It Is Time to Admit the Obvious: The Political Classes Deliberately Are Blocking an Economic Recovery

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These are heady times at the editorial offices of the New York Times and at the Washington, D.C., home of Sojourners. Columnist Thomas Frank of the Wall Street Journal cannot contain his glee, and the editors of The Nation are enraptured. College and university faculty members still are celebrating. Indeed, one would think that "Happy Days are Here Again" is playing over and over wherever there is a music box.

Barack Obama has delivered. He not only has produced a federal budget so profligate that even Paul Krugman has endorsed it, but his actions on the tax-borrow-spend front have earned the praise of none other than God Himself. That’s right, Jim Wallis, the founder and leader of the Marxist organization Sojourners, has studied the highlights of the document and declared them fit for praise from the Almighty. Thus, we finally are seeing the convergence of the atheists and those who say they believe in God: all can worship Obama.

I have scanned many writers and editorial pages and websites that make their home on the Left, and all seem consistent in their praise of the president’s new proposals. After Obama’s recent speech to Congress, Wallis gushed:

This wasn’t really a budget speech, or even a State of the Union. It was a call to rebuild a country — from its infrastructure, to its economy, to its values. Last night, Barack Obama called a new generation to a new American future. And from the "twittering" and Facebook status updates I am aware of going on last night, the new generation stayed up late to watch and got the speech they wanted — a vision for the new America they hope to raise their children in.

Lest one think that Wallis was enjoying just a momentary flash of glee, read on:

Some people don’t like strong leadership. I do. And this is the kind of leadership that calls and inspires people to act themselves and be part of the solutions we need. I like that too. And it’s a new kind of leadership that invites being held accountable to results. That’s fair.

Obama has a vision and last night offered a road map. And he invited citizens across the political spectrum to bring their own ideas but to join the journey and stop standing by the side of the road with their arms folded in critique. Disagreement comes with a responsibility to offer better ideas, says this president.

The words of Ty’Sheoma, a school girl from South Carolina, sitting in the gallery next to Michelle Obama, were lifted up by President Obama last night. She wrote the Congress to ask for help for her school but wanted them to know, "We are not quitters."

Furthermore, lest one thinks that Wallis is speaking only for himself, read these recent words from Paul Krugman:

Elections have consequences. President Obama’s new budget represents a huge break, not just with the policies of the past eight years, but with policy trends over the past 30 years. If he can get anything like the plan he announced on Thursday through Congress, he will set America on a fundamentally new course.

The budget will, among other things, come as a huge relief to Democrats who were starting to feel a bit of postpartisan depression. The stimulus bill that Congress passed may have been too weak and too focused on tax cuts. The administration’s refusal to get tough on the banks may be deeply disappointing. But fears that Mr. Obama would sacrifice progressive priorities in his budget plans, and satisfy himself with fiddling around the edges of the tax system, have now been banished.

As the Obama administration continues on its legislative and political path, I think that we have to re-frame the terms of the argument. For most people, the dispute supposedly is over the way to an economic recovery. On one side, there is the Keynesian demand that we spend out way out of the crisis, and the recent Nobel Prize conferred on Krugman, who is the loudest and most prominent spokesman for this policy prescription, supposedly lends this path some legitimacy.

On the other side, there are people like Peter Schiff and the Austrian Economists and mainstream economists like Robert Barro, who say that the government’s "solution" is upside down and is making the economic crisis worse. Writes Barro:

Given our situation, it is right that radical government policies should be considered if they promise to lower the probability and likely size of a depression. However, many governmental actions — including several pursued by Franklin Roosevelt during the Great Depression — can make things worse.

I wish I could be confident that the array of U.S. policies already in place and those likely forthcoming will be helpful. But I think it more likely that the economy will eventually recover despite these policies, rather than because of them.

As one who admires Schiff and others who have spoken out and told the truth — and I believe they are correct — I believe that it is time for us to understand a basic truth that is coming out of the new regime: There is not going to be a recovery, and that is just fine with Obama and the political classes that now have a death grip on our lives.

This is a harsh and seemingly conspiratorial statement, and people who know me know that I am extremely skeptical of "conspiracy theories," yet here I am peddling what some very well might call a "conspiracy theory." Do I believe that what Washington is doing is a diabolical plot aimed at fundamentally changing the U.S. economy in a way that economic depression will be a permanent way of life?

In a word, yes. The Obama and Democratic proposals are not simply economic documents. They are fundamentally political in nature and they reflect an understanding that few people have of the Great Depression.

