The Only Thing We Have To Fear...

We are in a recession. This is not news to anyone who does not live in a cave devoid of TV, computer, Blackberry, or that old-fashioned standby, the newspaper. Only a little more newsworthy is the fact that we've been here before.

1920 - The United States entered a recession in the wake of The Great War (WWI). The American economy, being chiefly agricultural at the time, saw an increase in production after the war ended and the troops returned home to resume their pre-war lives. This increase in production caused a dramatic drop in farm prices and an increase in unemployment. President Warren G. Harding, being a free-market conservative, responded with very little government intervention. Within a short period of time, the economy began the natural shift from being predominantly agricultural to industrial. It was able to do this because the government largely stayed out of its way. The result was the almost decade long boom we now refer to as "The Roaring Twenties".

1929 - The stock market crash on October 29, 1929, which brought about the Great Depression, has been blamed on everything from Capitalism run amok to the Federal Reserve System. Since Capitalism run amok tends only to bring prosperity, I believe it was the latter. Regardless of its cause, the Great Depression lasted for (arguably) 17 years. Why so long you ask? Government intervention is the obvious, but seldom reported answer. FDR finished what Hoover started. Following the crash in 1929, Hoover asked business leaders to not cut wages during the impending recession, thus impeding the private sector's ability to correct for falling revenue. In 1930, Hoover decided to ignore the advice of nearly all of the economists of the day and signed the Smoot-Hawley bill into law which raised tariffs an average of 59% on more than 25,000 products. As a result of this highly intelligent plan, the rest of the world practically shut down the American export industry. Hoover went on to establish the Reconstruction Finance Corporation whose job it was to supply troubled businesses with low interest loans and bailout money. (sound familiar?) Predictably, this plan did not succeed and most of the businesses involved either went into bankruptcy or were saddled with enormous debt all throughout the '30's.
Then FDR became President and set up the National Industrial Recovery Act, the government's own central planning agency, which acted to keep wages high while establishing minimum product pricing. This killed the ability of businesses to compete in the marketplace which translated into even higher unemployment. The jobless rate averaged 18% from 1933 to 1940 compared to the 7% we are complaining about now. He then decided to target food. In an effort to raise farm prices, he paid farmers to either limit production or not produce anything at all, theorising that lower supply would increase prices. To complete his plan, he had to do something about the food that was already out there. The administration slaughtered 6 million pigs and destroyed 10 million acres of cotton during a time when people were starving. They did this to bring "balance" to the previously slanted levels of production. He also set up the Public Works Administration which received $3.3 billion for various public works programs (infrastructure), the Civil Works Administration (more infrastructure), the National Youth Administration (government jobs for high school and college students), the Rural Electrification Administration (government money to bring electricity to farms), the Securities and Exchange Commission, the Social Security Act (Madoff-like retirement ponzi scheme), the Tennessee Valley Authority, and many other wasteful government expenditures. The overall effect of these programs was to extend the Great Depression by years and worsen it by billions, if not trillions of dollars.

You may be thinking that all of these programs did the country a lot of good. After all, we did get some bridges, buildings, and dams out of it. But, stop and think of how much more efficient and less expensive private industry would have been. Private industry could have produced all this and more while providing much needed jobs and income to working families. This would not have been an enormous cost to taxpayers, but a boon to investors, businesses, workers, and the economy as a whole. Consider the speed and efficiency of government programs the next time you try to drive on that highway that has been under construction for as long as you can remember, or when you hear about that monster of all government construction projects - "the big dig".

America did eventually get out of the Great Depression, but it was neither FDR nor WWII that did it. What did it was a return to free-market Capitalism in the mid to late 1940's, after the war had ended and the soldiers returned home.

Given the response to these two economic crises and the effects of those responses, what do you think would be the best course of action for the current economic crisis? The government seems to have chosen the Hoover/FDR recession-extension plan of large government and trillions of your dollars. Don't be surprised when the effect of this decision is the same as before.

President Elect Barack Obama is promising the same level of intervention offered by FDR. The result of FDR's intervention was to extend and exacerbate the recession caused by the Stock Market crash of 1929. The old saying goes, "Those who don't learn from history are doomed to repeat it."

Eventually we will return to the free-market and the economy will come roaring back, but why wait? We could easily do that now by supporting legislation such as Representative Gohmert's 2-month tax holiday and the much-lauded Fair Tax. We could add good paying American jobs by producing domestic sources of energy and slashing capital gains taxes to encourage investment. Intelligent plans abound, but intelligent plans require proactive leaders to identify and implement them.

If our leaders were interested in our growth more than their personal power, they would be supporting pro-growth legislation instead of no-growth government expansion. It seems to me the only thing we have to fear is... government.

(Many of the statistics in this article were gleaned from the pages of "The Politically Incorrect Guide to American History" by Thomas E. Woods, Jr., Ph.D." Copyright 2004, Regnery Publishing Inc., Washington, D.C.; many thanks to the P.I.G. series of books, they are an invaluable resource.)