Those Who Forget The Past

President Barack Obama signs the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 at the White House.

By Howard Rich
Americans for Limited Government

There’s no joy in saying “we told you so.” Not when millions of Americans are beset by plummeting home prices, stagnant income levels, deteriorating job opportunities and rising consumer prices. And let’s not forget the trillions of dollars in debt that America’s politicians have saddled taxpayers with in an unsuccessful effort to alleviate these economic ills.

Free market advocates repeatedly warned political leaders of both parties regarding these inevitable “bailout byproducts,” but they didn’t listen. Instead, they rushed to reward their favored banks and bureaucracies for years of gross fiscal negligence — leaving taxpayers stuck with a scarcely-fathomable tab.

The only silver lining to this Keynesian tsunami? That the failure of the largest, costliest and least effective government economic intervention in human history could be the impetus for an urgently needed course correction — and a long-overdue debunking of one of the greatest myths in American history.

According to Barack Obama and the New Keynesians, years of unrestrained and unregulated “corporate greed” pushed America to the precipice of a second Great Depression. That’s when government rode to the “rescue” with more than $13 trillion worth of new spending, lending, loan guarantees and money-printing.

It’s a familiar narrative — one evoking all too common misconceptions about the policies responsible for the depth, duration and the eventual demise of previous economic downturns. Like its predecessors, however, this narrative ignores a flood of politically-correct, government-mandated lending that helped artificially inflate the nation’s housing bubble. It also ignores a steady increase in deficit spending in the years leading up to the recent recession.

This isn’t a past tense situation, either — the interventionist spigot is still flowing. Washington is currently staring down its fourth consecutive budget deficit of more than $1 trillion, while the Federal Reserve is just now winding down its latest $600 billion installment of “quantitative easing.”

Even Wall Street — which soaked up more than its fair share of the borrowed largesse — is finally saying enough is enough.

“They’ve done more than enough already,” one investment analyst recently said. “Any further stimulus only increases the long-term risk of inflation, which we already view as high.”

Indeed. Now if we could just wind the clock back three years — and $13 trillion.

In 2008, Keynesian economist Gauti Eggertsson published a paper in the American Economic Review which presented a theoretical basis for the Bush-Obama doctrine of “over-stimulation.” Eggertsson’s fundamental premise was that the interventionist policies of Franklin Roosevelt’s administration lifted the nation out of the Great Depression — ostensibly in contrast to the policies of Herbert Hoover.

Obviously, it’s not hard to find fault with Hoover’s disastrous response to the stock market crash of 1929 (especially the Smoot-Hawley Tariff Act of 1930 and the Revenue Act of 1932). But those were interventionist excesses — and Hoover’s contemporaries knew all too well that he was hardly the laissez-faire scapegoat he’s made out to be in government textbooks.

“That man has offered me unsolicited advice for six years, all of it bad,” Hoover’s predecessor Calvin Coolidge once said.

As Commerce Secretary to President Warren G. Harding, Hoover also recommended a massive federal response to the post-World War I depression. Fortunately Harding chose to ignore Hoover’s advice, and his hands-off handling of the 1920-21 depression is widely credited with ending that downturn in short order — just as Harding and Coolidge’s tax cuts paved the way for robust economic growth in the years that followed.

“The secret to the quick recovery was that the government generally stood aside and let the market recover by itself,” a 2005 report by The Cato Institute’s Chris Edwards noted. “Wages and prices adjusted, resources shifted to new areas of growth, profits recovered, business optimism returned, and investment rose.”

Even Keynesians, such as economist Robert J. Gordon, are forced to acknowledge that this economic recovery commenced in short order “despite the absence of a stimulative government policy.”

“Government policy to moderate the depression and speed recovery was minimal,” says Gordon. “The Federal Reserve authorities were largely passive.”

Obviously the virtues of “minimal” and “passive” government approach were not shared by Hoover and Roosevelt. Nor was the spectacular failure of Hoover and Roosevelt’s Keynesian approach heeded by Bush and Obama.

As a result of Hoover and Roosevelt’s mismanagement, the U.S. unemployment rate remained above 14 percent for ten years from 1931-1940. While it’s everyone’s hope that current elevated levels of unemployment won’t drag down our economy for such an extended time frame, the disastrous Bush-Obama response to the recent recession — and the looming specter of Obama’s socialized medicine law — don’t offer much cause for optimism.

