How to be a Great American President

I have worked out the formula for creating lasting legacy, and an image of true greatness. Someone told me a while back that the American people remember FDR fondly because he carried them through the Great Depression—even if he did make it longer with his bad policies, he was there for the people, and suffered with them (even if he skimmed the cream off the top*).

So, here is the formula:

1. Run for president right after a stock market crash, preferably with a bank correction, and preferably one that the current president is fudging up.
2. Enter office and immediately pass a bunch of laws that will slow the correction and lengthen the recession, and bash business a lot, and take them to court; ideally turn the recession into a depression.
3. Once the recession has set in, begin to transfer powers previously held by other branches to the executive. Don’t forget to reach for the gold, you’ll never get it if you don’t try.
4. Use these new powers to create a bunch of new wings of government directly controlled by you, and use them to transfer money from one group in society to another—preferably, take from the whole people and give to small groups that will reward you with lots of good publicity and votes.
5. Most important: make soothing, well-written speeches. Lots of them.

If done right, all the powers over the economy will be nicely controlled from Washington. As written up at the Franklin D. Roosevelt American Heritage Center:

Under the New Deal, the federal government greatly extended its power over the economy. By the end of the Roosevelt years, few questioned the right of the government to pay the farmer millions in subsidies not to grow crops, to enter plants to conduct union elections, to regulate business enterprises from utility companies to airlines, or even to compete directly with business by generating and distributing hydroelectric power. All of these powers had been ratified by the Supreme Court, which had even held that a man growing grain solely for his own use was affecting interstate commerce and hence subject to federal penalties.

Of course, there are other things that you can do to be remembered well, including fighting a long war. But I think those 5 can already bring about a legacy. If we do not learn, history truly does have a way of repeating itself—in this case, likely because someone did learn from history, and wanted to be the next Great American President. Let's not let him.

* John Flynn recalls the scandals that occurred and were well documented by newspapers at the time, of the Roosevelts’ abuses of their position. For example, Elliot Roosevelt had his father convince the A & P Tea Company to loan Elliot $200,000, backed by shares in a Texas radio station. The company went along in order to avoid the New Deal inquiries that Roosevelt could enflame. In 1942, the President gave $4,000 to A & P and demanded the “worthless” stock back. It was worth $1 million, but A & P gave it back to the New Deal architect, and deducted the $196,000 loss off their tax returns.

Changing Places: Europeanization as a Good Word

(Cross-posted at Heritage)

The financial crisis has exposed a trend that has been in the works for some time. Since the fall of communism, some of the more socialist countries have learned lessons from the Soviet collapse: free markets work, and government planning does not. Meanwhile, the capitalist countries have slept through these lessons, and have been slowly becoming more socialist.

The financial crisis has made this crystal clear. For example, US car companies, and now auto parts dealers, have received bailout money. Sweden, every liberal’s favorite social-democratic country, has let their signature car company, Saab, fail.

While the US Federal Reserve has been finding creative ways to print our way out of this financial mess, the European Central Bank has resisted this doomed inflationary policy. The European Union is actually concerned about high taxes, inflation, and excessive spending.

From the formerly communist Czech President of the European Union, we have a warning that Obama’s spending frenzy is a “road to hell,” but from the formerly free market United Kingdom, we have the Prime Minister calling for a Global New Deal.

It seems that, in the 21st century, “European style economy” might come to mean “free market” and “American style capitalism” might be a new term for “socialism.”

Tried and Failed Policies Resurfacing as Stimulus

(Cross-posted in part at Heritage)

The “cash for clunkers” plan recently proposed in Congress would provide subsidy for a new car purchase to anyone willing to have their current car destroyed. But the economic rationale is eerily similar to the New Deal program most widely agreed to be a catastrophic failure: his agriculture plan that slaughtered pigs. The reasoning goes like this:

Crushing the old car has two benefits. First, it ensures that the consumer's purchase of a more efficient vehicle actually has a net environmental benefit. Second, it prevents a glut of used cars on the market, which would reduce trade-in values for new car buyers, which would cut into the sales incentive effect.

This was the same misguided reasoning that led to the slaughter of six million pigs and plowing under of about half the crop area under cultivation. The head of the Agricultural Adjustment Administration argued that:

People who believe that we ordered the destruction of food are merely the victims of their prejudices and the misinformation that has been fed to them by interested persons. What we actually did was to stop the destruction of foodstuffs by making it worth while for farmers to sell them rather than to destroy them.

In other words, the destruction of crops and livestock would ultimately lead to less waste because prices would be lifted, and so farmers would have more incentive to produce. However, despite vigorous defense by the administration, it is now known that most of the meat went to waste and it was an abysmal failure. Government cannot do a better job than the market in setting prices, and government’s destruction of output will never lead to increased output. It was a failure of economic reasoning – which is now coming back in vogue.

Another failed policy being considered is the mandate to buy American:

The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.

