Do not think about, write about or deal with human behavior without determining the effects of incentives.
As Williams points out below, the Great Depression was great because it was the first in which “activist” governments both under Hoover and Roosevelt, decided it was the government’s role to intercede and make the economic downturn shorter. When a government decides to “do something”, it’s a perfect of example that when something “needs to be done”, it usually makes things much worse. The emphasis is on the INTEND and the IS and not on the DOES–the outcome of well-publicized intervention.
Walter E. Williams
A Failed Obama Hero
“Let’s think about President Obama’s failed economic stimulus program. Before getting to the nitty-gritty of why stimulus packages fail, let’s look at the failed stimulus program of Obama’s hero, Franklin Delano Roosevelt. FDR’s Treasury Secretary, Henry Morgenthau, wrote in his diary: "We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!"
Morgenthau was being a bit gracious. The unemployment figures for FDR’s first eight years were: 18 percent in 1935; 14 percent in 1936; by 1938, unemployment was back to 20 percent. The stock market fell nearly 50 percent between August 1937 and March 1938. Columnist Walter Lippmann wrote, "With almost no important exception every measure he (Roosevelt) has been interested in for the past five months has been to reduce or discourage the production of wealth." The last year of the Herbert Hoover administration, the top marginal income tax rate was raised from 24 to 63 percent. During the Roosevelt administration, the top rate was raised at first to 79 percent and then later to 90 percent. Hillsdale College economic historian Professor Burton Folsom notes that in 1941, Roosevelt even proposed a whopping 99.5 percent marginal rate on all incomes over $100,000. Much more of the Hoover/FDR fiasco can be found in "Great Myths of the Great Depression".”
The Great Depression did not end until after WWII. Why it lasted so long went unanswered until Harold L. Cole, professor of economics at the University of Pennsylvania, and Lee E. Ohanian, professor of economics at UCLA, published their research project "How Government Prolonged the Depression" in the Journal of Political Economy (August 2004). Professor Cole explained, "The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes. Ironically, our work shows that the recovery would have been very rapid had the government not intervened." Professors Cole and Ohanian argue that FDR’s economic policies added at least seven years to the depression.”
……
“Between 1787 and 1930, our nation has seen both mild and severe economic downturns, sometimes called panics, that have ranged from one to seven years. During that interval, no one considered it to be the business of the federal government to try to get the economy out of a depression because there was no constitutional authority to do so. It took Hoover, FDR and a frightened and derelict U.S. Supreme Court to turn what might have been a three- or four-year sharp downturn into a 15-year meltdown.”
And that’s government for you.
Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies
