Obama’s Choice: FDR or Reagan
by Patrick J. Buchanan
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Barack Obama, it is said, will inherit the worst times since the Great Depression. Not to minimize the crisis we are in, but we need a little perspective here.
The Great Depression began with the Great Crash of 1929. By 1931, unemployment had reached 16 percent.
By 1933, 89 percent of stock value had been wiped out, the economy had shrunk by one-third, thousands of banks had closed, a third of the money supply had vanished, and unemployment had reached 25 percent—among heads of households. And in those days, there was no unemployment insurance, no Medicare, no Medicaid, no Social Security, no welfare.
FDR’s answer: vast federal spending, tough new regulations on business and higher taxes—like Herbert Hoover before him, only more so.
The Depression lasted until war orders from the Allies brought U.S. industry back to life. Before 1940, not once did unemployment fall below 14 percent. In May 1939, Treasury Secretary Henry Morgenthau testified:
We are spending more money than we have ever spent before, and it does not work. … I want to see this country prosperous. 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 an enormous debt, to boot.
Politically, the New Deal was a smashing success, with FDR’s landslides in 1932, 1934 and 1936 virtually wiping out the GOP.
Yet, economically, the New Deal was a bust, failing utterly to restore prosperity. Despite the indoctrination of generations of schoolchildren in New Deal propaganda, that is the hard truth.
Consider, now, how Ronald Reagan responded to the economic crisis of 1980, the worst since the Depression. In the “stagflation” of that Jimmy Carter era, interest rates had reached 21 percent and inflation 13 percent.
Reagan’s answer was the tight money policy of Fed Chairman Paul Volcker and across-the-board tax cuts of 25 percent, while slashing the highest rates from 70 percent to 28 percent.
While unemployment hit 10 percent in 1982 and Reagan lost 26 House seats, in 1983 the tax cuts kicked in.
From there on out, it was boom times until Reagan rode off into the sunset, having created 20 million new jobs. The Seven Fat Years, author Robert Bartley called them.
Reagan had followed the lead of Warren Harding and Cal Coolidge, who had cut Woodrow Wilson’s wartime tax rates of near 70 percent to 25 percent, resulting in “The Roaring ’20s,” a time of unrivaled prosperity.
The JFK tax cuts of the 1960s, also a Reagan model, were equally successful.
Harding, Coolidge, JFK and Reagan all bet on the private sector as the engine of prosperity. All succeeded. Franklin Roosevelt bet on government. And the New Deal failed. It was World War II that pulled the United States out of the Depression ditch of the 1930s.
Comes now the financial collapse and economic crisis of 2008, inherited by Obama, with 40 percent of all stock values wiped out in a year, foreclosures pandemic, and unemployment near 7 percent and surging.
In crafting his solutions, Obama seems to be brushing aside the Reagan, JFK and Harding-Coolidge models, and channeling FDR and the New Deal Democrats.
Already staring at a $1.2 trillion dollar deficit for the year ending Sept. 30, about 8 percent of the entire U.S. economy, Obama intends to add a stimulus package of $700 billion to $1 trillion, yet another 5 percent to 7 percent of gross domestic product. The resulting deficit would be twice as large as Reagan’s largest, 6 percent of GDP, which was the largest since World War II.
And how is this Niagara of money to be spent?
Hundreds of billions will go out in checks of $500 to $1,000 to wage-earners and individuals who do not even pay taxes. This is much like the George McGovern “demogrant” program of 1972, where every man, woman and child, if memory serves, was to get a $1,000 check from the U.S. government.
Other hundreds of billions will go to shore up state and municipal spending. Other hundreds of billions will go for “infrastructure” projects, another name for earmarks, which is a synonym for pork.
Now, as Obama does not intend to raise taxes, at least now, he is going to have to borrow this near $2 trillion from foreigners or U.S. taxpayers, or the Fed will have to create the money. Undeniably, this will have an impact upon the economy. But what will that impact be?