This policy is almost precisely the one put into force during the period of railroad subsidies. According to The Myth of The Robber Barons, transcontinental railroads receiving subsidies had charters that required they only buy American-made steel. But American rails, made with American steel, were of lesser quality than some foreign brands, and this drove their maintenance costs up. This was one of many reasons why subsidized railroads performed extremely poorly compared to private ones.

Yet, here we are again using subsidies that distort incentives, and adding to the problem by passing mandates that will drive up costs and produce inferior products. This new “hope and change” we’re seeing is simply a return to the failed economic reasoning of the New Deal.

Obama Invokes Keynes and FDR, and Promises a Return to Central Planning

(Cross-posted at Heritage)

While he spoke about moving forward, and promised change as we look toward the future, in fact President Obama’s inaugural address was firmly entrenched in discredited policies of the past; policies that never worked.

For example:

Now, there are some who question the scale of our ambitions — who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage.

His words here are very reminiscent of Roosevelt’s words at the start of the Great Depression. But, our memories are indeed short, if we forget that Roosevelt’s plans were actually huge failures.

Next, Obama invokes J. M. Keynes to support his call to planning, once again invoking a discredited idea from the past:

What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.

Keynes argued that the inefficiency of government spending compared with private spending did not apply during periods of recession. He reasoned that when the economy was not at full-employment (i.e. during a recession) government was “better than nothing.” Government could inject the economy with money, by borrowing and spending it, and put the unemployed to work.

Of course, even if borrowing is helpful during these periods, it could still be spent privately (with tax cuts). So, Keynes had to argue that tax cuts are too slow, and that people saving the money, as they might do when given a tax cut, is not as good as government spending the money. However, Keynesian theories have not been supported by reality, and his proofs have long ago been abandoned by economists. Yet, Obama is embracing this new trend toward the past.

Finally, Obama promises that the programs that work will remain and those that fail will be discontinued: “Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.”

Supposedly, this is a major difference from the past – when, apparently, government cared less about whether the programs were working. Of course, it is rare that a government program is ever ended. As Reagan put it, “There is nothing more permanent than a temporary government program.” It is also impossible to know whether a program is “stimulating the economy.” Those that benefit from them can make this known to all, but those that suffer cannot know or prove that it is the program that makes them suffer: the damage is indirect because it caused by high taxes, the crowd-out of private business, and so on. So, a true cost-benefit analysis of any given program is impossible.

Obama has promised nothing more than a return to the 1930s; to the old discredited economic theories and the old discredited policies of central planning.

The new New Deal

Cross Posted at Heritage

Could the current crisis usher in a new “New Deal”, with a new brand of corporatism to replace the free market system? Certainly European leaders are arguing that case. The current economic “crisis,” may itself have been caused by bad policy. Yet, is provides a great pretext for an expansion of government.

During the 1930s, as part of the New Deal, Franklin D. Roosevelt nationalized banks, set prices, wages and work hours, and promoted public works programs to employ the unemployed. The New Deal, or the National Industrial Recovery Act (NIRA) to be precise, was supported by many industrial leaders, some of whom had helped draft the legislation. Cartels, inflated prices and subsidies were great perks for established business, especially those that would have trouble staying ahead in a free market.

Businesses then, as now, cried to Congress about their need for a bailout, and the disaster which would be wrought by their bankruptcy. NIRA was eventually declared unconstitutional. The decision made the important point that “extraordinary conditions do not create or enlarge constitutional powers.”

Until then these laws were widely supported and considered critical to recovery from the economic crisis of the time. Yet intervention did more to cause and prolong the crisis than to aid recovery.

Although these measures were defended as being necessary during an emergency, and only temporary, many still exist today. For example the emergency farm supports created with the Agricultural Adjustment Act (AAA) have morphed into the current Farm Bill, which still pays farmers not grow food.

Like the New Deal period, we are seeing waves of nationalization, bailouts of unrelated industry, and expansion of central bank power. The nationalization of banks during the New Deal was actually smaller than what we are doing today – as a percentage of GDP it was the equivalent to about $500 billion. Today the state took shares in the largest nine banks and bailouts total well over a trillion dollars.

As John Goldberg points out, the stake that government now holds in these banks is actually greater than the stake it held in Fannie Mae and Freddie Mac, and it is quite likely that this temporary measure might too become the regular state of affairs.

If Obama is the next president, he would like to see a return to union domination and government mediation in wages and hours. Obama also favors public works programs to employ those out of work. He has already proposed at least two kinds of programs like this: his “transitional jobs” program which hires the unemployed, and his National Infrastructure Reinvestment Bank. With the excuse of an ongoing recession, he could easily roll these into New Deal sized public works projects.

But, prior to the New Deal we had small government. Prior to this new “New Deal” we already have enormous government and massive debt. The Deal we sign today would be for European style socialism, with European style unemployment and stagnation.