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"Obama threatens to follow in FDR's economic missteps

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"Obama threatens to follow in FDR's economic missteps

By Amity Shlaes
Friday, July 9, 2010
Source Washington Post 

"With unemployment high and the Dow Jones industrial average bumping about, the big debate this summer is how to prevent a double-dip recession resembling that of the late 1930s. Some say Washington should spend more, arguing that government austerity triggered the collapse in 1937 that erased previous gains. Others say that cutting spending now will strengthen the economy generally and preclude dramatic downturns.

President Obama may be about to repeat Franklin D. Roosevelt's mistakes -- but not the ones captured in this narrow discussion.

By fixating on the debt and stimulus plans, Obama and Congress are overlooking challenges to the economy from taxes, employment and the entrepreneurial environment. President Roosevelt's great error was to ignore such factors -- and the result was that sickening double dip.

Taxation is an obvious area the Obama administration ought to reconsider. Income taxes, the dividend tax and capital gains taxes are all set to rise as the Bush tax cuts expire. The Obama administration portrays these increases as necessary for budgetary and social reasons. A society in which the wealthy pay their share, the message goes, has a stronger economy. The administration and congressional Democrats are also striving to ensure that businesses pony up. The carried-interest provision in the tax extender bill seeks to raise rates on gains by private equity and hedge funds. If that were not enough, a so-called enterprise value tax would be levied on partnerships that sought to elude the new high taxes by selling their companies.

Roosevelt, too, pursued the dual purposes of revenue and social good. In 1935 he signed legislation known as the "soak the rich" law. FDR, more radical than Obama in his class hostility, spoke explicitly of the need for "very high taxes." Roosevelt's tax trap was the undistributed-profits tax, which hit businesses that chose not to disgorge their cash as dividends or wages. The idea was to goad companies into action.

The outcome was not what the New Dealers envisioned. Horrified by what they perceived as an existential threat, businesses stopped buying equipment and postponed expansion. They hired lawyers to find ways around the undistributed-profits tax. In May 1938, after months of unemployment rates in the high teens, the Democratic Congress cut back the detested tax. That bill became law without the president's signature.

Then there is labor policy. Obama announced this year that the federal government would award contracts to firms with more generous pay and benefit packages. With its support of private- and public-sector unions -- recall its treatment of the automakers' unions in the 2009 bailout -- the administration generally wants wages or compensation to be high.

Roosevelt's flamboyant pursuit of a similar goal cost the economy dearly. The National Industrial Recovery Act and, later, the Wagner Act gave workers the power to demand higher wages. They got them. But employers struck back, choosing not to hire or rehiring many fewer workers than they otherwise might have. In the later 1930s, the divide deepened between those with jobs and the unemployed. Economists Harold Cole and Lee Ohanian wrote in the Journal of Political Economy that the politically driven wage increases were the most important factor in the double-digit unemployment of the later 1930s. A popular Gershwin song of the period, "Nice Work If You Can Get It," captured the bitterness.

What about the third factor, the entrepreneurial environment? The Obama administration places a premium on action. When it comes to spending, the idea seems to be that any spending is better than none. Big new laws -- financial reform -- are put forward to inspire confidence.

But change that is too arbitrary and too frequent petrifies firms, especially before their rules have been tested in the courts. As Verizon Communications chief executive Ivan Seidenberg noted recently in a Business Roundtable speech: "By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses."

This analysis echoes those of Depression-era entrepreneurs. In 1938 Lammot du Pont, head of the eponymous chemical concern, spoke of a "fog of uncertainty" slowing business and noted in the company's annual report that arbitrary government always slowed business down: "by land and sea the universal practice under conditions of fog is to slacken speed."

What about the old spend-or-save debate? The evidence suggests that easier money did indeed help end this second slump. But a larger factor was Roosevelt's decision to stop attacking business and turn to foreign policy. When Republicans made gains in the 1938 midterms, it became clear that the New Deal era of mega-intervention was ending.

It is that backtracking of the later '30s that is relevant to recovery today."

