OPEN FORUM: A Reality Check

By ACE ROBISON

In 1934, during the depths of the Great Depression, economic and political commentator Matthew Josephson wrote a book entitled “The Great Depression” in which he scorned the “robber baron” capitalists of the late 19th century. They and their ilk were, he accused, guilty of amassing huge fortunes immorally, unjustly, and unethically. Their example, Josephson claimed, laid the foundation for the financial crisis of 1929 and the Great Depression that followed. Josephson’s premise was popular during the Depression years when politicians and commentators, seeking any scapegoat possible, scorned “big business” as being the cause of the financial and economic crisis.

But the reality of the matter is actually quite different, and should be instructive to us today.
The “Roaring 20s” were roaring primarily because the new Federal Reserve Bank (created in 1914) had engaged in a spree in which the nation’s money supply was increased by 60 percent. This huge increase in available capital led to a ballooning of the stock market until it exploded on “Black Monday” October 28, 1929. When the stock bubble burst, credit contracted, banks failed, and consumers quit buying. The result was massive business failure with resulting massive unemployment. The jobless rate would reach 25 percent.

As the economy spiraled downward, a new president assured America that government could fix anything and everything and that the only thing we had to fear was fear itself.

Congress agreed and quickly made matters worse. Upper level tax rates were increased to 63 percent (later to 94 percent). The Smoot-Hawley Act dramatically increased tariffs raising the cost of virtually everything. The National Industrial Recovery Act forced manufacturers into government-controlled combines or pools. The Wagner Act transferred enormous power from business managers to labor unions thus increasing production costs. The Agricultural Adjustment Act imposed new taxes on food processors with the tax proceeds used to pay farmers to destroy their own crops and livestock. Federal spending increased dramatically and with it the national debt. This spending was accommodated, indeed encouraged, by a significantly increased money supply provided by the printing presses at the Federal Reserve

It is estimated that these and other New Deal measures increased the cost of doing business by 40 percent, a cost ultimately borne by consumers who had little money with which to buy things anyway.

In order to build public and congressional support for these programs, the president, supported by a sympathetic media, leveled intense criticism against business and free enterprise as being “economic royalists” who were causing the problem.

The Great Depression dragged on for the next decade until economic activity was finally restored by industrial production brought on by World War II. In fact the wartime economic activity which finally unleashed the nation’s production capacity was driven by those very same dastardly businessmen and capitalists who, according to the president and his allies, had caused the depression. An interesting irony isn’t it?

If this sounds familiar, it should. Please fast forward 75 years to 2008.
With the onset of the “Great Recession” in that year Washington policymakers went into action once again. This time they selectively bailed out banks. They nationalized mortgage markets. They seized industrial companies (leaving bondholders empty-handed). And the Federal Reserve pumped up the money supply to unprecedented levels while congress and a new president drove government spending and the national debt to levels never-before heard of in the history of the republic.

Despite (perhaps because of) expensive so-called “Stimulus Programs”, billions of dollars were frittered away and millions of Americans lost their jobs, many of them permanently. Due to unwise and risky government housing programs many lost their homes. The recent “good news” about declining unemployment numbers is actually not such good news. The declining numbers are largely due to millions of discouraged workers who have quit looking for jobs and are therefore no longer counted as unemployed.

And through all of this the president, aided and abetted by a sympathetic media and a feckless congress, pronounces over and over again that the culprit in all of this are greedy business interests and free enterprise.

Albert Einstein once said that the definition of insanity is doing the same thing over and over again and expecting a different result.
In his first inaugural address in 1981 President Ronald Reagan said, “Government is not the solution to our problem. Government is our problem.”

The Washington, DC response to the “Great Recession” and its aftermath is certain proof that memories are short, history is what happened yesterday, and President Reagan and Dr. Einstein were right.