Where in history, other than World War II, is there evidence that such a mass infusion of spending restored prosperity?
Obama and the Democrats are taking a historic gamble, not only with their careers but with the country. If this monstrous stimulus package, plus the trillions in hot money, do not work; if the two ignite rampant inflation, rather than real growth, we are all out of options. The toolbox is empty.
And what will follow may truly resemble the 1930s.
COPYRIGHT 2009 CREATORS SYNDICATE INC.
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1 Comment by Allen Wilson on 8 January 2009:
We may be looking at a ten year depression and a breakup of the Union.
2 Comment by robert m. peters on 8 January 2009:
Mr. Wilson @1
For some of us, the dark cloud found in your statement has a sliver lining.
3 Comment by Virgil Caine on 8 January 2009:
With all due respect to Mr. Buchanan (who is the only reason I keep subjecting myself to Foghorn McLaughlin and Eleanor of Shrillitaine every Saturday night) I do believe The Fresh Prince of Bill Ayers is proposing big time, Cheneyesque, tax cuts for Fortune 500 and others who are in the red for 2008 tax year.
I’m sure Goldman, Morgan Stanley, Citi and the other Masters of the Universe who got their hands caught in the business end of a wood chipper will heartily approve. Would the Gipper have?
Im with libs like Joe Stiglitz on this one: the bailout and the bait and switch on the TARP was enough federal suckling for the likes of them. Tax cuts for US based manufacturers assuming there are any who actually pay taxes but no more giveaways to Wall Street. We’ve got toomany one limbed veterans to look after.
4 Comment by Robert Bruce on 8 January 2009:
We are screwed both ways. FDR was a socialist and Reagan started us donw the path of horrific deficit spending. Regan did the right thing in slashing cumbersome taxes, but he didn’t cut government spending the way that he had promised/hoped for and opened the pandoras box for future CIC’s to psend money like water.
5 Comment by NGPM on 9 January 2009:
“For some of us, the dark cloud found in your statement has a sliver lining.”
The end of American hegemony is a good thing, speaking in the abstract, but I fear that the newly enthroned Chinese, to say nothing of the uprooted Mexican peons, will impede any sort of restoration on our home soil.
I freely admit (and am even proud of) the fact that I have bailed out on America. I encourage all remaining decent Americans to attempt the same. It is true that God would have spared Sodom for the sake of 10 good men, but we are proportionately MUCH, MUCH bigger than Sodom, and to be truthful, the rain of fire was an act of mercy. Imagine an entire city dying of AIDS and you get a comparably awesome level of horror to the spectacle of our impending fall.
“opened the pandoras box for future CIC’s to psend money like water.”
I don’t know if that phoenetic Freudian slip was but a typo, but I really don’t believe in coincidence.
“And what will follow may truly resemble the 1930s.”
If any part of the country still resembled anything like the country it was in the 1920’s, I could believe that. Sadly…
6 Comment by Bob Johnson on 9 January 2009:
“Obama and the Democrats are taking a historic gamble, not only with their careers but with the country. If this monstrous stimulus package, plus the trillions in hot money, do not work; if the two ignite rampant inflation, rather than real growth, we are all out of options. The toolbox is empty.”
The real question to me, Pat, is why do they feel the need to do these things?
Too much debt is central to what got us in trouble in the first place, and yet now they want to solve the problem by piling on even more debt?
It’s like a cocaine addict saying to himself: “If only I could get some more coke! Then I’d be free and clear…”
Please note that I’m of course talking about the politicians in this post. I know that behind the schemes you have international bankers who view this as a chance to loot the United States while they still have the chance.
And if any Republicans think about going along with this just for the business tax cuts, someone should try and remind them that Grover’s “Starve the Beast” project has already succeeded beyond anyone’s wildest expectations, and that additional measures on that front are almost certainly unneeded from a libertation/seccessionist standpoint.
