Today on Utah’s Rod Arquette show he was discussing an article he read in the New York Times called “We’re Spent,” by David Leonhardt. The article points out that spending on entertainment and cars and homes and so forth has never fallen below a 3% decline in any recession, and we’re down 7%. The insinuation, of course, is that we may not ever recover, and that consumer and government should increase spending as a result. He argues that history demonstrates this fact and points to the Hoover administration… -1
I called Rod Arquette and in my nervous excitement for actually getting on the radio for the first time happily, nervously and admittedly probably badly, I tried to denounce this. My reasoning is simple. History has shown us quite the opposite. Whenever we hit a recession we tend to see both the national debt and individual and family debts all at the breaking point. The times where we have rebounded are the times when not only the government but individuals got serious about debt elimination.
In the early part of the 20th Century we see this pattern perhaps the clearest. We had the first seriously Progressive President, Woodrow Wilson and the introduction of the Income Tax followed by dramatic increases in government spending. We, as a people, were also still in the process of coming off the farms and moving to the cities for work in industry. Our debt and spending was increasing as well. Then of course the government spent us into oblivion with World War I, an arguably wholly unnecessary war… Needless to say by the time Woodrow Wilson was done the people and the nation were broke and needed a change. Conservative Warren G Harding was then elected on the campaign of a “return to normalcy…” (If there are any Republican Candidates for President reading this that campaign slogan would be extremely effective even if Al Sharpton tries to find hints of racism in it… that is what the people want.)
It is ironic that the almost quiet times he presided over has him ranked as one of the “worst” presidents according to Wikipedia, this based on that he is said to have accomplished little. I disagree, he established the Bureau of Budgets and was actively involved in trying to rein in spending and restoring fiscal sanity to the congress. His Secretary of the Treasurer, Andrew Mellon, was the first in modern times to notice a connection between increased taxes and decreased revenue through tax evasion, and moving funds and business overseas. For Harding and his crew scaling back the damage done by Woodrow Wilson (ironically considered one of the “best presidents” for reasons I will never understand) was an uphill battle, but the country was facing a serious depression, one we never hear about in school. Harding died mysteriously in the middle of a conversation with his wife August 2nd, 1923. not even a full two years into his first term.
Enter Calvin Coolidge and the Republican Super Majority. In one of the rare instances where the GOP has had a super majority and could get anything done that it wanted to Calvin Coolidge finished the job of his predecessor, he paid down the national debt and cut taxes and spending and the scale and scope of government in half. Within two years we were in one of the biggest booms in our country’s history. The people also were paying off their debts during this time frame, and after a time of economic cooling, once their confidence was restored they started spending again, buying telephones, refrigerators and all kinds of new gadgets. Those who already had these things upgraded and we experienced the roaring twenties.
In contrast to Leonhardt’s view, Herbert Hoover was not a small government conservative. He was, as a point of fact, a member of the Efficiency Movement, a progressive group which thought that all the inefficiency and waste of the government and society could be solved by placing “experts” (what we’d call Czars today) into positions of power and then “nudging” government and society in the direction they wanted to go. Under Hoover spending increased, and they also made the fatal mistake of passing the Smoot-Hawley tariff. Herbert also famously denounced the lassies fare economics his predecessor embraced.-2
The Smoot-Hawley Tariff caused in increase in imported consumer goods which, as increased prices always do, lead to a decrease in demand and lost sales. Then Europe struck back by increasing tariffs on American goods and that caused lost sales over seas. This is what lead to Black Friday.
Promising to solve the problem by cutting taxes, reducing spending and restoring fiscal sanity Franklin Delano Roosevelt challenged Hoover and won in 1933. Rather than implementing the fiscal restraints he promised FDR did what Hoover did with a vengeance, spending more than ever before, and taxing like a crazy man. With so much being taken out of people’s pockets no one could pay off their own debts, let alone hire anyone. FDR’s reelection efforts were entirely based on “blame the Republicans.” He won re-election four times based on that strategy and the entire time he was president America’s economy was in a depressed state.
This patter continues for some time, whenever we scaled back spending and paid off our debts things got better, and people started spending again, but the conditions had to be right, low taxes, minimal bureaucracy and a government and a people with minimal debt.
Right now both the nation and it’s citizens are in severe debt. While other callers of the Rod Arquette Show painted a picture of fear and uncertainty, worried about what taxes would look like, and one even complained that the Green Eco-technology has made newer goods more complex and less inviting, the historic fact of the matter is we have seen throughout history, when Government scales back, and the people pay off their debts eventually new gadgets will come out that they will want. Their family will get bigger necessitating bigger cars or houses. The Nintendo Wii-U will come out, we won’t be able to resist that 3D-TV anymore. If the right leaders are elected to office and the conditions are right in 2012 consumer confidence will come back and with it jobs. When consumer confidence does come back we should, however, follow FA Hayek’s save then spend approach to getting goodies as opposed to John Maynard Keynes’ “spend your way into prosperity” approach. In other words chop up those credit cards and stuff your superfluous money in a bank. You’d be surprised how quickly that 3D-TV you’ve been eyeing becomes affordable.
-1 “We’re spent,” David Leonhardt July 16, 2011 New York Times http://www.nytimes.com/2011/07/17/sunday-review/17economic.html?pagewanted=all accessed 7-18-11.
-2 Hoover, Herbert. "American Individualism", 1922.
No comments:
Post a Comment