“Told you so” — but let’s hope for the sake of our economy (and the taxpayers who support it) that our leaders have learned their lesson this time. We really can’t afford any more “stimulus.”

The author is chairman of Americans for Limited Government.

6 Responses to “Those Who Forget The Past”

  1. Actually the deregulation myth is a lie foisted by those who realize on some level that it was their own very regulation that led to the meltdown:

    http://www.dakotavoice.com/2008/09/democrats-own-the-financial-meltdown/

    http://www.dakotavoice.com/2008/10/seeds-of-financial-crisis-may-have-been-sown-by-barney-frank/

    http://www.dakotavoice.com/2009/03/timeline-shows-democrats-own-financial-meltdown/

    http://www.dakotavoice.com/2009/03/was-bush-president-in-199/

    http://www.dakotavoice.com/2009/03/who-was-behind-fannie-freddie-financial-meltdown/

    http://www.dakotavoice.com/2009/07/us-house-report-federal-govt-behind-financial-meltdown/

    http://www.dakotavoice.com/2009/07/excerpts-from-an-autopsy-of-the-american-financial-meltdown/

    http://www.dakotavoice.com/2010/07/fannie-mae-freddie-mac-reduced-to-penny-stock/

    There were indeed some in the financial industry who were willingly over-extending themselves, but the federal government was actually forcing the financial industry to write risky loans. Couple that with the corruption and malfeasance at Fannie and Freddie (government organizations, no matter what they tell you), and you have a recipe for disaster…which is what we got.

    The free market isn’t perfect, but it does have built-in incentives to avoid the kind of reckless activity our government not only encouraged but mandated. For the most part, people whose own money is on the line aren’t going to do stupid things with that money. The government, however, can do something absolutely insane with the taxpayer’s money and when it blows up in their face, they blame lack of regulation and do the whole thing over again with the taxpayer’s money once more.

  2. Sorry, deregulation is a fact not a mysth..1n 1999 rebublicans attached a rider at the last minute (the night before the vote) to a budget bill that had to pass to keep the government from shutting down….That allowed brokerage companies to leverage their funds (your and my money) 60, 70 times or more on derivative type instruments…not much more rational than casino gambling…but in the short term immmensly profitable.
    In 2000, the republicans voted for the same level of deregulation in regular banks and they began gambling with your and my money with no restraint and no visibility to the average customer…when those leveraged bets went south…Lehmand bros failed, Merril Lynch had to be bought to keep from failing  and on the regular bank side…we were left with the banking mess and billions in bailouts…and derivatives being held by our government (on the side) in hopes they may someday be good…again, if you study banking behavior in the 20’s you would understand why these regulations were put in place…but as they say, those that don’t study history are doomed to repeat it…and we did!..sadly the governement should have let these banks fail…it would have bee bad for all of us in the short run…but it might have cleaned out the system, and restored some order and trust..heck, now the derivative totals in banking are trillions higher than several years ago…so the risky behavior continues…

  3. Sorry, deregulation is a fact not a mysth..1n 1999 rebublicans attached a rider at the last minute (the night before the vote) to a budget bill that had to pass to keep the government from shutting down….That allowed brokerage companies to leverage their funds (your and my money) 60, 70 times or more on derivative type instruments…not much more rational than casino gambling…but in the short term immmensly profitable.
    In 2000, the republicans voted for the same level of deregulation in regular banks and they began gambling with your and my money with no restraint and no visibility to the average customer…when those leveraged bets went south…Lehmand bros failed, Merril Lynch had to be bought to keep from failing  and on the regular bank side…we were left with the banking mess and billions in bailouts…and derivatives being held by our government (on the side) in hopes they may someday be good…again, if you study banking behavior in the 20’s you would understand why these regulations were put in place…but as they say, those that don’t study history are doomed to repeat it…and we did!..sadly the governement should have let these banks fail…it would have bee bad for all of us in the short run…but it might have cleaned out the system, and restored some order and trust..heck, now the derivative totals in banking are trillions higher than several years ago…so the risky behavior continues…

  4. I didn’t say the existence of deregulation as an event was a myth. I said the liberal lie that it is to blame for the economic meltdown is the myth.

    I know it’s tough for you Leftists to deal with the reality that your own anti-American policies are to blame for America not working, but you’re not going to get a pass on truth here.