And more to the point, that we’re getting to a crossroads where if the beast gets any more hungry, it won’t just be the beast that falls down dead.
7 Comment by Lee on 9 January 2009:
People seem to have missed the Orwellian Animal Farm bait and switch in which government of, by and for the people became of, by, and for the banks and bankers back in 1913. Welcome to 21st century slavery.
8 Comment by Theodore Van Oosbree on 9 January 2009:
The “Roaring Twenties” ended in a great crash. That suggests that the twenties were not so roaring after all. They were in fact a period of imprudent speculation, inflation and over-indebtedness. Sound familiar?
9 Comment by John Seiler on 9 January 2009:
Great article. And let’s not forget that the first Bush, in 1990, broke his solemn pledge, “Read my lips, no new taxes,” boosted taxes, crashed the economy, and brought us 8 years of Clinton and 8 more of Bush II. The positive side was Pat’s own 1992 campaign, which might have toppled Bush I from the ticket — and defeated Clinton — had not the Neo”conservatives” sabotaged it. Pat should write a book about that campaign. Go, Pat, go!
10 Comment by Bob Johnson on 9 January 2009:
Lee @ 7,
Didn’t Grover get enough of that at the RNC Chairman debate, without you going and “irritating” him again?
I saw a few minutes and it was interesting to see just how afraid they seemed to be of Ron Paul’s mysterious beliefs.
They are probably more afraid of said beliefs than they are of the impending economic collapse of the US economy, which is a wee bit ironic I would say…
Kind of like those ancient kings of Judah who were more concerned with muzzling Jeremiah than that minor issue of Nebuchadnezzar’s approaching army.
11 Comment by Sempronius on 9 January 2009:
“CAPTANS ANNONAM MALEDICTUS IN PLEBI SIT”-St.Ambrose
In order to deal with our economic-financial disorder we need to come to grips with one of its fundamental causes,coiled tightly at its inner core.It is the practice of usury.
All of the proposed ways of dealing with the crisis,”supply side” and “demand side”,”guberment” or “lazy faeries”,take usury for granted and seek to promote recovery and stave-off disaster by trifling with superficialities.
Demanding interest on non-productive loans forces debtors to literally chase after money THAT DOES NOT EXIST.Put another way, if you collected every single legal tender note,and handed it over to the banks on behalf of every single debtor,both public and private,you,they,would still be in debt.
Money has essentially two functions.It is a measure of value-a BMW’s price can be measured in loaves of bread instead of pieces of paper called “dollars”,and the price of bread can be measured in fractions of BMWs-but it is much more convenient to measure everything against one thing and make our calculations accordingly.Thats one function of money.
The other function is as a means of exchange.A theater ticket gives me title to one seat at the theater.But it doesnt allow me to purchase a beer,or a loaf of bread,or a BMW;no matter how many tickets I happen to amass.The theater ticket is a claim on one specific thing;currency is a generalized claim on all or any-thing(s).That is the second function of money.
Ezra Pound once remarked;”saying the government cant do someting because it doesnt have enough money,is like saying you cant build a railroad because you havent got enough kilometers”.In other words confusing money’s function as a means of exchange with its OTHER function as a measure of value.
Similarly,saying the “free market” cant allow something because there isnt enough money(i.e. profit)is like a theater owner with an empty theater and a throng of spectators camped outside saying;”I cant open for business,there arent enough tickets”.In other words confusing money’s function as a measure of value with its OTHER function as a means of exchange.
(to be continued)
12 Comment by Arius on 10 January 2009:
Tighten your belts, the next several years will be a rough ride. The Obama administration is the next installment in the Bush-1/Clinton/Bush-2 drama. There will be bear market rallies and expect to hear that ‘happy days are here again’, so don’t take your eyes off the fundamentals and technicals that point at the coming hyper inflationary depression.
