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Looking back at the Great Depression – tax rates and more

This is not inside-baseball economics stuff – don’t be afraid. Arthur B. Laffer at the Wall Street Journal has a good historical review of the Great Depression and what happened with tax rates during the period.

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Recounting, not rewriting, history – the Great Depression

Even though I have two books on the desk that I have yet to finish reading, I’m interested in perusing books about economics. Not advanced economics, but just the basics. I’m still trying to find the time to read Basic Economics – on our book list – but thanks to a tip from the good folks at Hot Air, I’ve found another book to add to the list.

Robert Murphy authors The Politically Incorrect Guide to the Great Depression and the New Deal. From the inside flap, courtesy Amazon.com…

Everything you know about the Great Depression and the New Deal is wrong.

We all learned in school that the 1920s were a time of unregulated capitalism that led to the stock market Crash of 1929 and the Great Depression of the 1930s. Herbert Hoover was a laissez-faire ideologue who did nothing to alleviate the crisis–even as citizens starved and were forced to live in “Hoovervilles.” And the interventionist policies and massive spending programs of Franklin D. Roosevelt’s New Deal gradually lifted us out of the Depression, until World War II brought it to a definitive end.

The only trouble with this official narrative–taught in most history textbooks, and proclaimed as gospel by the media–is that every element of it is false. Worse, this unsubstantiated myth is now being used to justify a “new New Deal” in response to today’s economic crisis that could lead to a Greater Depression even deeper and longer than the first. But in The Politically Incorrect Guide to the Great Depression and the New Deal, economist Robert Murphy fact-checks the myths, shows why they’re wrong, and delves deep into history to set the record straight. His “politically incorrect” conclusion? It was government, not free markets, that caused the Great Depression–and the New Deal only made it worse. The real “lessons of the Great Depression” are not what you’ve been taught.

  • The Crash of `29 was caused not by capitalism, but by the boom brought on by the newly created Federal Reserve’s easy money policy (sound familiar?)
  • Hoover made the Depression “Great” precisely by abandoning the laissez-faire approach that previous presidents had followed and that kept depressions short
  • The bank runs of the 1930s were caused by government intervention in the banking system
  • Government efforts to prop up wages and prices led to a full decade of double-digit unemployment
  • FDR’s arbitrary policies toward businessmen resulted in net investment of less than zero for much of the Depression

Might Barack Obama be the new FDR? You’ll know, after reading The Politically Incorrect Guide to the Great Depression and the New Deal that if he is, that’s nothing to celebrate.

Here is a screen shot of the first couple of paragraphs.

robert-murphy-great-dep

Stimulus More Dangerous After We Recover

Pat Toomey, with the Club For Growth, had some sobering words for Neil Cavuto last night. Not only does he believe that the current Prokapalooza can’t pull the economy from recession, but he believes as the nation recovers, as it always does, there will be those who believe that massive spending was in the fact the very thing that pulled us out … dooming us to a generation of spenders. Gee I wonder what gives him that idea?

httpv://www.youtube.com/watch?v=MwCaPhXUQFw

FDR’s New Deal stifled economy for 15 years

So why did the Great Depression last for more than 15 years? In 2009, many think the United States could be in a 1929 situation, where the government has the opportunity to take action by spending more cash, or let the capitalist system loose, cutting taxes and letting the free market run.

In the 1930s, FDR’s solution was to spend and spend, and get intimately involved with the wages of private company employees.

I’m not predicting another Great Depression, but we have great historical records from the 1930s and into the 1940s about what worked and what did not. We have the advantage of hindsight – isn’t that a great thing?

Malkin reminds us about the 2004 UCLA study that blamed the long downturn on FDR’s policies.

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

“President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,” said Cole, also a UCLA professor of economics. “So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.”

In the three years following the implementation of Roosevelt’s policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

So they raised wages for everyone who had a job, but unemployment remained high and prices were higher too. That plan did not work out so well.

(I’m going to use arbitrary numbers here, and since trillions seem to be the new billions…)

What makes more sense?

  1. Have the government increase spending by one trillion dollars projects to “kick start” the economy.
  2. Lower federal taxes – permanently – by one trillion dollars and let the free market, states and municipalities decide where to spend that one trillion.

Spending this amount of money at the federal level leaves too many opportunities for graft, misuse and overspending. When was the last time you were able to go to a meeting with your US House representative or senator?

How about another option?

The money – if it is spent at all – should be spent at the local level.

Let’s cut federal taxes and in-turn cut the federal budget by 60 percent? I’m not kidding. Per our Constitution, they do not have the authority to spend most of that cash anyway.

Then, increase state and local taxes to cover the cash they do not get from the feds. Make it an equal sum game; dollar for dollar. Again, I’m not kidding.

More power would be returned to the states, cities and towns, and I bet more people would get actively involved in local government.

Stop for a second and answer this question. Can you name half of the members of your local school board?

Maybe the horse really is out of the barn, especially when today’s speech at George Mason University by the president-elect included the following, my emphasis added.

It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy – where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.

There you have it. Only government can save the economy.

Maybe Obama should have stop in to see if Professor Williams had office hours today at GMU?

How about a debate between our friend Walter Williams and the president-elect? That would be so sweet.

Home page photo courtesy jimbowen0306 at Flickr.

Update: Morrissey at HotAir brings the subject up again. It’s definately worth a second look again.