It’s a little worrisome that many people are looking to the early 1930s for directions out of the current economic slump. It would be difficult to find a worse blueprint for recovery than that.
It would be one thing if economic recovery occurred in the 1930s. The Great Depression, which started in 1929, lasted well over a decade with high unemployment and real economic well-being not significantly improving until after World War II. That hardly seems like a good model to be looking at for relief from the current slowdown.
But for politicians, the 1930s probably seem to be a perfect model. Then-President Franklin Roosevelt is considered one of the best, if not the best, president in American history by many historians. His unprecedented re-election record will never be matched. Unfortunately, economic prosperity did not accompany FDR’s electoral success.
Starting with Herbert Hoover, the United States met the Great Depression with a series of government interventions designed to stop it (does this sound familiar?). Hoover attempted to keep prices and wages from falling, believing high prices would bring about recovery. He also imposed strict trade barriers and imposed the largest peacetime tax increase in American history up to that point. Under Hoover, an allegedly free-market president, federal spending increased 38 percent.
Speaking in 1932, Hoover said, “We might have done nothing [in the face of the economic downturn]. That would have been ruin. Instead, we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.” And how did that work out?
The interventions in the economy continued and gained momentum under Hoover’s successor, FDR. He also believed higher prices would bring about recovery, so farm products were destroyed to drive down supply and businesses were forbidden from competing with each other by cutting prices. All this at a time when many people were struggling to afford food, clothing and housing.
As economic historian Robert Higgs has written, “the Roosevelt administration taxed, spent, borrowed, regulated, insured, subsidized, and confiscated on a scale never before seen in the United States in peacetime. No wonder the recovery was so slow.” As Higgs noted, private investment – the thing that most enables economic growth and increased living standards – actually dropped from 1930 through 1940. “No economy can prosper when it goes more than 10 years without adding to its capital stock,” he wrote.
Now we have George W. Bush, who recently gave a speech defending free markets. This is astonishing from a president under whom the size of the federal government has grown at its greatest pace in more than 30 years. It is also astonishing from a president who imposed steel tariffs early in his term, expanded the federal role in education and health care, advocated a massive government bailout for the financial system, introduced new restrictions on individual freedom under the Patriot Act and waged a hugely expensive foreign war that costs billions of dollars each month. With friends like Bush, the free market needs no enemies.
So now we are moving away from the Bush years to the Obama years. If the string of economic interventions continue – such as a bailout of the auto industry Obama seems to favor – recovery will continue to be delayed.
A truly free market means government’s role is reduced to preventing the use of force on a national or personal level. It is hard to imagine us getting much further from this than we currently are, but that is very possible.
Economic prosperity takes place when free people are allowed to exchange, invest and save as they see fit. This requires no government direction. Indeed, when politicians and bureaucrats attempt to help the economy, they always create new problems, slow recovery and make things generally worse.
Unless Washington drops the model of the 1930s as its guide, we could be in for an encore performance of the worst economic slump in American history.
Arthur Foulkes is a Terre Haute native and long-time resident. The Tribune-Star reporter writes a column on business and economics. He can be reached at (812) 231-4232 or arthur.foulkes@tribstar.com.
Business
Arthur Foulkes: The Great Depression is not the place to look for direction
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