Tag: New Deal

No Matter How Hard He Tries, Obama Will Never Be as Bad as FDR

I’ve explained on many occasions that Franklin Roosevelt’s New Deal was bad news for the economy. The same can be said of Herbert Hoover’s policies, since he also expanded the burden of federal spending, raised tax rates, and increased government intervention.

So when I was specifically asked to take part in a symposium on Barack Obama, Franklin Roosevelt, and the New Deal, I quickly said yes.

I was asked to respond to this question: “Was that an FDR-Sized Stimulus?” Here’s some of what I wrote.

President Obama probably wants to be another FDR, and his policies share an ideological kinship with those that were imposed during the New Deal. But there’s really no comparing the 1930s and today. And that’s a good thing. As explained by Walter Williams and Thomas Sowell, President Roosevelt’s policies are increasingly understood to have had a negative impact on the American economy. …[W]hat should have been a routine or even serious recession became the Great Depression.

In other words, my assessment is that Obama is a Mini-Me version of FDR, which is a lot better (or, to be more accurate, less worse) than the real thing.

To be sure, Obama wants higher tax rates, and he has expanded government control over the economy. And the main achievement of his first year was the so-called stimulus, which was based on the same Keynesian theory that a nation can become richer by switching money from one pocket to another. …Obama did get his health plan through Congress, but its costs, fortunately, pale in comparison to Social Security and its $30 trillion long-run deficit. And the Dodd-Frank bailout bill is peanuts compared to all the intervention of Roosevelt’s New Deal. In other words, Obama’s policies have nudged the nation in the wrong direction and slowed economic growth. FDR, by contrast, dramatically expanded the burden of government and managed to keep us in a depression for a decade. So thank goodness Barack Obama is no Franklin Roosevelt.

The last sentence of the excerpt is a perfect summary of my remarks. I think Obama’s policies have been bad for the economy, but he has done far less damage than FDR because his policy mistakes have been much smaller.

Moreover, Obama has never proposed anything as crazy as FDR’s “Economic Bill of Rights.” As I pointed out in my article, this “would have created a massive entitlement state—putting America on a path to becoming a failed European welfare state a couple of decades before European governments made the same mistake.”

On the other hand, subsequent presidents did create that massive entitlement state and Obama added another straw to the camel’s back with Obamacare. And he is rigidly opposed to the entitlement reforms that would save America from becoming another Greece. So maybe I didn’t give him enough credit for being as bad as FDR.

P.S.: Here’s some 1930s economic humor, and it still applies today.

P.P.S.: The symposium also features an excellent contribution from Professor Lee Ohanian of UCLA.

And from the left, it’s interesting to see that Dean Baker of the Center for Economic and Policy Research basically agrees with me. But only in the sense that he also says Obama is a junior-sized version of FDR. Dean actually thinks Obama should have embraced his inner-FDR and wasted even more money on an even bigger so-called stimulus.

I Heard It Through the Grapevine That the Government Was Violating Property Rights

This blogpost was co-authored by Cato legal associate Kathleen Hunker.

Property owners shouldn’t be made to suffer a needless, Rube Goldberg-style litigation process to vindicate their constitutional rights. Yet that is exactly what the U.S. Department of Agriculture seeks to impose on independent raisin farmers Marvin and Laura Horne when they protested the enforcement of a USDA “marketing order” that demanded that the Hornes turn over 47 percent of their crop without compensation.

The marketing order—a much-criticized New Deal relic—forces raisin “handlers” to reserve a certain percentage of their crop “for the account” of the government-backed Raisin Administrative Committee, enabling the government to control the supply and price of raisins on the market. The RAC then either sells the raisins or simply gives them away to noncompetitive markets—such as federal agencies, charities, and foreign governments—with the proceeds going toward the RAC’s administration costs.

Believing that they, as raisin “producers,” were exempt, the Hornes failed to set aside the requisite tribute during the 2002-2003 and 2003-2004 growing seasons. The USDA disagreed with the Hornes’ interpretation of the Agricultural Marketing Agreement Act of 1937 and brought an enforcement action, seeking $438,843.53 (the approximate market value of the raisins that the Hornes allegedly owe), $202,600 in civil penalties, and $8,783.39 in unpaid assessments.

After losing in that administrative review, the Hornes brought their case to federal court, arguing that the marketing order and associated fines violated the Fifth Amendment’s Takings Clause. Having litigated the matter in both district and appellate court, the government—for the first time—alleged that the Hornes’ takings claim would not be ripe for judicial review until after the Hornes terminated the present dispute, paid the money owed, and then filed a separate suit in the Court of Federal Claims.

