American Elephants

“New, New Deal” meet the “Old New Deal.” by The Elephant's Child
February 7, 2009, 7:30 pm
Filed under: Domestic Policy, Economy, History, Liberalism, Military, Taxes | Tags: , , ,

President Obama, irritated by Republican lack of cooperation in passing his porkulus bill, hopped on Air Force One on Thursday for the less than 150 mile trip down to Williamsburg to speak to the Democrat caucus about the urgency of rescuing the economy.  A pilot estimated the cost of the gas for Air Force One at $30,000 for this short trip.

Obama discarded his prepared speech, we are told, to say the same old things about crumbling roads and bridges and levees , factories closing, tens of thousands laid off, and warned of catastrophe if his bill is not passed instantly.  He whined about the debt left for him — “wrapped in a big bow waiting for me as I stepped into the oval office” — by the Bush administration, and reminded everyone, once again, that he won the election.

So then you get the argument, well, this is not a stimulus bill, this is a spending bill.  What do you think a stimulus is? That’s the whole point.  No, seriously.  That’s the point.

There, as they say, is the rub. President Obama’s “stimulus” has aptly been called “The New, New Deal.”

When Franklin Delano Roosevelt took office in 1933, he had an economy in bad shape left to him by the Hoover administration.  FDR was inaugurated on March 4, and proclaimed a bank holiday the next week.  Five days later he began his first One Hundred Days. March 29, Congress passed a bill creating the CCC (Civilian Conservation Corps) making jobs for approximately 250,000 young men.  April 19, he announced that the U.S. would abandon the gold standard, devaluing the dollar internationally.  May 19 Congress passed a bill creating the TVA (Tennessee Valley Authority).

And so it went, commissions and authorities and boards and corps — the WPA, the ERA, SCS, REA, NLRB, and so on and so on. [Read Amity Schlaes excellent The Forgotten Man]  All these programs put people to work, working for the government.  Nothing worked to improve the economy or lessen the impact of the Depression. Democrats are generally sure that the first hundred days fixed everything, but the facts show otherwise.

Most acknowledge that World War II ended the Depression,  but  ignore the circumstances.  The Draft began in October of 1940.  By the summer of 1941 President Roosevelt asked that the term of service be extended beyond 12 months, and many reluctant soldiers threatened to desert.  The December 7 attack on Pearl Harbor brought thousands of Americans volunteering for service.

Able bodied young men were swept up in the draft, and women and draft rejects turned to new or re-tooled factories for employment.  Military pay wasn’t much, and although thousands of new jobs were created at home, wage and price controls were instituted.

Many products were rationed to allow for a flow of goods for the military.  Rationed products included tires, cars, bicycles, gasoline, fuel oil and kerosene,  solid fuels, stoves, rubber footwear, shoes, sugar, coffee, processed foods, meats, canned fish, cheese, canned milk, fats and typewriters.  Other things were just unobtainable.  If a store got in a case of Hershey bars, long lines developed instantly.  People at home remember the bags of shortening which contained a gelatin pill of yellow food coloring and butter flavor so you could create margarine.  Soldiers remember Spam and Chipped Beef which they came to loathe.

More people were at work, but wage and price controls kept the economy stable.  There was nothing on which to spend money.  Factories which once made consumer products were making war materials.  Gasoline and car rationing meant that you couldn’t go much of anywhere, and there was nothing to buy.  In every Five & Dime store, a woman sat at a table in the front of the store darning silk stockings.

What people could do was save money.  There were War Bond drives everywhere.  Kids brought their money to school to buy Savings Stamps to fill up Savings Books, and when the book was full, you got a $25 War Bond.  Celebrities conducted War Bond drives in every venue including spontaneous appearances on the back of flag- festooned trucks on the street.

For all of Roosevelt’s good intentions, all of his spending did not act as stimulus.  The make-work, government-paid jobs that he created put groceries on the table, but did not help the economy to recover.

The government action that did help the economy to recover was the government’s  massive purchase of goods.  The government bought tanks, trucks, aircraft carriers, destroyers, rifles, cannon, canteens, Higgins boats,boots, backpacks, walkie-talkies, rubber boats — an unimaginable stream of military supplies from the “Arsenal of Democracy” not only for our army, but also for the armies of our allies.

The government was not taking money out of one pocket and putting it back in another, as was the case with make-work government jobs and government-paid projects.  The government ordered products to be built, created, invented by private enterprise, which in turn hired workers and designers and engineers to create new products. It put certainty into the economy.  Companies could be created, workers hired, products invented because there was a market that would pay for them.  Accepting risk was once again worthwhile.

Tax cuts work because they present the same certainty.  If your taxes are cut, you know that you will have  X number of dollars more income, for sure.  When the government spends, it operates on the assumption that the money will enter the economy and create a “multiplier effect” (the source of many economist arguments) as it moves around the economy.  The history of spending seems to suggest that most of the “multiplier effect” is bunkum.

People’s savings from the war created a pent-up market ready to buy consumer goods they were deprived of during the war.  New cars, new appliances, meat, butter, shoes — there was a hunger for long-unavailable products and plenty of  jobs in industries re-tooled to produce them.

So in answer to President Obama’s sneering assertion that “spending is stimulus”— Nice try, but that simply does not seem to be the case.  And we arrive back at the Democrats’ lack of interest in consequences and enthusiasm for good intentions.

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