Friday, November 6, 2009

Obama's Folly

This morning, in a segment discussing the economy, CNN anchor Tony Harris lamented the fact that so many businesses are "hoarding their money." This is a real problem. Economic recovery depends on businesses investing, banks lending, and consumers buying. Each of these entities does these things instinctively, and yet they've largely stopped doing the very things they are designed to do. Why?


The economy is rocking and rolling and no one knows what to expect. In times of uncertainty, the natural thing to do is draw back, be cautious, and wait to see what develops. Unfortunately, our government is doing exactly the opposite. It's bailing out some companies while leaving others to fail. It's spending massive amounts of money reshaping the entire political and economic landscape. It's taking over entire industries and clamping down on others with regulations that severely limit options at a time where flexibility is desperately needed.

In short, our government is making things worse -- making the already uncertain even more unpredictable. Is it any wonder that businesses are "hoarding their money?" They're simply trying to survive until the government stops rocking the boat and they can get back to doing what they were designed to do: create wealth.

This isn't the first time this has happened. As Amity Shlaes writes in The Forgotten Man:
One of the most famous [Franklin Delano] Roosevelt phrases in history, almost as famous as "fear itself," was Roosevelt's boast that he would promulgate "bold, persistent experimentation." But Roosevelt's commitment to experimentation itself created fear. . . The trouble was not merely the new policies that were implemented but also the threat of additional, unknown policies. Fear froze the economy, but that uncertainty itself might have a cost was something the young experimenters simply did not consider.
Sound familiar?

Obama has publicly proclaimed that he is running the FDR playbook. In a interview with 60 Minutes, he said,
There's a new book out about FDR's first 100 days and what you see in FDR that I hope my team can emulate, is not always getting it right, but projecting a sense of confidence, and a willingness to try things. And experiment in order to get people working again.
Obama's experiment is failing miserably. Today the unemployment rate clocked in at 10.2%, 28% 20% worse than he warned it would be if we didn't adopt his policies.

There is increasing evidence that FDR's massive social policies and grand experimentation are what put the "Great" in the Great Depression. We seem to be witnessing a calculated reenactment of that play.

Roosevelt's solution to businesses "hoarding money" was to pass the "undistributed profits tax," which simply took that money away from them. Obama is following suit by increasing taxes on the most productive segment of our society, the segment that creates the jobs and generates the wealth we so desperately need.

As it did with FDR, the American economy will recovery, in spite of Obama's recklessness. But the recovery will likely be more lengthy and more painful than it ought be. "FDR's Folly" can be excused, in part, for he hadn't the benefit of economic history and analysis. Obama doesn't have that excuse, and so his folly is doubly tragic for not having availed himself of the lessons FDR wrought.

Correction: I originally wrote that unemployment is now 28% higher than Obama predicted it would be without his policies. My memory failed me, as I recalled him predicting unemployment would get as high as 8% unless we passed his "stimulus" package. He actually said it would reach 8.5% without his policies, and only 8% with his policies. Today, it reached 10.2%, which is 20% higher than he warned it would go if we didn't adopt his policies.

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