A New New Deal Is A Bad Bad Idea

"Underlying a lack of faith in free markets is an underlying lack of faith in freedom itself."~~~Milton Friedman

Enthusiasts of excessive control of the market enthusiastically liken President Obama to FDR.  This enthusiastic comparison rests on a flawed premise, that FDR's hyper intervention via the New Deal saved the country from a crushing depression.

The comparison of our current president with FDR is not a flattering one, however, when we take the long view of the Great Depression.  As Jim Powell amply illustrates in his book FDR's Folly, government control and manipulation of nearly all aspects of the economy--and therefore society--turned a depression not uncommon to American history into a deep and abiding depression, lasting over a decade.

If President Obama is the new FDR we have worse economic times ahead.

Put another way, why was this one depression bad enough to be remembered our only great depression?   It was, after all, the only one "great" enough in American history to be remembered by that name. 

A market economy runs primarily on freedom: cooperation among individuals, contractual agreements, entrepreneurship, pursuit of respective self interest, and marginal business growth all require a free society.  In order to create wealth, employment, and a rising standard of living for a diverse population of millions, capital and limited resources with alternative uses must be efficiently allocated and utilized.

Controlled and over- regulated markets have never been up to the task of efficiently meeting the demands of advanced societies; socialism, in whatever degree and form, creates uncertainty in market condition-- lack of freedom, that is--that stagnates growth.  Government obstruction of the freedom required by the market and regulation beyond its proper role (and there is a good role for government) inevitably brings about economic stagnation and high unemployment.

Remember to ask, what and who is "the free market," or what is more commonly tossed around, "the private sector"?  It is nothing less than you, me, and other individuals freely and responsibly pursuing our respective self interests.

As the above quote from Milton Friedman pointedly reminds us, not trusting "the market" is not trusting in freedom itself--it is a distrust of ourselves.  A demand for more regulation of "the private sector" is not a demand to control some faceless entity out there in the murky distance; it is a distrust of and demand to control yourself and your own lives! 

Of course, it's never ourselves and our own liberty we don't trust; it is always some other guy.  In a free society based on a free exchange economy, that someone else is you.  During the New Deal when the federal government ordered millions of pigs slaughtered and acres of wheat plowed under, people everywhere went hungry longer than they needed to because some people were not free to produce the food millions of others demanded.

The more freedom was increasingly needed the more it was repressed, and the depression dragged on and on and on.

So let's make sure we're not in for a New New Deal.
 

President Names Monopolist to Competitiveness Board

"Anyone who has observed how aspiring monopolist regularly seek and frequently obtain the assistance of the power of the state to make their control effective can have little doubt that there is nothing inevitable about this development [of central economic planning].~~~F.A Hayek, The Road to Serfdom 

President Obama just named GE CEO Jeff Immelt to the "President's Council on Jobs and Competitiveness."  Competitiveness is italicized for a reason--it is ironic Immelt would be named to any advisory board with such a word in its title.   This is like naming Willie Nelson to chair a national advisory board on tax compliance.

Immelt displays little knowledge and even less affinity of competing openly in the market economy; to the contrary, he specializes in lobbying the federal government to legislate competitors out of his way and monopolizing the market by having government mandate the energy mechanisms and technologies that only his company, GE, can provide to consumers.

Not really competitive now, is it?

In his invaluable book, The Big Ripoff, Tim Carney documents Immelt's record of attempting to corner the energy market through the coercive regulatory power of the federal government, all the while building GE's public image up to one of a progressive, environmentally-conscious company.

Starting in 2005, GE launched its "ecomagination" public relations campaign wherein Immelt insisted GE was committed to providing cleaner, greener energy.  That's nice, but his method of doing so was anything but "competitive."  As Carney illustrates,

"Ecomagination involves investing in certain fuels and technologies, and then working with government to make those fuels or technologies mandatory."

And where did GE and Immelt decide to launch the bold new Ecomagination?  New York, the economic and financial center of the free world?  No.  Silicon Valley, that global symbol of technical innovation? Nope.  Ecomagination launched on Pennsylvania Avenue in Washington DC somewhere between Congress and the White House, the very belly of the regulatory, wealth-destroying Leviathan that has for decades stood in the way of competitive wealth creation.

Immelt, on that occasion:

"Industry cannot solve the problems of the world alone, we need to work in concert with government." [Emphasis added.]

Again, Immelt really does seem interested in "competitiveness" now, does he?

Then there is that little thing called Cap and Trade.  GE is an enthusiastic supporter of and lobbyist for the bill which would levy one of the largest tax hikes in history and completely cartelize the energy market with GE and the federal government in effect fixing all prices and controlling the entire market.

