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Gridlock to the Rescue?

Comment

Washington gridlock may turn out to be the salvation of the Obama administration.

Not only does gridlock allow the president to blame Republicans for not solving the financial crisis that his own runaway spending created, the inability to carry out as much government intervention in the economy as when the Democrats controlled both Houses of Congress means that the market can now recover on its own to some visible extent before the next election.

Such a recovery would of course be credited as a success of the Obama administration's policies. With this theme being echoed throughout the pro-Obama media, enough voters might be sufficiently impressed to give the president a second term.

The media and the intelligentsia seem obsessed with the idea that government intervention is necessary to get the economy out of the doldrums. This is certainly the prevailing dogma but it is contradicted by history. Yet who reads history any more?

If you look back through history and compare what happens when the federal government intervenes during a downturn in the economy with what happens when the government leaves the market free to work its own way back, doing nothing has by far the better track record.

First of all, this country existed for a century and a half without the federal government intervening to save the economy. No downturn in all that time was as severe or as long-lasting as the downturn that persisted throughout the decade of the 1930s, when both the Hoover administration and the Roosevelt administration intervened on an unprecedented scale.

There was no Federal Reserve System to help — if that is the word — during downturns before 1914. One of the few things on which liberal economists like John Kenneth Galbraith and conservative economists like Milton Friedman agreed was that the Federal Reserve made the Great Depression of the 1930s worse.

Economists writing in a leading scholarly journal in 2004 concluded that government intervention prolonged the Great Depression by several years.

Back in the 1930s, John Maynard Keynes cautioned President Roosevelt about demonizing and threatening business.

Yet FDR, who said in his famous first inaugural address, "We have nothing to fear but fear itself," spent the rest of the decade spreading fear to businesses and investors — and wondering why there was still mass unemployment, despite his record-breaking spending.

Back in 1920-21, there was a sharp economic downturn, with unemployment spiking to 11.7 percent. President Warren G. Harding did nothing, except for cutting government spending. Yet the economy quickly recovered and annual unemployment rates ranged from a high of 6.7 percent to a low of 1.8 percent in the rest of the decade.

In the mid-1940s, as World War II neared its end, Keynesian economists were frantically trying to come up with postwar plans to prevent massive unemployment when 12 million people were to be discharged from the military and millions of civilians would lose their jobs when plants producing military supplies shut down.

Two things prevented those wonderful Keynesian plans from being put into operation. First, the atomic bomb brought the war to an end much sooner than anyone expected. Secondly, the Republicans got control of Congress, producing the "do-nothing 80th Congress" that President Harry Truman excoriated during his 1948 election campaign.

In short, plans for vastly expanded government intervention were thwarted — and the "problem" that such intervention was supposed to solve did not materialize. There was a G.I. Bill of Rights for returning military veterans but this was a fraction of what liberal Keynesians had been contemplating.

Anticipating postwar employment problems, former Vice President Henry A. Wallace wrote a book titled "60 Million Jobs," advocating sweeping government interventions to achieve this otherwise unattainable goal. Wallace's interventions never took place, but the free market created 60 million jobs anyway.

A stock market crash in 1987 broke some records set in 1929. But Ronald Reagan did nothing, despite howls from the media, and the economy recovered — leading to 20 years of prosperity.

Obama may yet be re-elected, as a result of gridlock.

Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com. To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM



Comments

4 Comments | Post Comment
Thomas,
I have been trying to get this out into the mainstream for awhile. With a supposed GDP growth rate of say 2-3% over the last few years, no one is bringing up the Federal Deficit spending as a percentage of GDP, which this year is at 9%. Think about that, without that spending, our GDP growth rate would be at a negative 6-7%. What is the definition of a depression? It is a 4 contiguous quarters of declining GDP. Why do you think the government is on a spending spree? They do not want anyone to know that we are actually in a depression.

