Congress Ignores History…

I remember an interview with Denny Hastert on the Mark Levin radio program.  As we all know he is the former speaker of the house and actually taught economics in high school.  I recall him saying “I thought teaching economics to 16 year old would be the toughest thing I’d ever have to do until I got into Congress where I had to teach actual congressmen how economy works.”  It really goes to show you that we do not elect the best and brightest of the population.  I’d argue that the best and the brightest of our population are in the Military, but that’s another story.

I used to try and give these people the benefit of the doubt.  I used to say “we’ll they’ve bought into a philosophy on economics that just doesn’t work.”  I’m starting to see that I’ve misjudged these people and gave them too much credit.  It appears to me that these people make economic law only on the “what should happen” basis of self morality that violates the law of unintended consequences.  Where do these people’s beliefs come from?  Well they come from the typical “Demand Side” economic fallacies of John Maynard Keynes.  To basically sum up his views of economy he says that government should cover the areas where the “free market fails” and we see that concept applied even by Republicans today.  Look at health-care(which is not run by the free market) and the mortgage problem.  What is the overwhelming ideas that democrats offer?  More government intervention.  In health-care they wish to give government total control.  Well we see what’s going on around the rest of the world even in the most of industrialized of nations with their government health-care programs.  The facts simply do no matter to the democrats because as I said they work on a self morality basis of economic policy rather than common sense.  Now as we see with the mortgage problem in this country even Republicans run to the table to freeze interest rates and create a moratorium on foreclosures. 

Congress seems to create situations to hurt our financial institutions even worse than they have hurt themselves with bad loans(even if Congress DID implore them to make it easier for poor people to get those loans).  They make it so the lenders take massive financial hits and then their solution to the problems they create for the lenders is to bail them out with borrowed money which in turn hurts the value of our dollar.  Therefore it still in the end causes too many problems for Government to fix and they shouldn’t be meddling anyways.  It appears to me that our respective leaders are creating the same conditions as 1929.  Congressman Tom Feeney whom is an excellent economist came to my republican party meeting and told us his concerns.  He says because of Congress’ actions instead of having what would possibly could be a 2 year recession will end up being a 10 year depression.  I fear he is right as they continue to ignore history. 

So what caused the depression of the 1930s?  Was it just bad business deals?  Well that is part of what created the recession.  It’s common business cycle.  A recession doesn’t even mean the economy is bad in every case.  As we have seen in history with low tax rates the economy always springs out of a recession in glowing numbers.  So why not 1929?  The myth is that FDR’s policies saved our economy.  Well that’s not exactly accurate.  FDR continued upon and added to the failed policies of progressive Republican President Herbert Hoover.  If you look back at the policies then and compare them to today’s proposed actions there is an extreme parallel.  The only advantage we have today is that our economy is more dynamic, more technologically advanced, faster, and more globalized than that of the 1920’s economy. 

 So what did Herbert Hoover and FDR do to create a depression?  Well first of all Hoover got business leaders together and implored them to refrain from cutting wages, arguing that high wages were the way out of the Depression so as to give consumers some buying power.  This ignores the fact that wages are a cost of doing business in a time where business’ were struggling to stay afloat.  Hoover demanded high wages while prices were rapidly declining.  Business honored Hoover’s request and the predictable consequence came about.  Mass unemployment.  As historian Thomas Woods puts it:

“Hoover’s mistake was to presume that high wages were the cause of American prosperity rather than a reflection of that prosperity.”

How does that compare with today?  Well look at the mortgage problem.  Their big suggestion is to freeze interest rates of those struggling to keep their home before they rise next year.  Well this is again when prices of homes are declining so the lender takes the big hit financially as contracts are essentially adjusted for them from an outside source.  What does this cause?  Well the predictable consequence is that new home mortgage rates will rise considerably.  That will lead to less incentive in buying homes.  Now the big lenders are willing to comply with these sets of rules(as were business’ back in the early 30’s) because they can afford it and even if they can’t they know Government will bail them out anyway.  Which leads me to my next point.  Hoover also spent big money to attempt to prop up failing business.  These business’ either went bankrupt or were crushed under a load of debt.  Remember this was financial assistance they needed because of the conditions created by government intervention.  Hoover also spent big dollars on unemployment benefits(unemployment his policies created).  To parallel today’s congressional “heroics” they have offered both government financial bailout of failing business as well trying to push through unemployment relief in their most recent economic stimulus package.  The situations are not exactly the same, but the principle philosophies are absolutely identical. 

 That’s not all!  Hoover also increased the overall tax rate from 25% to 63%.  He either created new or raised existing taxes on: corporations, estate, gifts, cars, tires, gasoline, toiletries, electric energy, luxury items, bank checks, telephone, telegraph, and radio messages.  I don’t think I have to let you know the tax increase proposals of today’s left.   So let’s get this straight.  President Hoover raised taxes on failing business’ and struggling consumers all the while using the taxpayers money to prop up said failing business’ as well as dictating to them how they would run those business’.  It’s no wonder how such a blind, ignorant, and dumb philosophy fails and it the same philosophy will predictably fail today as well.  FDR continued and added on to these policies throughout the 1930s.  The average unemployment rate for that time was steady at 18% and that was with a much smaller population than today.  The interesting thing is that when the economy was hurting in 1920 President Harding’s strategy was only to tighten the government’s “purse strings” by cutting spending.  The economy began roaring within a year.  As we see the parallels between the policies of Herbert Hoover and today’s congress(as well as President Bush in some cases) it becomes more and more apparent that they have ignored history.