Yea, not too much "competitiveness" in Cap and Trade.

Perchance Immelt has since turned from his desire to collude with government and make competition illegal.  Let's see what he had to say as late as 2008 in a letter to shareholders?:

"The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner." [Emphasis added.]

Well that's not good but wait a tick.  To be fair that was almost three years ago.  What did he have to say just yesterday about competitiveness after being named to the president's new board?:

"The president and I are committed to a candid and full dialogue among business, labor and government to help ensure that the United States has the most competitive and innovative economy in the world." [Emphasis on monopolistic anti-competition verbiage added]

Who Said That?

 Who said this:

"The only way America succeeds is if businesses are succeeding.  The reason we've got a[n] unparalleled standard of living in the history of the world is because we've got a free market that is dynamic and entrepreneurial...That free market has to be nurtured and cultivated."

Speaker-elect John Boehner?  No.  Milton Friedman?  Nope.  Thomas Sowell?  Strike three.

President Obama said it.  The day after the the midterm election, in his televised news conference,  he said it.  And, much to my surprise and delight, he did not appear to throw up a little in his mouth right after the words, free market.  (Although, there was a significant pause there somewhere.  Could be a slight case of acid reflux...)

Begin at the 46 minute mark.  Comments follow the video:


Explanations for such a public statement from a president who gives every indication of a deep hostility to an unplanned free market can abound.  Let's entertain just three:

1. Timing.  It was said the day after the midterms.  The Tea Party influence on the results was significant, what, with all this talk and rally signage about socialism and free markets.  With all this talk of compromise and working together, it makes sense to pretend you've just read the dust cover to one of von Mises' tracts.  (It was Mises who said, "The people of the United States are more prosperous than the inhabitants of all other countries because their government embarked later than the government in other parts of the world upon the policy of obstructing business.") So It could just be prudent political posturing, or at least reflexive lip service.
2. Politics.  Surprise!  Related to #1, and probably interchangeable with it, he felt the calculating urge to drop a little homage to free marketeers on the Hill.  (All four were probably listening.)
3.  He actually believes it or at least acknowledges the historical fact that our prosperity and standard of living are the result of the level of freedom we've always enjoyed.   The progressive Left can indeed acknowledge so much and still embrace a radically different vision for the future of American society.  After all, who should be running the fate of the country, hordes of unorganized and uncoordinated free people pursuing their own self interests or the wiser-than-thous with Ivy League degrees?  That's a no-brainer, depending on who you're talking to, of course.

Actually, after considering all three possibilities I really don't care what the motivation for saying was.  Yes, forget all that conjecturing.

The important matter is that he said it.  Just as importantly is the fact that only the most strident outspoken socialists publicly denounce capitalism, individual freedom, and constitutional limitations on government that protect so much.  In America one still has to at least pay lip service to that whole freedom thing, and most times pay lip service to that whole Constitution thing, too.  As has been stressed here and will be stressed again and again, we have much reason for---dare I use the term---hope that politicians still feel the political urgency to give a public tip-of-the-hat to freedom.  This belies what their advisers and pollsters and focus groups tell them: "Americans are still hung up on being the freest people in the world.  Demagogue over it, prevaricate around it, bulldoze your way  over it, but you have to deal with it."

This is still the home field for freedom.  If we want to be the visiting team we can move to Europe and slug away there.

I wanted to discuss what follows these words, comments about the financial crises, health care, and BP but am running long.  Just remember to ask: How free is the market in health care, the financial markets, and petroleum?   But that's for another Chalk Talk.

Video: Now and The New Deal

 "Underlying a lack of faith in free markets is an underlying lack of faith in freedom itself."~~~Milton Friedman

Are there similarities between the current recession and the FDR New Deal era?  The folks at Reason put this video together arguing so much.

Statists and enthusiasts of excessive control of the market enthusiastically liken Obama to FDR, the premise of their enthusiasm being FDR's hyper intervention saved the country from a crushing depression.

The comparison of Obama with FDR, however, is not be a flattering one.  As Jim Powell amply illustrates in his book FDR's Folly, government control and manipulation of nearly all aspects of the economy--and therefore society--turned a not uncommon to American history depression into a deep and abiding depression, lasting over a decade.  If President Obama is the new FDR, we have worse economic times ahead, and for a long time.

Hence, the great depression.

Put another way, why was this one depression bad enough to be remembered our only great depression?

