published Monday, March 7th, 2011

Misdirected economic blame

A clever remark attributed in varying forms to German philosopher Georg Wilhelm Friedrich Hegel is, “We learn from history that we do not learn from history.”

Well, if we should learn anything from the deficit spending during the past few years of economic crisis, it is that massive government intervention is not the way to create recovery. But we as a nation seem to be proving Hegel’s point that we do not learn from history.

Incredibly, after explosive borrowing that has led to record annual deficits and a record national debt of more than $14 trillion, some still think we can solve serious economic problems, such as painfully high unemployment, if only the government will spend more money.

Consider this bewildering headline atop a recent article by The Associated Press: “Government cuts threaten recovery.”

In the lengthy story, various observers argued that the current so-called “recovery” is imperiled because state and local governments are cutting spending and in some cases laying off workers to balance their budgets. That, the observers said, means fewer people will have money to buy things and spur economic growth and job creation.

But that is a remarkably shortsighted way of looking at things.

Wages that are paid to government workers must first be taken from the private sector in the form of taxes — or from future taxpayers in the form of borrowing that must be repaid, with interest.

Taxes, borrowed money and the interest paid on that borrowed money all curtail productive, private-sector spending and investment.

That’s not just economic theory. Look at the recent history of big promises about supposedly “helpful” government spending.

Prior to the 2009 passage of the $862 billion federal “stimulus,” President Barack Obama declared that unemployment would stay below 8 percent if the stimulus were approved. Well, with virtually no Republican support, Democrats in the majority in Congress passed the stimulus, funding a range of projects — many of them unconstitutional.

Sadly, we know how that turned out: Unemployment climbed to the 10 percent range and remains around 9 percent. Plus, millions more Americans are not counted in the official unemployment numbers because they have simply given up looking for work or can get only part-time jobs when they need full-time work. That makes the so-called “underemployment” rate far higher than the official rate of joblessness.

Quite sensibly, many state and local governments do not wish to follow the federal government’s irresponsible, big-spending lead, nor could they if they wanted to. They generally must balance their budgets rather than carry debt from year to year. So that means when tax revenue is down — as in the current crisis — they must cut spending.

But that is a responsible thing to do, and it should not be blamed for continued economic weakness.

We have tried spending our way out of the economic mess our country is in, and it didn’t work — just as it didn’t work when Congress and Franklin Delano Roosevelt tried it during the Great Depression.

Consider the words of Henry Morgenthau, President Roosevelt’s own secretary of the Treasury, in 1939, deep into FDR’s New Deal programs that were supposed to end the Depression: “We have tried spending money. We are spending more than we have ever spent before and it does not work. ... [A]fter eight years of this administration we have just as much unemployment as when we started. ... And an enormous debt to boot!”

Now, our nation is attempting once again to “solve” major economic problems with “solutions” that make things worse.

We’re afraid Hegel was right: We have not learned from history.

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charivara said...

In order to learn from history one has to know history. Someone with even a cursory knowledge of the past should be aware that by 1939 FDR had been in office 6 years, not 8. I can’t imagine his Secretary of the Treasury would make such a mistake. Which then leads one to question this quotation which is often used by conservatives to malign the New Deal and deficit spending in times of an economic crisis (often brought about by conservative economic policies).

By 1938 federal government spending on public works and relief had reduced the unemployment rate from 25% to 15%. Then conservative pressure to balance the budget and reduce the national debt forced Roosevelt to decrease government spending on public works and relief. The economy slid into recession once more and unemployment rose. When FDR reversed his decision and increased federal government spending, the economy started to grow again and unemployment went down. That's history conservatives pretend didn't happen and don't want the rest of us to learn from.

March 7, 2011 at 10:58 p.m.
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