Now fast forward to the Great Depression of 1929-1946. The common myth is that Franklin Roosevelt brought us out of the Great Depression with his New Deal policies. The New Deal represented the first time in our country’s history that the federal government attempted, in a robust way, to remedy an economic downturn with stimulus spending and other bureaucratic interventions. Roosevelt’s program included make-work schemes, industrial codes of fair competition, guaranteed trade union rights, the regulation of working standards, minimum price fixes on agriculture, petroleum and other products, and a variety of assorted welfare programs. Essentially Roosevelt had taken over the U.S. economy and then over time he found it necessary to raise excise taxes on business to pay for his schemes.
The result was a prolonged depression. The New Deal did not allow the bad investments of the previous boom to liquidate. It discouraged entrepreneurs from investing and the artificially high prices it imposed squelched consumer demand. It was such a failure that in 1939 Henry Morgenthau, Roosevelt’s confidant and Secretary of the Treasury, proclaimed:
We have tried spending money. We are spending more than we have ever spent before and it does not work…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 an enormous debt to boot.
And this is why Barack Obama was correct in his statement that it will take many more years to turn the economy around. History proves that government intervention in an economic downtown only worsens the situation. Since taking office in 2009, Obama has spent trillions through make-work projects, Cash for Clunkers, First Time Homebuyers’ credits, extensions to unemployment benefits, and other schemes. He reappointed Ben Bernanke to chairman of the Federal Reserve precisely because he favors the Fed’s long term quantitative easing program which has pumped trillions more new cash into the economy.
What do we have to show for it? An economy still in shambles four years after the downturn with real unemployment north of 16 percent, a lackluster GDP, 46 million Americans on food stamps, and $4.3 trillion more in debt. Obama is right, it will take years to undo the damage caused by his policies. The question is, why doesn’t Timothy Geithner have the same honesty that Henry Morgenthau Jr. did?