13 Comment by Sempronius on 10 January 2009:
PART II
Since we need currency to prosper,it has to be issued by some institution,and according to some principle.Who issues our currency,and what principle do they apply in so doing?
The answer to the first half of that question is,the Federal Reserve,a privately owned bank.
We’ve glimpsed at the problem this causes.In order for money to come into existence-and without some medium of exchange and some measure of value we’re back to the primitive system of barter-a bank has to make a loan.And loans come with interest obligations attached,which means that the only way for that interest to be discharged is with more money created from more loans.But,as you can easily see,THOSE loans also have interest attached to them,and the only way to pay off THAT interst is with new money created from fresh loans, etc. etc. etc..
So collectively,we can never NOT owe the bank any money;because all the money that exists is never sufficient to discharge our debt- principle plus interest.The bank will certainly see to that.
The answer to the second half of the question is,the fractional reserve system.
In order for a bank to make loans it must keep a reserve of currency at the central bank,i.e. The Federal Reserve Bank.This reserve is a fraction of the total loans The Fed will allow a bank to make.Normally a bank will make loans up to nine or ten times the amount of its reserves at The Fed.
Banks are always making loans,and simultaneously receiving interest installments from loans already lent.During an expansion the amount of money in loans flowing outward from the bank exceeds the amount of money wending its way back to it from its debtors.But when it has made loans totaling nine or ten times its reserve at The Fed, its stops making loans.It now “calls in” its loans,and the amount of money flowing into the bank exceeds the amount flowing out.
The public now experiences a “credit crunch”,and has less money than is necessary to carry on with its affairs.Belts tighten,enterprises fail,and people lose jobs.
(to be continued)
14 Comment by Etienne Gervaise on 12 January 2009:
There will be an increase in barter as people will work with their tools, skilled craftsmen will emerge and train the next batch of people who won’t be bothered with girly college. Private libraries and book discussions, poetry readings, ribald and scurrilous folk music, free seminars, these are the great things a poor society has to offer. This has the potential to be the birth of a great America; one in which the gap between the plain folks and the elite opens up so wide that the peons will have the guts to live without their self-appointed masters.
15 Comment by Sempronius on 12 January 2009:
PART III
The actual system of finance is therefore fraudulent in the extreme.Whether the remedy is sought in some form of austerity,as a corrective to “shop till you drop” debauchery,or some form of “dirigiste” policy as a corrective to free-market anarchy,both approaches fail to question(or purposely avoid questioning)current practices.
Put another way,”liberals” and “conservatives” are both in agreement that the current financial crisis-the high levels of indebtedness,both public and private-is the RESULT of a problem,however differently they discern what that problem happens to be.When as a matter of fact the debt is ITSELF the problem.
With all of this in view,the path lies clear before us.The policy of any restorative or regenerative party should be to call for the cancellation of nearly all debts,public and private,currently in existence.
The monies thus liberated from service charges on that old debt can then be used in the creation and maintenance of a sounder economy.More importantly,this unburdening of the public can be used as a great political Tool to effect greater and wider-ranging change throughout the body politic.
By striking at the financial heart,we can bring down the imposing body of the present regime,and turn it into a corpse.
(to be continued)
16 Comment by Bob Johnson on 12 January 2009:
“There will be an increase in barter as people will work with their tools, skilled craftsmen will emerge and train the next batch of people who won’t be bothered with girly college. Private libraries and book discussions, poetry readings, ribald and scurrilous folk music, free seminars, these are the great things a poor society has to offer. This has the potential to be the birth of a great America; one in which the gap between the plain folks and the elite opens up so wide that the peons will have the guts to live without their self-appointed masters.”
Etienne,
That, and especially the last part, is so perfect from the standpoint of getting to the heart of the matter.
17 Comment by alogicbit@hotmail.com on 13 January 2009:
“dirigiste”
Do you mean centralized government or policy derived by a central government?
Are you trying to impress people?
Because you’re not…