Amity Shlaes is a senior fellow in economic history at the Council on Foreign Relations

http://www.washingtonpost.com/wp-dyn/content/article/2010/07/08/AR2010070804272.html

Entry #2,017

Comments

1.
sully16Comment by sully16 - July 9, 2010, 5:31 pm
Cut taxes and less government spending, I would love to open a business again.
I haven't been able to trust this economy for several years.
Now we have another wal-mart going up, they hurt small business I don't care what anyone says.
Minimum wage/part time employment...people can't survive on that.
Oh ...there had better not be any illegals...
2.
MADDOG10Comment by MADDOG10 - July 9, 2010, 5:47 pm
This only goes to show the American people, that this puppet has no plan of his own, nor does he know what to do in plain english..
This JR.senator has NOT GOT A CLUE> If this is his plan, we'll be looking at a civil war here in 2011...
Cutting Taxes and Government spending is the only way to avoid turmoil here at home....!
3.
JAP69Comment by JAP69 - July 9, 2010, 5:59 pm
Thanks Konane,
When Pres obama is always asking for people to put forth ideas on something that tells me a lot. Then when he asks for ideas he does not want ideas that cut into his agenda.
An experienced leader should and most generaly knows what a good plan is.
Most buisnesses fail in the first two years of inception because of poor management. He has had 18 months now and failure is showing.

I will need to research how they pulled this of in the 30s.
"In May 1938, after months of unemployment rates in the high teens, the Democratic Congress cut back the detested tax. That bill became law without the president's signature."
4.
konaneComment by konane - July 9, 2010, 7:36 pm
Thanks Sully! When a dictator, Chavez, takes it upon themselves to nationalize American oil platforms from a business that's operated in Venezuela for 50 years .... and our own government nationalizes privately owned corporations, bails out banks and proceeds to loot the population's assets with higher taxes people know the world not business friendly.
5.
konaneComment by konane - July 9, 2010, 7:43 pm
Thanks Maddog! My question is that if Obama was one of the CFR's chosen ones, they why is this article written by one of their own criticizing him? I'm still scratching my head over that one.

I agree he has no practical experience in anything and is not qualified for many reasons to hold the office we're stuck with him holding until 2012 ....... or unless someone in congress grows some cojones and begins impeachment proceedings. Definitely not holding my breath ... their pay grade is too high.
6.
konaneComment by konane - July 9, 2010, 7:54 pm
Thanks JAP! You're right about it being his way or the highway. I've seen it written in several columns that he has absolutely no business experience. Guess he figured a road-pan load of BS would get him through 4 years but he didn't count on that oil volcano in the Gulf making things a bit tougher on his reign.

For me his failure was glaring when he started spending like a drunk sailor on a 3 day pass.

We seem to be revisiting the 30's in more ways than I like to think about. Any info you could come up with is greatly appreciated.
7.
Rick GComment by Rick G - July 9, 2010, 10:42 pm
Konane, as you so adroitly pointed out, the author is a CFR tool. In the first paragraph she compares these economic times to the late 30's. Try the early 30's, Amity. Sorry, but this is no "double dip" recession, this is a contrived, agonizing slide into a full-blown depression.

I like the 'double dip' linguistics...double dip ice cream cones to comfort us during the hot summer. It also implies that it's just a "dip".   Bring out the hockey stick chart for a truer assessment.

8.
konaneComment by konane - July 9, 2010, 11:01 pm
Thanks Rick! I'm weak in history but from what I know it eerily seems like the early 30's with lots of dust bowls, soup lines and outright financial ruin if the current course continues.
9.
Rick GComment by Rick G - July 10, 2010, 12:17 am
@konane, Exactly. The time cycles rhyme, don't they? Act III is another world war if the trend continues.
10.
konaneComment by konane - July 10, 2010, 8:46 am
Thanks Rick! Names and places have changed but looks like that's what they have planned to 'thin the herd' and bring the obedient survivors 'in line' with their dogma. Maybe that's too much conspiracy theory but it's time we look around and decide for ourselves where we're being herded.

From a pure metaphysical standpoint during the 30's it was easy to suppress the truth, keep secrets. Since 1987 because of a change in earth energies due to a rise in humanity's global consciousness (this one they can't cram back into the box even if they bomb us all back to the stone age) we're all more aware and will remain so no matter what. Additionally humanity's consciousness has become dimensional meaning all the secrets they're trying so hard to hide keep toppling out. Further I've heard it said we are on the verge of being able to tell when people are lying by simply KNOWING, seeing it with our inner eyes or as some would say by plain gut instinct. Brzezinski recognizes it well and has written a fairly long essay about it.
11.
konaneComment by konane - July 10, 2010, 8:50 am
One clarification to the above is that Brzezinski's essay pertains to increased global political awareness ...... but without the increase in our own collective awareness which must be scaring the bejeezus out of them, that political awareness wouldn't be possible.

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