“We all agree that it’s critical to cut unnecessary spending,” Obama said. “But we can’t just cut our way to prosperity. It hasn’t worked in the past, and it won’t work today.”
President Obama is wrong, and this incorrect logic and ignorance of history is leading him to make wrong policy decisions today. We can cut our way to prosperity and it has worked in the past- in fact, it has worked a lot better than efforts in the past to spend our way to prosperity as Obama is suggesting we do. To demonstrate this, let’s compare the economic recessions of 1920 and 1929.
In 1929, our economy went into a severe recession. President Hoover responded to this recession by implementing a very active policy response, which included vastly increased spending by the national government, increased taxes especially on the evil rich, increased regulation of businesses, bailouts for banks and for ‘too big to fail’ companies, increased support for labor unions, and the creation of dozens of more government agencies and boards to organize and improve our existing economic system. The results of these policies were a longer and deeper recession.
In 1932, President Roosevelt campaigned to end these policies but when he became President he took Hoover’s policies and made them even bigger, more expensive, more spending, and wider reaching. And the results of those policy decisions were a double-dip recession in 1937.
In 2009, President Obama and a Democratic Congress enacted these very same policies- attempting to spend, regulate, control, tax, and spend their way out of the 2009 recession, and the results of these policies have been to lead to a slower and shallower recovery and now as seen in the latest economic numbers are leading to the coming double-dip recession in 2013 or 2014.
President Obama is not really committed to cutting unnecessary spending, is not trying to cut our way to prosperity, and is attempting policies that have not worked in the past and won’t work today.
In 1920, our economy was hammered as it had never been hammered before- a GDP decreased maybe 7%, the US dollar deflated up to 18%, unemployment jumped 6% in one year, productivity plummeted 29.4%, stocks fell dramatically, and the recession was so bad that many in society began to question the stability and future of the American system of capitalism. President Harding ignored the advice given to him by Secretary of Commerce Herbert Hoover and responded to the recession by drastically cutting government spending, quickly cutting regulations, cutting various bureaucratic boards and agencies, and slashed taxes on all incomes. His aggressive implementation of the very policies that President Obama rejects and says “haven’t worked” resulted in our economy quickly emerging from the recession and roaring throughout the 1920’s.
The policy response of limited government, balanced budget, low taxes, low regulation, and unleashing of human freedom led to the Roaring Twenties, which was an amazing period in American history of social, artistic, and economic dynamism. These results are markedly different from the results of an active government, increased taxes, massive government spending, and more regulation that were implemented by progressive Hoover and liberal Roosevelt which led to stagnation and human misery of the Great Depression.
President Obama, ignorant of the history of America and failing in his use of logic, is wrong- President Harding demonstrated that so to marked effect in 1920 and President Hoover demonstrated it so again in 1929. Economic recessions are worsened and lengthened by a government that takes away human liberty, treats people as numbers to manage, takes wealth and property from those who have earned it, and that in every other way violates the Founding Principles of our nation which included limited government, federalism, and separation of power.
Let us educate him and others on the history of economic policy in our nation- whether it be the Panic of 1907 which was ignited by antitrust actions and increased regulation of the railroads, or the Long Depression of 1873–79 which was caused by the failure of government supported railroads and the manipulation of the money supply by the government, or any other recession that has struck the United States before or since. We need to be educated and then in turn educate our politicians like President Obama, because driven by their ignorance and poor logic they are busy implementing the very policies which will lessen your life, liberty, and your prosperity.
This post drew on earlier posts of mine, including Lessons from Economic Recessions II- The Forgotten Recession of 1920 and Lessons from Economic Recessions- Introduction and Great Depression.