Guess who said the following: "We have tried spending money. We are spending more than we have ever spent before and it does not work." Was it Sarah Palin? Rush Limbaugh? Karl Rove?
Not even close. It was Henry Morgenthau, Secretary of the Treasury under Franklin D. Roosevelt and one of FDR's closest advisers. He added, "after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!"
This is just one of the remarkable and eye-opening facts in a must-read book titled "New Deal or Raw Deal?" by Professor Burton W. Folsom, Jr., of Hillsdale College.
Ordinarily, what happened in the 1930s might be something to be left for historians to be concerned about. But the very same kinds of policies that were tried-- and failed-- during the 1930s are being carried out in Washington today, with the advocates of such policies often invoking FDR's New Deal as a model.
Franklin D. Roosevelt blamed the country's woes on the problems he inherited from his predecessor, much as Barack Obama does today. But unemployment was 20 percent in the spring of 1939, six long years after Herbert Hoover had left the White House. [...]
Read the rest to see why, and how we must avoid having history repeat itself. Roosevelt wasn't even following pure Keynesian economics, he was following an obscure economist at the University of Wisconsin, whom most other economists disagreed with. Roosevelt knew little about economics, but a great deal about politics. The combination was devastating.
Another contemporary economist, Amity Shlaes, takes a look at the 1930's:
The Rules of the Game and Economic Recovery
THE MONOPOLY BOARD GAME originated during the Great Depression. At first its inventor, Charles Darrow, could not interest manufacturers. Parker Brothers turned the game down, citing “52 design errors.” But Darrow produced his own copies of the game, and Parker Brothers finally bought Monopoly. By 1935, the New York Times was reporting that “leading all other board games … is the season’s craze, ‘Monopoly,’ the game of real estate.”
Most of us are familiar with the object of Monopoly: the accumulation of property on which one places houses and hotels, and from which one receives revenue. Many of us have a favorite token. Perennially popular is the top hat, which symbolizes the sort of wealth to which Americans who work hard can aspire. The top hat is a token that has remained in the game, even while others have changed over the decades.
One’s willingness to play Monopoly depends on a few conditions—for instance, a predictable number of “Pay Income Tax” cards. These cards are manageable when you know in advance the amount of money printed on them and how many of them are in the deck. It helps, too, that there are a limited and predictable number of “Go to Jail” cards. This is what Frank Knight of the University of Chicago would call a knowable risk, as opposed to an uncertainty. Likewise, there must be a limited and predictable number of “Chance” cards. In other words, there has to be some certainty that property rights are secure and that the risks to property are few in number and can be managed.
The bank must be dependable, too. There is a fixed supply of Monopoly money and the bank is supposed to follow the rules of the game, exercising little or no independent discretion. If players sit down at the Monopoly board only to discover a bank that overreaches or is too unpredictable or discretionary, we all know what happens. They will walk away from the board. There is no game. [...]
She then explains the relevance of the Monopoly analogy to the 1930's. She goes into detail, using specific events to illustrate her premises.
I've often heard that government interference and intervention at the time actually prolonged the depression by eroding confidence and creating instability. Here, Shlaes offers the damning evidence for all to see. After explaining in detail, looking at causes and effects, she then demonstrates their relevance to the events of our times:
[...] It is not hard to see some of today’s troubles as a repeat of the errors of the 1930s. There is arrogance up top. The federal government is dilettantish with money and exhibits disregard and even hostility to all other players. It is only as a result of this that economic recovery seems out of reach.
The key to recovery, now as in the 1930s, is to be found in property rights. These rights suffer under our current politics in several ways. The mortgage crisis, for example, arose out of a long-standing erosion of the property rights concept—first on the part of Fannie Mae and Freddie Mac, but also on that of the Federal Reserve. Broadening FDR’s entitlement theories, Congress taught the country that home ownership was a “right.” This fostered a misunderstanding of what property is. The owners didn’t realize what ownership entailed—that is, they didn’t grasp that they were obligated to deliver on the terms of the contract of their mortgage. In the bipartisan enthusiasm for making everyone an owner, our government debased the concept of home ownership.
Property rights are endangered as well by the ongoing assault on contracts generally. A perfect example of this was the treatment of Chrysler bonds during the company’s bankruptcy, where senior secured creditors were ignored, notwithstanding the status of their bonds under bankruptcy law. The current administration made a political decision to subordinate those contracts to union demands. That sent a dangerous signal for the future that U.S. bonds are not trustworthy.
Three other threats to property loom. One is tax increases, such as the coming expiration of the Bush tax cuts. More taxes mean less private property. A second threat is in the area of infrastructure. Stimulus plans tend to emphasize infrastructure—especially roads and railroads. And after the Supreme Court’s Kelo decision of 2005, the federal government will have enormous license to use eminent domain to claim private property for these purposes. Third and finally, there is the worst kind of confiscation of private property: inflation, which excessive government spending necessarily encourages. Many of us sense that inflation is closer than the country thinks.
If the experience of the Great Depression teaches anything, it is that property rights must be firmly established or else we will not have the kind of economic activity that leads to strong recovery. The Monopoly board game reminds us that economic growth isn’t mysterious and inscrutable. Economic growth depends on the impulse of the small businessman and entrepreneur to get back in the game. In order for this to happen, we don’t need a perfect government. All we need is one that is “not too bad,” whose rules are not constantly changing and snuffing out the willingness of these players to take risks. We need a government under which the money supply doesn’t change unpredictably, there are not too many “Go to Jail” cards, and the top hats are confident in the possibility of seeing significant returns on investment. [...]
It's definitely worth reading the whole thing. If you don't have the time to buy and read here book, this lecture she gave is the next best thing.