A market economy runs primarily on freedom: cooperation among individuals, contractual agreements, entrepreneurship, pursuit of respective self interest, and marginal business growth require free society.  In order to create wealth, employment, and standard of living for a diverse population of millions, capital and limited resources with alternative uses must be efficiently allocated and utilized.  Controlled and over regulated markets have never been up to this task and create the uncertainty in market condition-- lack of freedom, that is--that stagnates growth.  Government destruction of the freedom required by the market and regulation beyond its proper role (and there is a good role for government) inevitably brings about economic stagnation and high unemployment.

Remember to ask, what and who is "the free market," or what is more commonly tossed around, "the private sector"?  It is nothing less than you, me, and other individuals freely and responsibly pursuing our respective self interest.  Demand more regulation of "the private sector" and you're demanding more control of your own lives! 

Of course, it's never ourselves and our own liberty we don't trust; it is always the other guy.

Revisiting Hoover, Again

                                                           

                                                           

This weekend I read good article by Johan Goldberg.  It addresses the not uncommon comparison of President Obama to FDR and touches on all the concomitant historical fables (oximoron intended) that surround Herbert Hoover and the Great Depression.

Reading the article prompted me to re-post some scribblings about Hoover, FDR, and the anti laissez-faire Hoover policies that laid the foundation for hyper interventionist policies of the New Deal.

Free market apologists should agree with the big government advocates who reflexively proclaim that Hoover was a terrible president.  He was indeed a terrible president because his policies were a prefiguring of the New Deal that was to come, not because he was a "hand's-off" champion of free markets.  That framing of Hoover is a myth.

History teaches that misguided and excessive government intervention caused and prolonged the Great Depression, not "excesses" of capitalism.  It started with the Fed's misappropriation of the money supply before and after the crash of 1929, continued with Hoover's obsessive grasping at market forces, then went into overdrive with the New Deal for eight years until America's entry into World War II.

                                                                      Two excellent sources on this history are Powell's FDR'S Folly and DiLorenzo's How Capitalism Saved America.  DiLorenzo's chapter 9, Did Capitalism Cause the Great Depression? begins with a quote from FDR's chief economic adviser, Rex Tugwell:

"The ideas embodied in the New Deal legislation were a compilation of those which had come to maturity under Hoover's aegis...We all of us owed much to Hoover."

To my earlier post, "Forget FDR. Obama is Looking A Lot Like Herbert Hoover" :

Progressive supporters of President Obama like to fancy a comparison of him to FDR. I think our president deserves a comparison to Herbert Hoover as well.

What, by the way, is the standard public perception of President Herbert Hoover and the Great Depression? Is runs something like this:

President Hoover deserves the blame for the Great Depression because he did
nothing while the country fell deeper into economic misery. He favored laissez-faire economics and refused to use the government to intervene in the economy, leading to higher unemployment and a deepening of the depression. It required the interventionalist policies of President FDR to recover the economy and save capitalism.

None of the Hoover-was-doggedly-laissez-faire lore is true. The general script on Hoover is part of the fable that plagues the history of the Great Depression. Revisiting the historical record sheds truth on the matter and gives us deeper insight into what did actually cause the Depression to be so Great.

In truth Hoover deserves blame for the depression because he intervened too much and set the table fore the hyper interventionism and meddling of the New Deal.

Hoover was a interventionalist across the board. He was anything but a proponent of "laissez-faire" economics. To that point in history (1929-1932) Hoover set all the records in relation to government intervention in the economy, only to be eclipsed by the dizzying manipulation of the market by his successor, FDR.

Here are some examples, from an excellent book on economic history, How Capitalism Saved America, by Thomas J. DiLorenzo.

    •    As Commerce Secretary under President Coolidge, Hoover disliked open competition in the market and favored government-sponsored competition, calling it "cooperative competition." This laid the groundwork for FDR's National Industrial Recovery Act and the National Recovery Association, a noxious system whereby businesses were forbidden from competing below price levels. Policies were set by business cartels supervised by government, and enforcement was provided by the government.
    •    As president he pushed for and signed the Smoot-Hartley tariff act. This high tariff cut off trade with consumers around the world, set off retaliatory tariffs from other countries, and greatly depressed domestic production of agricultural and manufacturing goods.
    •    Hoover was an enthusiastic proponent of public works. As DiLorenzo points out, by 1931 (FDR was not president until 1933) total government expenditures on public works was as high as any other year in the decade! This is astounding when we consider the millions FDR put on the public payroll with his myriad of works programs. Hoover also encouraged the state governments to increase spending on public works.
    •    By 1931 Hoover's spending created a $2 billion deficit.
    •    He pushed through the largest tax increase in history, to that point in time. Income, corporate, surcharges, estate, and gift taxes all went up.
    •    Hoover created the Agricultural Marketing Act, creating another government-created cartel of large corporate interests in the form of the Federal Farm Board. This board colluded production interests that reduced production and drove up prices of agricultural goods. This was the predecessor of FDR's Agricultural Adjustment Act.
    •    He created the Reconstruction Finance Corporation (RFC). This board used tax payer funds to prop up uncreditworthy with credit, leading to the watering down of free market pressures and forces in lending and finance. This effectively steered capital investment away from productive ventures and job-creating businesses, skewing the market and depressing wealth creation and, therefore, job creation.

