The New Deal Didn’t Work the First Time, Let’s Try it Again
Obama is planning a new public works project similar to that of FDR’s New Deal. He has apparently done a good job studying the history of how the New Deal was implemented. He wants to raise taxes on the rich to create jobs that are out of the scope of what the federal government is supposed to do.
Creating jobs sounds like a great idea. The problem is the government doesn’t have the money to be able do this without raising taxes or continuing to go deeper into debt. Raising taxes will not help the economy, and going deeper into debt to China is also a really bad idea.
The other problem is that the government is really inefficient. At everything. They will take your tax money and create lots of inefficient jobs. This is exactly what happened during the Great Depression. This is what extended it.
For the last few months we have had bad companies taking handouts from Washington. Now we are going to have congressmen trying to bring home the pork to their districts. They will vote for these things, create jobs in their districts, and make the recession worse. However, since the congressman in Ohio is taking federal money from taxpayers in Tennessee for his district, his district is happy with him. He will get re-elected because of this. He will continue to vote with Obama because of this. However, does this help the country as a whole, taking money from people in one place and giving it people in another while the government wastes some of it on the way?
What is going on here is that Obama hasn’t learned from history. The New Deal did not work. Don’t trust my opinion? How about Henry Morganthau, Secretary of Treasury for FDR. He said this in 1939:
We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot.
Transferring money from one person to another doesn’t create jobs. It doesn’t create more money. It just changes who has the money. Henry Hazlitt described it as the broken window fallacy:
Let’s say that we have a nice suburban area sort of like we have here in Washington, DC, out in Chevy Chase. And we have some guy there who has a nice picture window, and some kid goes by, a hoodlum, and throws a rock through that window, breaks it. And let’s say that it costs $500 to replace that window. Well, our first reaction might be: What a horrible thing. Let’s catch the perpetrator.” But what if somebody else came up and said, “Wait a minute. The window’s been broken, some time has elapsed, we haven’t caught the guy, but maybe we shouldn’t catch him to throw him in jail. Maybe we should catch him to pat him on the back. Because I’ve observed what’s happened in that house and what’s happened is this: He broke the window, but the guy who had the window broken called up the glassmaker and the glassmaker put the window in and installed it for $500. Then the glassmaker took that $500 and bought a DVD player. He also bought a couple DVDs. And then he bought a reclining chair to sit back and watch the movies, all with that $500. So that broken window has generated business and now we have more DVD sales, more reclining chair sales, and it’s generated business all around town. So isn’t this a good thing?”
Where’s the problem with this argument? The valid point here is that the guy whose window was broken also might have wanted to buy a DVD player and a reclining chair. Or he might have wanted to buy a suit of clothes and some insurance. So that guy, and the tailor, is out $500 because instead of buying a suit and a shirt, he now had to pay for the window. You never generated real business because the guy who had the window broken is out $500 and the guy who had replaced the window is up $500, but the guy who had the window broken would have also been spending $500. So there’s really no net gain.
This gets worse when the government is in the middle. When the money goes into the government before it changes hands, there is less money coming out on the other end.
If Obama can’t learn from history, we are doomed to repeat it. When FDR took office in 1933 unemployment was over 24%. In 1939, it was 17.2%. In 1943 it was 1.9%. In FDR’s seventh year in office, unemployment was still over 17%. That doesn’t really seem to me like something that worked really well. World War II on the other hand did get us out of the Depression. It made unemployment go away. The New Deal did not. I certainly do not want another world war. Obama’s New Deal is also something I could do without.
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