the Great Depression. Roosevelt, by contrast, attacked that tariff repeatedly in his campaign and on that point his economic understanding was better than Hoover’s. Second, Hoover endorsed the Federal Farm Board, which placed the government perversely into the farm business. The Farm Board wasted $500 million subsidizing the price of wheat and cotton, and then dumped the surplus on an supersaturated world market. Third, Hoover supported the Reconstruction Finance Corporation (RFC), which spent over $1.5 billion on loans (or gifts) to failing banks and industries. But which of the many troubled banks and industries would win the government’s help? Inevitably, the decisions were political, and those who were close to the Hoover administration were often first in line for taxpayer dollars.

This last point needs emphasis: When Hoover used $1.5 billion of taxpayer money to pick winners and losers of special government loans, the process was quickly and inevitably politicized. Those with the right political connections found themselves at the head of the line. For example, the treasurer of the Republican National Committee received a loan of $14 million for his bank in Cleveland. In one of the worst cases, Charles Dawes, the head of the RFC (and a former Republican vice president) resigned from the RFC just in time to win a $90 million loan for his Chicago bank. Hoover’s administration, therefore, was so mired in questionable economic decisions that it had no credible offensive against Roosevelt (page 39, New Deal or Raw Deal?).

Mind you, FDR certainly isn’t off the hook on matters economic: his own theory for the cause of the Great Depression – underconsumption – has been roundly dismissed. MIT economist Peter Temin stated, “The concept of underconsumption has been abandoned in modern discussions of macroeconomics.” And as a result, FDR’s solutions to a phantom problem would be utterly doomed to fail. FDR’s policies actually prolonged the Great Depression by seven years.

Lee E. Ohanian, the vice chair of UCLA’s Department of Economics, said:

Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump. We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”

Fellow UCLA professor of economics Harold L. Cole said:

“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.”

So much for Obama’s “It is only government that can break the vicious cycle where lost jobs lead to people spending less money which leads to even more layoffs.” hypothesis. Rather, it is Reagan, who said, “Government is not the solution to our problems; government IS the problem,” who had it right.

Barack Obama seems to be the worst possible combination of Herbert Hoover and Franklin Roosevelt.

In short, you want to talk about a current administration starting a fatal trade war? Try this headline: “US-EU trade war looms as Barack Obama bill urges ‘buy American.’” Or this one: “Obama’s ‘Trade War’: No Truck with Mexico.”

You want to talk about the government becoming “perversely” involved in industries that it has no business interfering in? Do I even need to say anything after Obama has already effectively nationalized both the banking and the auto industries, and is presently seeking to nationalize our enormous health care industry as well? If Obama can fire the CEO of General Motors, he can frankly potentially fire anybody. And this is a president who won’t allow banks to repay their bailouts because he wants to maintain control and power over them. If that isn’t “perverse involvement,” then nothing is.

But, like Burton Folsom, it is the issue of creating government loans and bailouts that will clearly become politicized that I would like to dwell on.

We don’t see anything like the political patronage system such that existed during the Hoover administration under the Reconstruction Finance Corporation, do we?

Headline from April 21 AFP: “Fraud probes dog US bank bailout.” To the tune of 20 criminal investigations so far. The article points out, “Republicans said the Barofsky report vindicated their complaints about the TARP, passed under the previous administration of George W. Bush.” You might remember that Republicans were utterly shut out of the TARP legislation by Democrats. And you may remember House Speaker Nancy Pelosi demonizing Republicans in a hard core partisan attack just before they voted against the bill in large numbers. And from that point on, its been entirely Democrats, entirely to blame.

Which probably led to this brilliant conclusion: Headline from April 21 Evening Standard: “US bank bailout is ‘vulnerable to fraud’.”

Headline from the April 21 Washington Times: “EXCLUSIVE: Senator’s husband’s firm cashes in on crisis: Feinstein sought $25 billion for agency that awarded contract to spouse.”

Headline from the March 12 New York Times: “Congresswoman [Maxine Waters], Tied to Bank, Helped Seek Funds.

Headline from the March 17 Washington Post: “Research Center’s Role Faces Scrutiny: Advice From Murtha Allies Guided Funding Requests, Documents Show.” And in addition, “Murtha’s Defense Earmarks Draw Questions” [from the FBI].

Headline from the February 13 LA Times: “Investigation looks into political pressure on bailout distribution: A special inspector at the Treasury Department is auditing the Troubled Asset Relief Program after reports that members of Congress exerted pressure and that banks actively lobbied for the money.”

Please don’t think I can’t continue.

Do you think Democrats will deal with their corrupt members? They wouldn’t even deal with a guy who was filmed taking $100,000 in bribe money in an FBI corruption sting, and then caught with $90,000 of it in his freezer. Nancy Pelosi made a show of scolding him, then appointed him to the Homeland Security Panel. He finally lost his seat in an election, never having been taken to task by Democrts in power.

