Memo to in­ter­ven­tion­ists: Stop in­ter­ven­ing

The Washington Times Weekly - - Commentary -

Some peo­ple are hop­ing that Pres­i­dent Obama’s plan will get the econ­omy out of the dol­drums and start pro­vid­ing jobs for the un­em­ployed. Oth­ers are hop­ing that the Repub­li­cans’ plan will do the trick.

Those who are truly op­ti­mistic hope that Democrats and Repub­li­cans will both put aside their par­ti­san­ship and do what is best for the coun­try.

Al­most no­body seems to be hop­ing that the govern­ment will leave the econ­omy alone to re­cover on its own. In­deed, al­most no­body seems at all in­ter­ested in look­ing at the hard facts about what hap­pens when the govern­ment leaves the econ­omy alone, com­pared to what hap­pens when politi­cians in­ter­vene.

The grand myth that has been taught to whole gen­er­a­tions is that the govern­ment is “forced” to in­ter­vene in the econ­omy when there is a down­turn that leaves mil­lions of peo­ple suf­fer­ing. The clas­sic ex­am­ple is the Great De­pres­sion of the 1930s.

What most peo­ple are un­aware of is that there was no Great De­pres­sion un­til AF­TER politi­cians started in­ter­ven­ing in the econ­omy.

There was a stock mar­ket crash in Oc­to­ber 1929 and un­em­ploy­ment shot up to 9 per­cent, for one month. Then un­em­ploy­ment started drift­ing back down un­til it was 6.3 per­cent in June 1930, when the first ma­jor fed­eral in­ter­ven­tion took place.

That was the Smoot-Haw­ley tar­iff bill, which more than a thou­sand economists across the coun­try pleaded with Congress and Pres­i­dent Hoover not to en­act. But then, as now, politi­cians de­cided that they had to “do some­thing.”

Within 6 months, un­em­ploy­ment hit dou­ble dig­its. Then, as now, when “do­ing some­thing” made things worse, many felt that the an­swer was to do some­thing more.

Both Pres­i­dent Hoover and Pres­i­dent Roo­sevelt did more, and more, and more. Un­em­ploy­ment re­mained in dou­ble dig­its for the en­tire re­main­der of the decade. In­deed, unem- ploy­ment topped 20 per­cent and re­mained there for 35 months, stretch­ing from the Hoover ad­min­is­tra­tion into the Roo­sevelt ad­min­is­tra­tion.

That is how the govern­ment was “forced” to in­ter­vene dur­ing the Great De­pres­sion. In­ter-

Obama’s poli­cies are very much like the poli­cies of the Roo­sevelt ad­min­is­tra­tion dur­ing the 1930s.

ven­tion in the econ­omy is like eat­ing potato chips: You can’t stop with just one.

What about the track record of do­ing noth­ing? For more than the first cen­tury and a half of this na­tion, that was es­sen­tially what the fed­eral govern­ment did, noth­ing. None of the down- turns in all that time ever lasted as long as the Great De­pres­sion.

An eco­nomic down­turn in 1920-21 sent un­em­ploy­ment up to 12 per­cent. Pres­i­dent War­ren Hard­ing did noth­ing, ex­cept for cut­ting govern­ment spend­ing. The econ­omy quickly re­bounded on its own.

In 1987, when the stock mar­ket de­clined more in one day than it had in any day in 1929, Ron­ald Rea­gan did noth­ing. There were out­cries and out­rage in the me­dia. But Rea­gan still did noth­ing.

That down­turn not only re­bounded, it was fol­lowed by 20 years of eco­nomic growth, marked by low in­fla­tion and low un­em­ploy­ment.

The Obama ad­min­is­tra­tion’s poli­cies are very much like the poli­cies of the Roo­sevelt ad­min­is­tra­tion dur­ing the 1930s. FDR not only smoth­ered busi­ness with an un­end­ing stream of new reg­u­la­tions, he spent un­prece­dented sums of money, run­ning up record deficits, de­spite rais­ing taxes on high in­come earn­ers to lev­els that con­fis­cated well over half their earn­ings.

Like Obama to­day, FDR blamed the coun­try’s eco­nomic prob­lems on his pre­de­ces­sor, mak­ing Hoover a pariah. Yet, 6 years af­ter Hoover was gone, and nearly a decade af­ter the stock mar­ket crash, un­em­ploy­ment hit 20 per­cent again in the spring of 1939.

Do­ing noth­ing may have a bet­ter track record in the econ­omy but govern­ment in­ter­ven­tion has a bet­ter po­lit­i­cal record in get­ting pres­i­dents re-elected.

Peo­ple who say that Barack Obama can­not be re-elected with un­em­ploy­ment at its cur­rent level should take note that Franklin D. Roo­sevelt was elected a record four times, de­spite two con­sec­u­tive terms in which un­em­ploy­ment was never as low as it is to­day.

Eco­nomic re­al­ity is one thing. But po­lit­i­cal im­pres­sions are some­thing very dif­fer­ent, and all too of­ten it is the po­lit­i­cal im­pres­sions which de­ter­mine the fate of an ad­min­is­tra­tion and the fate of a na­tion.

Thomas Sow­ell is a se­nior fel­low at the Hoover In­sti­tu­tion, Stan­ford Univer­sity.

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