    Go back and read all the information I provided that you desperately tried to avoid.

    http://www.dakotavoice.com/2008/09/democrats-own-the-financial-meltdown/

    http://www.dakotavoice.com/2008/10/seeds-of-financial-crisis-may-have-been-sown-by-barney-frank/

    http://www.dakotavoice.com/2009/03/timeline-shows-democrats-own-financial-meltdown/

    http://www.dakotavoice.com/2009/03/was-bush-president-in-199/

    http://www.dakotavoice.com/2009/03/who-was-behind-fannie-freddie-financial-meltdown/

    http://www.dakotavoice.com/2009/07/us-house-report-federal-govt-behind-financial-meltdown/

    http://www.dakotavoice.com/2009/07/excerpts-from-an-autopsy-of-the-american-financial-meltdown/

    http://www.dakotavoice.com/2010/07/fannie-mae-freddie-mac-reduced-to-penny-stock/

    You’ll find that the federal government meddled in the affairs of private business (with no constitutional authority to do so, I should add) and forced private businesses to make risky loans…that turned up in droves later with the borrower unable to repay. Throw in the corruption and congressional cronyism going on at Fannie and Freddie (as well as the same risky lending) and you have a recipe for disaster. And the pie baked quite well, didn’t it?

    Of course, now that this turd pie is out of the oven and in the light of day, you and your Marxist cronies don’t want to have anything to do with it.

    Sorry, it’s aaaaaaaaaaaall yours.

    Learn from it, if you dare, and go back to American principles of freedom, responsibility and limited government. And if you can’t manage that on your own, we’ll force you do when real Americans take charge of the White House and Senate next year.

  5. I didn’t say the existence of deregulation as an event was a myth. I said the liberal lie that it is to blame for the economic meltdown is the myth.

    I know it’s tough for you Leftists to deal with the reality that your own anti-American policies are to blame for America not working, but you’re not going to get a pass on truth here.

    Go back and read all the information I provided that you desperately tried to avoid.

    http://www.dakotavoice.com/2008/09/democrats-own-the-financial-meltdown/

    http://www.dakotavoice.com/2008/10/seeds-of-financial-crisis-may-have-been-sown-by-barney-frank/

    http://www.dakotavoice.com/2009/03/timeline-shows-democrats-own-financial-meltdown/

    http://www.dakotavoice.com/2009/03/was-bush-president-in-199/

    http://www.dakotavoice.com/2009/03/who-was-behind-fannie-freddie-financial-meltdown/

    http://www.dakotavoice.com/2009/07/us-house-report-federal-govt-behind-financial-meltdown/

    http://www.dakotavoice.com/2009/07/excerpts-from-an-autopsy-of-the-american-financial-meltdown/

    http://www.dakotavoice.com/2010/07/fannie-mae-freddie-mac-reduced-to-penny-stock/

    You’ll find that the federal government meddled in the affairs of private business (with no constitutional authority to do so, I should add) and forced private businesses to make risky loans…that turned up in droves later with the borrower unable to repay. Throw in the corruption and congressional cronyism going on at Fannie and Freddie (as well as the same risky lending) and you have a recipe for disaster. And the pie baked quite well, didn’t it?

    Of course, now that this turd pie is out of the oven and in the light of day, you and your Marxist cronies don’t want to have anything to do with it.

    Sorry, it’s aaaaaaaaaaaall yours.

    Learn from it, if you dare, and go back to American principles of freedom, responsibility and limited government. And if you can’t manage that on your own, we’ll force you do when real Americans take charge of the White House and Senate next year.

  6. You seem to be glossing over Fannie and Freddie’s central role in the financial meltdown: http://online.wsj.com/article/SB10001424052702304760604576423670655568418.html?mod=opinion_newsreel

    I know it’s an inconvenient reality if you’re a big government Leftist, but reality it is.

    It’s also reality (as I pointed out several times now) that government policy forced lenders to make risky loans.

    Private industry takes risks, but when the government stays out of its business as the Constitution requires (which includes not only not meddling in their operational affairs but also not bailing them out if the fail), the natural consequences of market forces generally keep businesses from over-extending too far. In this case, however, the government (a) mandated risky loans and (b) the precedent had already been set to expect taxpayer-funded bailouts. An insane combination, with either alone being bad enough.