Obama’s ’stimulus’ ignores painful lessons of New Deal

“One will easily believe what one earnestly hopes for.” — Terence

Post and Courier | Mar 3, 2009

By LOUIS E. COSTA, D.M.D., M.D.

Whether it’s a willful self-deception or misdirected conviction, President Obama continues to espouse the virtues of FDR’s New Deal as a passionate defense for his unprecedented “stimulus” plan. Consistent with the trend toward revisionist history, if the facts do not support your contention, change the “facts.”

In reality, if it were not for the commitment of the nation’s resources to World War II and the patriotism of the Greatest Generation that propelled the revival of self-sacrifice and the call to individual responsibility, the New Deal would have done little to attenuate the economic crisis during FDR’s tenure.

Indeed, in many aspects, the provisions of the New Deal actually exacerbated the economic instability leading to a deepened Depression in 1938. The unemployment rate in 1938, three years after the institution of the New Deal, was 17.2 percent. To quote Nobel Laureate Milton Friedman, “This was the only occasion in our record when one deep depression followed immediately on the heels of another.”

As a matter of explanation, two observations are poignant: First, New Deal policies discouraged private investment without which private employment was unlikely, and second, the New Deal’s public works projects, while they did provide humanitarian subsistence, did not bring about recovery.

Pulitzer Prize winner David Kennedy of Stanford University opines, “Whatever it was, the New Deal was not a recovery program, or at any rate not an effective one.”

During FDR’s administration we were in the incipient stages of an evolving global economy. Economic historian Lester Chandler observed, “In most countries, the Depression was less deep and less prolonged” than in the United States. Richard Vedder and Lowell Galloway, in a 1997 analysis, concluded that “New Deal policies systematically used the power of the state to intervene in labor markets in a manner to raise wages and labor costs, prolonging the misery of the Great Depression. Of the ten years of unemployment rates over 10 percent during the depression, fully eight were during the FDR administration.” They concluded that by 1940, unemployment was eight percentage points higher than it would have been without the New Deal policies.

In retrospect, there was a reciprocal impact on unemployment as a result of the New Deal fiscal provisions. Federal government outlay doubled between 1930 and 1940, and debilitating unemployment persisted. Mandatory unionism caused Americans to divest of their liberties without resolving the Great Depression. Jim Powell, in “FDR’s Folly,” stated that the principle legacies of the New Deal were massive expansion of government and loss of liberty. In 2003, four years prior to our current crisis, Powell forewarned, “It would be tragic if in a future recession or depression, policy-makers repeated the same mistakes of the New Deal because they knew only the political histories of the time.”

It is unfortunate that our inexperienced president and his impetuous Congress have confused the persona of FDR with the ill-fated consequences of the New Deal. To take liberty with Winston Churchill’s quote: Never have so few done so much to cause potential distress for so many.

The quintessential admonition of the ages must here be invoked: “Those who do not learn from history are doomed to repeat it.”

The indications are that we have done just that.