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aceventura3 · 03-04-2009, 01:14 PM

Quote:

Originally Posted by dippin

Labor markets move relatively slowly. 17% might be high by some standards, but when they are down from over 25%, it is simply the middle of the recovery.

What?!? Are you trying to tell me that, assuming the number is correct, that after all the new deal spending that a 17% unemployment rate is o.k.? Is a 17% unemployment rate an indicator to you that the Depression ended?

I know how you folks hate IBD editorials but here is one from today's paper on this subject. I throw up the white flag. Perhaps it is time for me to learn to speak Chinese.

Quote:

Fiscal Policy: Fidelity Investments' CEO calls President Obama's economic plan "New Deal II" and says it won't work any better than it did for FDR. We fear he may be right on both counts.

"During the '30s, Congress — with guidance from the president and the same kind of good intentions — shifted the country's cash flow away from productive business to government make-work projects, which most likely prolonged the Great Depression," Fidelity's Ned Johnson said.

In fact, many economists agree that the New Deal was a formula for institutionalizing unemployment, not reducing it.

Seventy-five years later, with unemployment heading to 10%, government has prescribed a similar formula.

"We can only hope that the government's cure doesn't further sicken the patient," Johnson added.

The odds aren't good, though. FDR proved that we can't spend our way back to prosperity, and we certainly can't tax our way back. Yet Obama's long-term budget calls for massive new spending along with $1.4 trillion in net new taxes.

The president's insistence on soaking the rich in a severe downturn is also troubling. He may be dooming us to repeat FDR's mistakes.

Even Roosevelt's loyal Treasury secretary confessed that New Deal policies failed. By 1939, a frustrated Henry Morgenthau had concluded that massive tax-and-spend programs hadn't made a dent in structural unemployment, which was at 20%.

"We have tried spending money," Morgenthau lamented. "We are spending more than we have ever spent before and it does not work. We have just as much unemployment as when we started. . . . And an enormous debt to boot!"

Will Timothy Geithner be lamenting the same thing four years from now?

While Obama says he doesn't want to reprise FDR's policies, he sure is a big fan of them. In fact, in his 2006 memoir he explicitly said he wanted to resurrect them. And this was long before the recession.

"Today the social compact FDR helped construct is beginning to crumble," Obama wrote. He proposed an "alternative approach" to what he felt was the GOP's flint-hearted "ownership society." He offered a path that "recasts FDR's social compact to meet the needs of a new century."

Obama mistakenly credits FDR's policies — not World War II, and the reversal of many of FDR's policies — with the postwar economic boom.

Referring to globalization, he wrote: "The last time we faced an economic transformation as disruptive as the one we face today, FDR led the nation to a new social compact — a bargain between government, business and workers that resulted in widespread prosperity and economic security for more than 50 years."

Now he has a full-blown economic crisis to help justify returning to such a state (as his chief of staff says, never let a good crisis go to waste). The parallels between his policies and those of FDR are numerous — and ominous.

1. FDR raised the top marginal income-tax rate (to 79%, then again to 90%), discouraging entrepreneurs from investing and starting new businesses. Obama vows to hike income taxes (while limiting deductions) for couples and businesses earning more than $250,000.

Ronald Reagan, in contrast, incentivized entrepreneurs with tax cuts, and they led us out of the last recession that was this bad. (Interestingly, Reagan now ranks as the greatest president of all time, easily surpassing Roosevelt, who ranked fourth, according to a recent Gallup poll.)

2. FDR tried massive new government programs, and while they created jobs, they were largely make-work jobs that didn't last. And every dollar that went to create a federal job had to come from taxpayers who could have spent those dollars in the private sector. The programs also created a mammoth new bureaucracy that freighted the economy with even more inefficiencies.

For his part, Obama hopes to create 3.5 million jobs to build, among other things, "wind turbines and solar panels." He's betting that the industries of the future are green. But in his 2006 book, he bet wrong when he championed ethanol as the energy source of the future. So will his "green collar" jobs really be the jobs of the future, or just another boondoggle?

3. FDR re-regulated the economy, including the banking and finance industries, which are square in Obama's sights. Under FDR, the Federal Reserve let the money supply contract. He burdened businesses with onerous rules and price-support schemes and diminished competition across industries. The economy remained mired. Now Obama plans similar meddling.

4. FDR talked down free trade and talked up protectionism, which only hurt exports. Obama is singing the same tune for the benefit of the unions to whom he admits he's greatly indebted.

"I owe unions," he said in 2006. "When their leaders call, I do my best to call them back right away. I don't consider this corrupting in any way; I don't mind feeling obligated toward (them). . . . I got into politics to fight for these folks." That was back when he was a senator. Imagine the debt he owes unions now.

5. Obama, like FDR, wants to set wages. He wants to put in place federal rules that require businesses to pay above-market, union-level wages, meaning fewer jobs will be created.

"FDR understood that decent wages and benefits for workers could create the middle-class base of consumers that would stabilize the U.S. economy and drive its expansion," Obama wrote of his hero, failing to understand that wage mandates always cost jobs, and without jobs, consumers stop consuming.

6. FDR eventually employed Keynesian deficit spending. That didn't work either. It just piled up a massive debt that we had to inflate our way out of. When Obama is done with his own New Deal, we could find ourselves with a staggering $15 trillion gross national debt, which, combined with contracting GDP, could push the total debt burden well above 70% of GDP.

7. FDR created massive welfare programs without means-testing, and it just created a dole that prolonged unemployment. Obama is mandating that states dole out federal stimulus money based on census data alone. It's stealth welfare, just like his tax credits. Federal health care is next; in fact, Obama's budget proposes $1 trillion in new health and other entitlements.

The reason the New Deal didn't work was not that government didn't do enough, but that it did too much. The economic growth and job creation that this country so sorely needs now must ultimately come from the private sector.

The markets know this. That's why they're sending distress signals. The problem is, Obama's too busy plowing ahead with New Deal II to listen.

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