Obama Unveils 21st Century New Deal

Sigh...

For those of you that know a little about economics, and the economic history of the United States, you must be feeling the same thing I am.

I seem to remember reading somewhere once that some guy tried doing pretty much the same thing back in the '30s, in the midst of a recession, and that it didn't turn out very well. It is now generally accepted that the misguided policies of the New Deal prolonged the Great Depression, by some seven years. A decade after President Hoover had left office, the economy was still nowhere near being on the track to recovery, yet he was still blamed. Over the course of that decade, when Franklin Roosevelt was taking all of his now (in)famous actions, unemployment never dropped below 14%, with a peak of 25% for much of it. I'm sure it was all Hoover. FDR shouldn't take any responsibility, despite being the longest serving president in American history.

Now, President-elect Obama (let's just be clear here, there is no such thing as The Office of the President-elect; only an egomaniacal individual of a singular vision could so aggrandize themselves without having any real power or a humble disposition), wants to do nearly the exact same thing as his sanctified predecessor.

If you're like me, the only thought that comes to mind is this: why?

The idea that FDR dragged us out of the Great Depression with his industrial army and assault of public works is no longer even a point of contention, not even among economists on the left. The consensus is that his actions prolonged the misery. Government intervention into the economy leads to market distortions, cripples market incentives, increases corruption and bureaucracy and rent-seeking, and decreases long term economic growth due to an artificial dead weight loss in the economy. Penalizing productivity through progressive taxation, and reallocating resources from the productive, self-energized, creative private sector, to interest groups that successfully lobbied for government grants and subsidies, is not a recipe for success.

We saw this with the "stimulus package" last summer, when people didn't react as the government was expecting. We are seeing this now with the "bailout," insulating those that knowingly made risky financial decisions and hastening the arrival of an ever growing stream of big business leaers to Washington, DC, hats in hand, begging for taxpayer money. Both of these actions are far from what it takes to alleviate the pains of a struggling economy, and actually helping hardworking Americans that got themselves caught up in the financial spiral-down, generally, through no fault of their own.

Recessions need to happen--and economists will back this up--so that capital can be reallocated from certain failing areas of the economy to more productive ones. The business cycle, as it has been called, on average expects such an eventuality every 3 to 5 years or so. When government intervenes in the economy by bailing out those that lost consumer or investor's trust, the market is prevented from self-correction, and the inevitability is that the correction is merely prolonged, making the turnabout all the more painful in the process. (see a Letter to Congress from Economists)

Why then, would a President-elect of the United States, obviously intelligent, with still more intelligent people around him, propose such actions?

This isn't merely rhetorical. I am having some trouble getting my mind around it. Is it adherence to ideology? Is is based on the assumption that similar plans in the past which have failed did something wrong? Is it a rejection of nearly a century of economic data?

I'd appreciate any opinions. Whatever side of the aisle you're on, we are all in this boat called America together, and this, my friends, is not the way to steady the ship.

Expect more on this in the future, particularly in its tie-in to healthcare.

Be well and, please, let me know your thoughts. We have not passed the point of no return, but we must all be willing to accept reality if we are to move forward.

Posted on May 03, 2017 by Elisabeth Sutton