No Depression In Heaven

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The Forgotten ManSo sang the great country music pioneer Maybelle Carter of the Carter Family. As the 1936 song goes, “This dark hour of midnight [is] nearing/And tribulation time will come.”

Perhaps it’s time to bust out the ‘ole Depression-era songbook. According to a recent survey, the Great Depression is going to happen all over again. So says a CNN/Opinion Research poll released this morning (Tuesday, 17 March). Forty-five percent of the 1,019 adult American respondents say another depression is likely. Not just likely, but will occur within the next year. That’s up from 38 percent in last December’s survey.

And, perhaps the Doomsdayers are right. Our new president seems to be making the very same mistakes that FDR’s New Deal made—with an assist from Hoover, who signed into law the global-trade-killing Smoot-Hawley tariffs. The drums of a trade war are beating again.

Today, it was reported that Mexico threatened to put tariffs on 90 or so American products as “payback for Washinton’s move to put the breaks on a cross-border trucking program,” says Maggie Haberman in today’s New York Post.

Oy. I am getting scared now. Obama seems a little too FDR-like. The great lesson of the New Deal: Don’t use a crisis to jam down old social reforms you’ve been carrying around in your kit. Yet this is exactly what Obama seems to be up to: Higher taxes, trade-war mongering and increased labor costs. (For FDR and his acolytes, it was the minimum wage and union building, which only raised the cost of labor, which had a negative effect upon hiring.) In fact, we would urge President Obama and members of his economic team to read Amity Shlaes bestseller, The Forgotten Man: A New History of the Great Depression (HarperCollins, June 2007). In February, we featured Shlaes in our February Gurus column, calling it “required reading” for Obama. Boiled down, Shlaes shows—persuasively, I think—that FDR’s New Deal not only didn’t help the economy, but actually hurt it, in effect taking a recession and turning it into a decade-long depression. (The worst years of the Depression were 1937 to 1938, four years into the New Deal; the Dow didn’t reach 1929 levels until 1954.)

Shlaes points to a half-dozen or so mistakes FDR made: trade killing tariffs increased the cost of labor and taxes and in general created uncertainty and, ultimately, fear, among business owners. FDR described his legislative program as “bold, persistent experimentation.” Business owners began to horde cash, so much so that FDR even put in a piece of disastrous legislation called (in what today would be called Orwellian double-speak), “undistributed profits tax.” If businesses did not issue dividends or spend its profits on their businesses, they would be taxed, in some cases, more than 70 percent.

Shlaes also credits FDR with creating a new kind of interest group; there had always been interest groups, but this was different. “But Roosevelt systematized interest-group politics more generally to include many constituencies—labor, senior citizens, farmers, union workers.” It’s no coincidence, Shlaes writes, that federal spending in 1936—an election year—outpaced total spending of states and towns. “It can even be argued that one year—1936—created the modern entitlement challenge that so bedevils both parties” today.

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