When people discuss the Great Depression, it usually is in the context of whether or not the New Deal was "successful." Economists such as Robert Higgs and Murray Rothbard have argued that it was not, and Barro’s comments above add to that side of the discussion. On the other hand, we have a recent article in Salon which claimed that the New Deal produced "spectacular" economic growth, and we also have Krugman’s columns which claim that the only problem with the New Deal was that Franklin Roosevelt did not spend enough money because the "conservatives" had his ear.

Now, I go with the first group. The New Deal was an unqualified economic failure, if one judges economic "success" by things like unemployment rates, private investment, real output, and the move of people from lives of poverty to lives of plenty. Unemployment stayed in double digits throughout the decade, many people lived in poverty, and the economic output never did match what it had been during the 1920s.

However, I have to add something that most people leave out of the discussion: the New Deal was an unqualified political success, and it was successful precisely because it blocked the economic recovery. This is counter-intuitive, I realize. I have heard discussion in the halls of my university that the public will lose patience with Obama and the Democrats if they don’t deliver and "political guru" Dick Morris even predicts that further economic failure will result in the Republicans gaining political strength.

Don’t count on it. During the 1930s, the Roosevelt administration never had to worry about losing political power, and it held and added to its political majorities. Roosevelt even won a third term of office although the first eight years of his presidency had barely moved the rate of unemployment below what it had been during the worst days of the Herbert Hoover administration.

This spectacular run of political power did not come in spite of the economic crisis; it came because of it. The crisis never ended, and that provided vast opportunities for the political classes in Washington to add to their power over the lives of individuals.

We have to remember that with the exception of the U.S. entry into World War I, most Americans had little contact with governments, and especially the federal government. They lived their lives mostly employed in private business, and with their own families and private associations like churches and clubs.

The Great Depression and the New Deal changed all of that. Americans who once had held jobs that were lifting them from poverty now had to depend upon the pittance of money they received from Washington to keep them from sliding off into economic oblivion. The Works Progress Administration might have paid very little, but whatever money these people received helped to keep them alive for another month.

As James Couch and William Shughart have pointed out in their book, The Political Economy of the New Deal, the Roosevelt administration understood the political power that it had and, more important, the power that it held over the very survival of individuals and their families. In previous times, people could have ignored what was going on in Washington, but during the years of the New Deal, that no longer was possible.

Indeed, they were utterly dependent upon the political classes in Washington and that meant voting "for the right people." In his recent Christmas Day column, Krugman claimed that the Roosevelt administration was nonpolitical in its economic spending, and provided a roadmap for "good government." The meticulous research of Couch and Shughart exposes Krugman’s claim for the Big Lie that it is. Indeed, the New Deal was a vast vote-buying scheme created and maintained for one purpose: keeping Roosevelt and his party in power, and it succeeded beyond expectations.

We know that Obama and his political minions have been reading all about FDR and the New Deal, and we also know they have not been reading Murray Rothbard or Ludwig von Mises. They know all about how FDR and the New Dealers manipulated policies and continuously blocked an economic recovery that would not come about until after Roosevelt was dead and government spending was reduced drastically.

A true economic recovery would mean that the government would play a secondary role in our lives at best. That clearly is not good enough for Obama and the Democrats, who are not interested in being politically irrelevant. Just as the Republicans’ "K-Street Project" was about forcing businesses and individuals to pay protection money to the GOP, the Democrats are going to stay in power because anyone who votes against them is not going to be able to find meaningful employment.

A true economic recovery would strengthen businesses and families, but it would do so at the expense of the power of the political classes. Such a state of affairs no longer is acceptable in Washington, and Obama and his friends are going to make sure that we don’t forget that either.

The key to holding power, however, is blocking an economic recovery and having an economy in which double-digit unemployment is the norm. Don’t think that this would trigger a revolt from the American voters. Once the voters have come to believe that their own futures are tied to the whims of the political classes, they will vote their personal security. Furthermore, the administration and Congress will do everything possible to further empower labor unions, and we can look for huge inroads as the government simply will declare that businesses and organizations become unionized — or else. Organized labor is a political creation, and that means that every working individual is going to constantly be scrutinized for political loyalties — if that person wants to keep his or her job.

During the 1930s, the New Dealers said that the high rates of unemployment were due to the fact that the U.S. economy was "mature." I have not heard that term used just yet, but I am sure that sooner or later, we are going to be told that double-digit unemployment is going to be the permanent state of things, and that if we want employment, we have to make sure that the "right people" are happy with us.

March 5, 2009

William L. Anderson, Ph.D. [send him mail], teaches economics at Frostburg State University in Maryland, and is an adjunct scholar of the Ludwig von Mises Institute. He also is a consultant with American Economic Services.

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