The Rerun of History

When FDR took office he faced a deepening depression that had begun a few years earlier. Prior administration acts raising taxes and tightening the money supply had contributed greatly to the misery. The Smoot Hawley tariff legislation had sparked a worldwide strangulation of international trade. Unemployment was around 25% and the lower Midwest was in the throes of a devastating drought. Roosevelt knew he had to do something and quickly.

Unfortunately the cabinet and advisor roles were filled up with eastern intellectual types with little practical business experience and political hacks with even less. The President and his team then embarked on a frenzied search for something – anything – that would renew growth and create jobs. In December, 1933 only months into his administration, Roosevelt received a letter from John Maynard Keynes who was just developing the theories we know today as Keynesian Economics. Below are two quotes from that letter:

Thus as the prime mover in the first stage of the technique of recovery I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure which is financed by Loans and not by taxing present incomes.”

“In the field of domestic policy, I put in the forefront, for the reasons given above, a large volume of Loan-expenditures under Government auspices.”

During the next few years the most common theme among all the programs, bureaus, laws, and plans that came forth was spending heavily by government using borrowed money and higher taxes. The unemployment rate went from 25% to 15% by early 1937. However just when the nation was beginning to feel some improvement, the Depression returned in 1938 with unemployment again at 20%. The national debt had increased by 62% in four years and the economy was tanking into a double dip depression. The beginning of WW II in 1939 with its large defense orders under Lend Lease and sales to allied belligerents was the only thing that pulled the U.S out after over ten years of economic hardship.

Deficit spending and higher taxes – the top marginal rate had been raised to 79% – were only part of the problem. Uncertainty among investors and consumers was rampant. Federal price controls and policing gummed up business planning and profits. Ridiculous programs to kill pigs and burn crops to raise farm prices backfired by making agricultural products unaffordable to millions on limited incomes. Huge public works programs administered by party hacks and unions employed democrats but froze out republican workers. Banks were overwhelmed with repossessions of failed farms, businesses and homes. Fear and uncertainty over what the government might do, or who it would punish next choked off initiative. How and why would anyone even think about starting or expanding a business under conditions such as these?

To quote Yogi Berra, the present administration is “déjà vu all over again. ” Inexperienced intellectual types in charge, a grinding recession, high unemployment, and humongous borrowing and spending look familiar.  The bombastic threats to banks and insurance firms along with the near certainty of higher taxes have a severe chilling effect on business development and future planning. Ersatz nationalization of automobile manufacturers and stimulus cash to states and municipalities mainly benefit the UAW, SEIU, and NEA.  Raising discretionary spending by 20% and jacking the deficit to three times its former amount  with failed stimulus efforts mirror the actions of the ‘30s that obviously failed at that time.

Instead of burning crops and killing piglets, we are threatened with cap & trade, health care, tax increases, draconian regulation, and wasteful government projects.  Trillions will be flushed away on useless boondoggles from light rail to the study of cow manure.  The unholy bill for these expenses will fall upon those yet unborn.

Keynesian deficit spending has failed in the U.S in the ‘30s, the ‘70s, and in Japan yet today.  Such beliefs belong on the ash heap of history.  It is among the universe of ideas so aptly described by George Orwell: “There are some ideas so wrong that only a very intelligent person could believe in them.”  Our leaders are but a cabal of inexperienced, present time oriented elitists who; refusing to learn the lessons of history are doomed to repeat it.  We must slash the spending, lower taxes, roll back regulation, and stop threatening to punish success. 

The American people are beginning to reject this situation.  In their hearts they realize that American Exceptionalism built and sustained this nation for over 200 years.  Americans will bring this economy back if only left to harness their own ideas and entrepreneurship unbound from the leaden hand of huge government and incompetent leadership.  Virginia, New Jersey, and Massachusetts are encouraging signs.


One response to this post.

  1. I certainly agree with the ‘elitist’ nature of this administration who refuse to recognize the wishes of the American people. It is appalling to me that we continue to elect leaders who have no integrity. Luckily, the Massachusetts election will possibly prevent the continual expansion of socialistic policy.


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