Posts tagged with: new deal fdr stimulus

Blog author: jwitt
posted by on Monday, February 16, 2009

In response to the question, “What are the moral lessons of the American Recovery and Reinvestment Act (ARRA)?”

Perhaps the most effective historical trope in pushing through the massive stimulus package on Capitol Hill has been the notion that if only the New Deal of the 1930s hadn’t had to wait more than three years for the election of FDR, the Great Depression might have been avoided.

But have you ever wondered why the Great Depression persisted for so long? Why didn’t we bounce out of it after two, three, or four years as we did from previous economic downturns? Hillsdale’s Burt Folsom suggests an answer. Whether it was paying farmers not to farm until we had to import millions of bushels of grain, or throttling job-creating enterprise by raising the highest marginal tax rate to 90 percent, the many tentacles of the New Deal stimulus package choked rather than stimulated the American economy.

The common theme of all of the New Deal’s misguided policies was to remove decision-making power and cash from the free market and move it to Washington. As Folsom goes on to note, such policies not only extended the economic downturn, they set interest groups against each other, stimulating rather than alleviating human envy: “The New Deal divided and politicized the country in tragic ways. Those who lobbied most effectively won subsidies and bailouts even if their cause was weak. Others, who had greater needs, received nothing.”

There is a cure for human envy, of course, but it lies with a civil rather than a government institution, and with a power higher than Capitol Hill.