Decidedly not laissez-faire, all.

And all these gross interferences in the market occurred during the depression, paving the way for the Great Depression:
    •    When the market needed more freedom, not less, to create wealth and jobs, Hoover intervened.
    •    When people needed to save more of their own property in the form of savings, Hoover increased taxes.
    •    When entrepreneurs and businesses needed more certainty in the market in order to invest and plan for the future, Hoover rocked the boat with interventionalism.
    •    And when the country could least afford deficit spending, Hoover piled it on.

So, with the the Stimulus Bill piling on to the debt, the health care bureaucratic boondoggle thrown on the people and businesses, tax rates nearly certain to go up in 2011, a finance regulatory bill that exempts the government-run Fannie Mae and Freddie Mac, the taking over of a portion of the auto industry, and the looming talk of a crippling Cap and Trade bill, I think President Obama bears more of resemblance to Herbert Hoover than FDR, the hero of his progressive base.

Here is a video coverning the same:
 

Video: Hope in What?

I found this interview very interesting.  What is striking is the first cartoon, a map of America filled in with hundreds of the word, "Hope."

In what, exactly, did so many Americans place their hope?  Was it Obama himself?  Was it a set of ideas and principles he articulated in the campaign?

Few will forget the tremendous lack of anything Obama offered in the way of ideas, principles, or even a voting record in the US and Illinois senate.  He simply threw out there a vacuous notion of "Hope" and "Change," and the public voraciously ate it up.  We placed all our hope in one charming, articulate, well-groomed person who could swoon masses with speeches about nothing, who offered few hints as to the policies he would pursue, and about whom we knew very little.

We placed our hope, not in ourselves as a free people, but in a finely-marketed set of non-ideas articulately refracted back upon us from two teleprompters.  We bought it, hook, line, and sinker.  

Contrariwise, it is fascinating to retrace the grassroots explosion of the Ron Paul Republican primary campaign of 2008.  What was the attraction?  Why all the buzz?  How did Paul's campaign raise $4 million dollars in one day, uncoordinated by the campaign itself?

Is Paul a smoothly packaged, charming speaker?  Hardly.  I've seen him speak twice.  He rambles around at times, has an irregular voice, lacks the rhythm and cadence needed to effectively drive home a point, and seems greatly out of place behind the microphone he often grasps out of nervousness.   By his own admission he has a difficult time in debates because of the time restraints.  He does has an avuncular aspect to him, but sweet older uncles are not known to draw the raucous admiration of thronging crowds.

So why all the enthusiastic followers, a good portion of which are under the age of thirty?  What's the attraction?

People gravitate to the message, not the messenger.  Ron Paul articulates a consistent and clear message of liberty and constitutional government. His book, The Revolution: A Manifesto, could not be more to the point and principled.  Americans are hard-wired for such a messaged---it is part of who we are.  Being we have been starved, for so long, not only of politicians who mean what they say and say what they mean, but politicians that say a lot about freedom and how far we have drifted from living within the constitutional restraints required to preserve that freedom.

And because Ron Paul is the messenger and not the message, it does not matter if he will run for president in 2012. The freedom movement is about freedom, not about blindly following some charismatic speaker into the misty future of his making.  Dr. Paul, I think, would say so much.

We seem poised to again put our hope in freedom, constitutionally-restrained government, and fiscal sanity.

Maybe soon cartoonists will fill up an outline of America with "Freedom."

Now

"The argument for democracy presupposes that any minority opinion may become a majority one."  F.A. Hayek, The Constitution of Liberty

A bird's eye view of the 2008 elections beheld a tremendous political shift in American political and social life.  Democrats added to their congressional majorities won in 2006 and we elected a very progressive, leftist president.  The poll results revealed, it seemed, that a majority of Americans wanted to live out the conclusion of Newsweek magazine, that we are all socialists now.

That was nineteen months ago.  Now things look considerably different.