And don’t think it won’t get worse – much worse than it has ever been – whether under Herbert Hoover or anyone else.

The Second Scariest Number You’ll Hear Today
By Elana Schor – March 31, 2009, 3:34PM

Bloomberg reported a frightening fact this morning: The U.S. government has committed nearly as much to bailing out financial firms — $12.8 trillion, when you total up guarantees and loans given by the Treasury, Fed, and FDIC — as the nation’s entire $14.2 trillion domestic product.

But that’s not the only eye-popping bailout number that was released today. In a Senate Finance Committee hearing today, panel chairman Max Baucus (D-MT) noted that the Troubled Assets Relief Program (TARP) has put taxpayers on the book for at least $2.9 trillion. That number is almost equal to the U.S. government’s total spending during the 2008 fiscal year, which you can find in Table 5 of this document.

Baucus described the bailout as a shadow U.S. budget “dedicated solely to saving the financial system, and that is truly surreal.”

Few Americans have any idea whatsoever the sheer extent of rampant and insane spending and “investments” the Obama administration has pursued. The most massive government spending in the history of human civilization is going to result in the most massive abuse, waste, political patronage, and corruption in the history of the world.

It has often been pointed out that Herbert Hoover was a Republican. And, technically speaking, he was. But he was a progressive who believed “that a technical solution existed for every social and economic problem,” who came to power during a heavily progressive era.

Is Obama going to be an FDR?

You be the judge:

But realize that “being FDR” means fundamentally misunderstanding what actually created the bad economy, and therefore fundamentally misunderstanding what needs to be done in order to get the economy back on track.

I would submit to the reader that Obama needs to be the next Reagan, rather than the next FDR. A few paragraphs from a previous article:

So here’s the question that every single American should deeply care about: does Obama believe that it is the government which creates and sustains economic growth, or does he believe that it is the private sector that produces economic growth and creates the jobs that come with it? Is he FDR, or is he Ronald Reagan?

When Ronald Reagan took office from Jimmy Carter, inflation was at a meteoric 13.3% and the country was in the throes of a fierce recession. There was a real question as to whether workers’ wages would keep up with the costs of living, which made people afraid to either spend or save. And nobody knew how to control inflation – which had risen from 1.4% in 1960 to the aforementioned 13.3% in 1980 – causing a real erosion of confidence in the future. Jimmy Carter answered a reporter’s question as to what he would do about the problem of inflation by answering, “It would be misleading for me to tell any of you that there is a solution to it.”

Reagan DID have a solution, and the result was the Reagan Revolution.

Unemployment had risen to 11%. More businesses failed than at any time since World War II. The picture of the economy was grim, indeed.

And then the Reagan policies – ridiculed by the very same liberal economic theorists whose policies created the inflation to begin with – began to work. And the result – from such terrible beginnings – was the 2nd largest peacetime expansion in American history. And now – to prove that there really is nothing new under the sun, liberal economic theorists are STILL ridiculing Reagan’s successful policy over twenty years after its success changed America.

The argument that we need either massive government spending as a bulwark against a depression during periods of grave economic distress presents a false dilemma. Reagan proved that positively, and FDR – who substantially prolonged the Great Depression with failed policies (and see here or here for more) – proved it negatively.

Many liberals stubbornly cling to the thesis that FDR’s policies brought America out of the Great Depression. And they can cite a boatload of leftist historians who have come to precisely that conclusion.

But I would submit that anyone taking that position must refute Franklin Delano Roosevelt’s VERY OWN TREASURY SECRETARY.

“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong… somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises… I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot!” – Henry Morgenthau, FDR’s Treasury Secretary, May 9, 1939

The unemployment rate for April of 1939 – the full month before Morgenthau spoke these words before the House Ways and Means Committee – was at 20.7% And while other nations had similarly gone through severe economic depressions during the 1930s, they recovered in less than half the time of the U.S. under FDR. “In most countries of the world recovery from the Great Depression began between late 1931 and early 1933.” But the American depression dragged on and on.

Let me again cite Burton Folsom:

“In these words, Morgenthau summarized a decade of disaster, especially during the years Roosevelt was in power. Indeed average unemployment for the whole year in 1939 would be higher than that in 1931, the year before Roosevelt captured the presidency from Herbert Hoover. Fully 17.3 percent of Americans, or 9,480,000, remained unemployed in 1939, up from 16.3 percent, or 8,020,000 in 1931. On the positive side, 1939 was better than 1932 and 1933, when the Great Depression was at its nadir, but 1939 was still worse than 1931, which at that time was almost the worst unemployment year in U.S. history. No depression, or recession, had ever lasted even half this long” – (page 2, New Deal or Raw Deal?)