I stated this over 2 years ago and it still has not gotten one response from anyone in the economic sphere or any of the news outlets. I have attempted numerous emails to those in the media. My prof in economics agrees with my assessment. Maybe you can broach the subject? Anyway, great article and keep up the great work.
Comment: #1
Posted by: David Kramer
Tue Dec 13, 2011 2:06 AM
Obama WILL be a two-term president. WHy? Because the Republicans have a popular agenda, but no candidate. NONE of the current Republican candidates can win against Obama. There are two Republicans who come to mind instantly that COULD beat Obama, but one won't run and the Republican party won't nominate the other; they are Condaleeza Rice and New Mexico's Gary Johnson, respectively. Either could defeat Obama, but alas it isn't to be...
Comment: #2
Posted by: Glenn Young
Tue Dec 13, 2011 3:11 AM
Mr. Sowell,
For a second there, I thought it possible that you were interested in an honest discussion, but no, you started off with your usual brainless right wing "intelligentsia" crap: "...allow the president to blame Republicans for not solving the financial crisis that his own runaway spending created,...". Yes, Obama owns a sizable piece of this mess, but that other president, AKA, the little man from Texas, who entered us into two wars (One of which was an illegal war of choice.), began a huge new medicare entitlement, and pushed through huge tax cuts - and did all with NO effort at paying for them - owns a big piece of this action too. Sorry Mr. Cheney, it seems that deficits do matter after all. (Something Regan knew.)
.
It is time for our nation (as well as commentators such as Mr. Sowell) to grow up. To get out of this current mess we will need the best efforts of both parties and a lot of shared pain. No, things would not be great if we just cut taxes enough and things would not be great if we just borrowed enough. Taxes will have to go up, services, and entitlements, as well as defense spending will have to be cut. And we have a lot of work to do in improving education and our aging infrastructure to stay competitive. Let's get to work.
Comment: #3
Posted by: Mark
Wed Dec 14, 2011 10:33 PM
I cringe when I hear people say, "I'm sick of Washington. They never get anything done! It's just gridlock and partisanship." Well that was the original intent of our founders. It was was supposed to be rare for Washington to need to intervene in any significant way. If Washington "gets things done" then taxes are raised or complicated, current laws are complicated, huge amounts of money are spent, the debt is usually increased and most importantly freedom is restricted. It should be clear that all of the above should not be easy or common.

The problem today is how much bipartisanship there is and the lack of gridlock. I don't mean I'm opposed to civil discourse or understanding in Washington. I'm opposed to people being so easily persuaded to sign on to knew laws. A lot of the problem is rooted in earmark spending. Earmarks supposedly don't make up much of the federal budget but their real cost is the cost of every bill that would not have passed without earkmarks. Senator Landrieu of Louisiana was a good recent example with Obamacare. Her earmark was 300 million dollars (and of course there were many other earmarks in the bill.) But the real cost of the earmark was the total cost of Obamacare because without her and a few others' votes it wouldn't have passed.

That is why we need simpler bills without some many specially appropriated funds and programs within each bill. That would make it harder to pass anything. This would allow for more freedom and more certainty. The economy thrives on freedom and certainty.

The other thing we need is an American populace that changes its view and expectation of government. We shouldn't see a problem in the world and immediately ask "why isn't the government doing something?" We should expect that life has problems and try our best to fix the ones we can. Crying for government involvement is counterproductive and arguably immoral. We shouldn't expect a new program or more funds for programs every time (or any time at all) we are faced with societal problems.

By the way Mark, Dr. Sowell wasn't writing here about why or why not we are in this economic mess. If you read his whole article it isn't about the cause of recesssions. It is about whether or not government intervention is necessary or helpful in getting us out of them (it's not.) Of course President Obama inhereted a mess (the cause of which will be left to a different discussion.) But that doesn't mean he needs to intervene to fix it. Dr. Sowell's thesis here is that gridlock in Washington will finally allow the economy to recover because it creates a level of certainty. That means Obama is benefitting politically because republicans have the power to stop him from doing what he would otherwise do. We don't need "shared pain" or the "best efforts of both parties" to get us out of the current economic mess. We need to do nothing and let the economy self correct.
Comment: #4
Posted by: Zack
Mon Dec 19, 2011 7:16 AM
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