To interpret 2008 as a watershed election on par with 1800, 1860, and 1936 wherein the center of politics shifted enough to dominate all future legislative policy, one has to make the convincing argument that a majority of Americans have embraced the idea of living under a European style cradle-to-grave nanny state.

Now, we continue to witness the sustained energy and vocalized dissent of Americans through movements like the Tea Party where there is a shared interest in limited government, freedom, and a return to the Constitution.  We see the popularity of Glenn Beck's 5 o'clock show that offers more history and book reviews than news.  We watch the skyrocketing sales of classic works on freedom like The Road to Serfdom (Amazon's top-selling book in June), written in 1944.  And consider that,d due to overwhelming interest, the Austrian economics think tank Foundation For Economic Education had to turn away applicants from their summer seminars.

These social indicators paint a different political landscape that what Newsweek was so giddy to report.  And they tell us two things: America is not primed to become France, Jr., and that the 2006 and 2008 elections were not the seismic shift in politics hoped for by those wanting us to become France, Jr.

Rather, the public seemed primed to vote for Candidate Not-Bush, and give the Not-Republican Party an opportunity at power.  Democrats never gave the public substantive reasons to take back Congress other than reminding us how long Republicans were in the majority.  Presidential candidate Senator Obama campaigned on "hope" and "change," avoiding even marginally substantive talk on concrete issues that would have indicated his desire to "fundamentally transform" America.  He waited to tip his hand to that little ambition days before before the election.

Hope, change, and "he's not the other guy" are not the grounds upon which realignment elections are built.  And they certainly are not principles upon which the public places currency, much less confidence, embraces unequivocally, and holds up as reasons to socialize the country.

Now that we've had a taste of what America could become, if the majority of Americans embraced what this administration and Congress is placing upon them, the public's reaction gives us confidence no such majority exists.  The voice of the minority in the technical sense---those of us not represented by the party in power---is the voice of a larger, deeper, and wider political sentiment in the country.  That voice, then, is really not one of a minority but one of a true majority, preferring freedom, that was waiting to be woken up. 

And it shows no signs of falling back asleep.

What happens this fall and in the next two years will depend on this voice of dissent, and how much effect it has on both political parties.  We've seen we cannot wait for top-down reform (real change, that is) so we have to rely on ground-up pressure on the powers-that-be.   A policy of freedom is what the majority of Americans truly want, and political parties can act oblivious for only so long.

That's how it is, for now.

D is for "Drive"?

President Obama is fond of using (and abusing) an analogy for Democrat economic policy as opposed to Republican economic policy. In his recent trip to Texas, he repeated the analogy again::

“If you have a car and you want to go forward, what do you do? You put it in 'D,'” Obama said. “When you want to go backwards, what do you do? You put it in 'R.' I'm just saying -- that’s no coincidence. We are not going to give them the keys back."  (Click here for full article.)

That line gets a hearty chuckle from politically-empathetic crowds, but the larger historical record of leftist economic policy tells a different story.

In the introduction to his book, Capitalism and Freedom (click here for Book Reports), Milton Friedman explains how the modern-day "liberal" has come to favor a resurrection of the paternalistic state policies of seventeenth-century mercantilism 

against which proponents of classical liberalism---free market capitalism, that is---fought:

"In the very act of turning the clock back to seventeenth-century mercantilism, he is fond of casting true liberals as reactionary!"

Free market capitalism was a tremendous leap forward out of the economic doldrums of the past.  The more people were free to exchange goods and services, the faster the standard of living rose for untold millions of people.  When societies fostered freedom in their markets, they set the course of their lives and the lives of their posterity forward into greater prosperity.

As Ludwig von Mises noted in chapter one of The Anticapitalistic Mentality (click here for Book Reports):

"Capitalism deproletarianized the 'common man' and elevated him to the rank of 'bourgeois'...Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggars, became the buying public, for whose favor the businessmen canvass." 

 Increasing government intervention and influence in our lives and liberties in not setting the car that is our society in "Drive."  With every increase in the central control of our market and therefore economic lives, the government currently controlled by the Ds are heading in Reverse, turning the clock back to the mercantilistic policies that stalled societal adavance and the elevation of millions from hand-to-mouth existences.   Fannie and Freddie control of home mortgages, taking over GM, bank bailouts, and centralizing our health care into the hands of a bureaucratic Leviathan is most certainly putting the car in reverse.

In so far as any of the Rs agree to go along with these backward, regressive economic policies, the president is correct, they are putting the car in reverse.  But the ones putting the car in Reverse are hopping along for a ride with you, Mr. President.