After eight years in office, FDR and his policies had succeeded in RAISING the unemployment rate. And even his very own Treasury Secretary openly acknowledged that the policies that he and FDR had pursued had failed.

So if you’re a liberal wanting to sustain FDR as the hero of the Great Depression, don’t try to refute me. Don’t try to refute Burton Folsom. Don’t try to refute UCLA economists Harold L. Cole and Lee E. Ohanian. Refute Henry Morgenthau, Jr., FDR’s closest friends and Secretary of the Treasury throughout the Roosevelt administration. And explain why this man – who would have known more than anyone – was somehow completely wrong when he said his administration had completely failed.

Barack Obama – in refusing to learn the lessons of history and avoid the pitfalls of the past – is about to take us on the Great Depression merry-go-round all over again.

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3 Responses to “Great Depression Redux: How Hoover x FDR = Obama”

  1. ARESAY Says:

    The mainstream media wouldn’t do it. So we are trying to get your important messages to the American people. 14 This post is a suggested read at, http://aresay.blogspot.com/

  2. aSDGHKLJASGD Says:

    What would you rather do? live in depression or try to get out of it? seriously, im tired of hearing these idiots saying that Obama is the worst president.. and comparing him to Hitler… and guess what??? The New Deal helped America last time. What makes you think that it isnt going to this time?

  3. Michael Eden Says:

    Let me take your whining in order:
    1) You hypocrite: you were just FINE with eight years of hysterical Bush derangement syndrome, in which George Bush was equated with Adolf Hitler about a billion times.
    Bush=Hitler

    Bush=Hitler

    Bush=Hitler

    Bush=Hitler

    You leftwing slimebags were all over yourselves comparing George Bush to Adolf Hitler. But now all of a sudden it’s just inconvenient for you to recognize that “Nazi” stood for “National Socialist German Workers Party.” Now you progressive liberal socialists don’t want to wear the shoe that should have been on your own damn foot all along.

    Your self-righteous indignation only works in one direction, doesn’t it?

    2) You seriously should quit being ignorant and learn something, such as “FDR’s policies prolonged Depression by 7 years, UCLA economists calculate” (and see this CNN Money article as well, which links to one of Cole and Ohanian’s papers). If you read The Forgotten Man you’d have a very different view of FDR. If you read New Deal or Raw Deal you’d have a very different view.

    Heck, if you just paid attention to what FDR’s OWN TREASURY SECRETARY SAID you’d have a very different view:

    “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong… somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises… I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot!” – Henry Morganthau, FDR’s Treasury Secretary, May 1939

    In April 1939, by the way, unemployment was 20.7%

    Which proves that FDR didn’t get us out of anything. What allowed us to get out of the depression was World War II. If we’d counted on FDR’s policies, we’d probably STILL be in the Great Depression.

    But you have your propaganda and your ideology. What else do you need?

    You might want your government to pay people to dig a hole, then pay other people to fill it back up again. With the new modern method of cutting a giant hole in the road, doing a crappy job repaving it, and then having to fix potholes over and over forever after. But that doesn’t mean the increasingly large majority of Americans who are turning against Obama want such stupidity.

    Not that Obama really gave us any shovel ready jobs to begin with.

    For what it’s worth, the Obama White House is actually acknowledging that Obama will leave unemployment higher than it was when he took office.

    Democrat Senator Evan Bayh, who was so sick of such economic stupidity he’s getting out of politics, put it this way:

    “[I]f I could create one job in the private sector by helping to grow a business, that would be one more than Congress has created in the last six months.”

    Here’s the video of Senator Evan Bayh:

    Senator Bayh understands that the Obama administration has sacrificed all credibility regarding its utterly failed stimulus.

    And according to a New York Times/CBS poll, a whopping 94% of the American people agree with Bayh. Only 6% of Americans believe Obama’s massive porkulus has created jobs a full year after going into effect.

    To the extent that Obama’s porkulus actually has created any jobs, it has created far too few and at far too high a cost to taxpayers’ children’s children’s children’s children. As I demonstrated, the White House’s own numbers only claim 595,263 jobs at a cost of $272 billion. Which comes out to an astronomical $456,941 per job.

    And at that rate, we can’t AFFORD for Obama to “create” any more jobs.

    So when it comes to your wrongheaded thesis that the New Deal got us out of the Great Depression, that’s what makes me think “that it isn’t going to this time” when it comes to Obama’s New Deal Part Deux.

    It’s decades past time that we shoved a wooden stake into the heart of liberal myths once and for all.

    Another liberal myth that needs exploding is the far newer lie about who was to blame for imploding our economy in 2008.

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