Re: Deja vu all over again
- From: Curly Surmudgeon <curlysurmudgeon@xxxxxxxx>
- Date: Tue, 07 Oct 2008 21:33:34 -0700
On Tue, 07 Oct 2008 20:35:35 -0700, Winston_Smith wrote:
http://mises.org/story/3145
Don't Trust the Brain Trust
The ghost of FDR is everywhere, haunting both Washington and New York. The
terrible trouble is that the minds in power have confused an economic
wrecker with an angel of mercy. They are following his confusions and
prescriptions day to day in an attempted repeat of the longest economic
calamity in modern American history.
They have looked at the history of the New Deal and completely
misunderstood it, believing the civics-book claptrap about how FDR saved
us from the Depression, whereas the fact is that FDR's theories and
policies lengthened and deepened it to the point that the only way out
that the Roosevelt administration saw was war.
The great theoretical error of the New Dealers was to confuse the symptom
of low prices with the causes of the economic downturn. The real problem
was that prices were massively inflated before the stock-market crash of
1929. The correction had to occur and would have occurred peacefully, if
not wholly painlessly, had the government not intervened.
No government in all of human history that has waged war on prices has
won. The Great Depression is exhibit A.
First there was Hoover with his attack on the "bitter-end
liquidationists," whose advice he summarily rejected. Instead he increased
taxes, regulated against short selling, attempted to expand liquidity and
the money supply, attempted to maintain existing wage rates, extended
loans via government, and bailed out debtors with bankruptcy laws. For
more on Hoover's antimarket program, see Rothbard's America's Great
Depression.
Roosevelt took office and extended this program, while rhetorically
claiming that it was the free-market policy of the Hoover administration
that failed. Today we see Bush's attack on speculators and the mediawide
attempt to claim that the meltdown is caused by unregulated markets run
amok. No doubt the next president, whoever he may be, will continue this
crusade against markets, pretending as if the Fed and the Bush
administration haven't been trying antimarket means of rescue for fully
two years, with each attempt backfiring.
But now let's look forward to the next step in the war on falling prices
in the 1930s. FDR took office under the promise that he would curb the big
spending of the Hoover administration. The tune changed once he took
office. Like Hoover before him, he denounced the rich and powerful
speculators, bankers, and corporations he blamed for bad economic times.
Even as he was saying these things, he called together the people he
regarded as the most powerful and important corporate, banking, and labor
interests - together with a gaggle of professors from Columbia - and
essentially asked them what they wanted to get the economy going again.
This was the Brain Trust that set the pattern for all of Washington's
activities from then to the present day. John T. Flynn, in his masterful
book The Roosevelt Myth, described the first round of the New Deal as
"that vast hippodrome, that hectic, whirling, dizzy three-ring circus with
the NRA in one ring, the AAA in another, the Relief Act in another, with
General Johnson, Henry Wallace and Harry Hopkins popping the whips, while
all around under the vast tent a whole drove of clowns and dervishes --
the Henry Morgenthaus and Huey Longs and Dr. Townsends and Upton
Sinclairs and a host of crackpots of every variety -- leaped and danced
and tumbled about and shouted in a great harlequinade of government,
until the tent came tumbling down upon the heads of the cheering
audience and the prancing buffoons."
What did the elites gathered around FDR demand? Higher prices (of
course), uniform industrial codes on labor and prices, production
controls, an end to competition from below, security for labor unions,
guaranteed credits, import tariffs -- and also the police power they
needed to enforce all this. The model here was Mussolini's Italy, which
was regarded at the time as an ideal system of industrial management. Of
course, antitrust laws were shelved as the government itself set out to
create as many trusts as possible.
What came out of these meetings was the all-around industrial planning
fiasco called the National Industrial Recovery Act, which created the
National Recovery Administration. The head was former draft
administrator General Hugh Johnson, who brought to the effort every
propaganda trick he had learned from his kidnapping years. He began with
a central plan of wages, working hours, prices, and production quotas.
He went on the air, to the papers, to billboards, movies, and everything
else to whip up a frenzy.
There was a symbol of compliance: The Blue Eagle. FDR said on the radio
that "soldiers wear a bright badge to be sure that comrades do not fire
on comrades. Those who cooperate in this program must know each other at
a glance. That bright badge is the Blue Eagle." And, added Johnson, may
"God have mercy on anyone who attempts to trifle with that bird."
And you know what? It is a complete disgrace that business supported it
all - for a while.
Flynn tells of police raids of factories, as workers were lined up and
interrogated to make sure that they weren't working overtime and weren't
accepting less than the government-approved minimum. Consumers were
arrested for paying less than the approved minimum prices. A tailor
named Jack Magid in New Jersey was arrested and jailed for charging 35
cents instead of 40 cents to press a pair of pants. In time, the NRA
became unenforceable, as black markets sprung up in every industry. The
crackdown became worse, with nighttime raids on factories, and
bureaucrats chopping down doors with axes to make sure that no one was
sewing clothes. The NRA staff ballooned from 60 employees to 6,000 at
the national level.
The entire thing became a war on production to benefit a handful of
elites, all in the name of keeping prices up, all on the profound
misunderstanding that boosting prices would boost production, whereas
the opposite was true. Finally the Supreme Court came to the rescue and
declared the whole Soviet-like scheme unconstitutional, but, by that
time, it was clear that it was unworkable and doomed to failure.
At the very same time, other sectors such as banking and agriculture
were being administered by other destructive schemes, all based on
economic error. The result was fantastic waste, disastrous attacks on
freedom and productivity, a regimentation of the entire country under a
dictator, and a prolongation of the Depression, which went on and on.
No matter how many disasters FDR created -- and it was nonstop -- and no
matter how much his ridiculous "rabbits from the hat" were exposed as
economically harebrained, with every new bureau, every new law, every
new initiative, the economy continued to sink.
The New Deal is a paradigmatic case of how to turn a downturn into a
depression. That US leaders regard this as a model to follow does not
speak very well of their economic literacy, and it doesn't bode well for
our future.
On the other hand, if you want to see how to handle a crisis, consider
the Panic of 1819. Never heard of it? That's because it came and went,
and that's because the government did nothing about it.
Often the best response is to do nothing. Instead we have Terrorist
Politics which must scare the hell out of people to get their way.
--
Regards, Curly
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Jail to the Chief
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