The San Francisco-based U.S. Court of Appeals for the Ninth Circuit proved receptive to the government’s about-face. Relying on Williamson County v. Hamilton Bank (1985)—the Supreme Court case that first imposed ripeness conditions on takings claims—the court ruled in a revised opinion that the Tucker Act (which relates to federal waivers of sovereign immunity) divested federal courts of jurisdiction over all takings claims until the property owner unsuccessfully sought compensation in the Court of Federal Claims. In conflict with five other circuit courts and a Supreme Court plurality, the Ninth Circuit also concluded that the Tucker Act offered no exception for those claims challenging a taking of money, nor for those claims raised as a defense to a government-initiated action.

The ruling defies both law and common sense. It stretches the Supreme Court’s ripeness rule beyond its moorings and forces property owners to engage in utterly pointless, inefficient, and burdensome activities just to recover what should never have been taken in the first place.

Cato has thus filed an amicus brief, joined by the National Federation of Independent Business, Center for Constitutional Jurisprudence, and Reason Foundation, supporting the Hornes’ request that the Supreme Court take the case and correct the Ninth Circuit’s overbroad reading of Williamson County. We argue that an unjustified monetary order is inherently a taking without just compensation and that a ruling to the contrary imposes a pointless burden on property owners, particularly when the government initiated the original proceeding.

We also encourage the Court to reconsider Williamson County, noting that the text and history of the Takings Clause don’t permit the government to defer compensation—that indeed the most natural reading of the Takings Clause demands that compensation be offered as a prerequisite to government action. Just as the Court wouldn’t permit the government to seize property without some prior “due process of law,” it shouldn’t permit the government to seize property without prior “just compensation.”

The Court has no reason to treat takings claims with less deference than rights anchored in other constitutional provisions. It will decide this fall whether to address that issue in the case of Horne v. U.S. Dept. of Agriculture.

Blame It On the Constitution

The New York Times treats us today to an op-ed by Prof. Sanford Levinson entitled “Our Imbecilic Constitution,” with the remedy recommended for such imbecility taking us well beyond reforming the document’s amendment provisions. The problem, you see, is that our government has become “dysfunctional” owing to “gridlock.” Like all good Progressives, Levinson is a government man: he sees problems for which no less than the federal government is the ready solution, but that’s unlikely under the strictures our “imbecilic” Constitution imposes on it.

Not surprisingly, therefore, he starts with a complaint about federalism: in the Senate, small states have power equal to that of large ones, which in turn implicates the Electoral College. The remedy for the problems Levinson believes can be traced to those checks on power is to unleash popular will through a more direct democracy. Thus he lauds Theodore Roosevelt and Woodrow Wilson, Progressives who “seriously questioned the adequacy of the Constitution.”

Theodore Roosevelt would have allowed Congress to override Supreme Court decisions invalidating federal laws, while Woodrow Wilson basically supported a parliamentary system and, as president, tried to act more as a prime minister than as an agent of Congress. The next few years saw the enactment of amendments establishing the legitimacy of the federal income tax, direct election of senators, Prohibition and women’s right to vote.

Never mind the merits of those accomplishments, Levinson next offers various state constitutions as models for what might be, starting with New York’s, its fifth such document. One hopes the Knickbockers get it right before too many more years pass, because if dysfunction be the touchstone of failure, the Empire State has come close to it.

Then again, Levinson offers this idea for fixing congressional gridlock:

We could permit each newly elected president to appoint 50 members of the House and 10 members of the Senate, all to serve four-year terms until the next presidential election. Presidents would be judged on actual programs, instead of hollow rhetoric.

“Programs:” We need to get things done. Isn’t that what government is for?

To be sure, there are problems today that cry out for solutions, yet most are not inherent in the human condition but rather are the result of government “programs.” After all, it’s entitlements, individual and corporate, that have given us our massive deficits and debt, to take only the largest and most conspicuous examples. That is the one thing that Levinson does not seem to appreciate.

As compared to the rest of the world, our Constitution has stood the test of time fairly well. The problems we now have did not arise from abiding by its limitations but just the opposite. The Progressives ignored those limits. It’s that behavior, on which the New Deal and the Great Society doubled down, that has brought us to this impasse, with the country immersed today in the politics of a zero-sum game. We don’t need a new Constitution. We need to return to the one we have.

Wednesday Links

Homeownership Before the New Deal

The latest canard offered for keeping taxpayers on the hook for mortgage risk is that, without such, homeownership would limited to the wealthy.  Sarah Rosen Wartell of the Center for American Progress stated before the House Subcommittee on Capital Markets, “The high cost, limited availability, and high volatility of pre-New Deal mortgage finance meant that homeownership was effectively limited to the wealthy.”  Congressman Al Green repeated the point.  As I’ve generally found Sarah to be one of the more reasonable CAP employees, and that this is fundamentally an empirical question, I would have expected her to offer some evidence to support such a claim.  Alas, she did not.  So I will.

According to the US Census Bureau, at the turn of the century in 1900, the US homeownership rate was 46.5%.  I’m pretty sure that even Sarah wouldn’t claim that close to half of US households in 1900 were “wealthy.”  Interestingly enough, homeownership after the first 10 years of the New Deal was lower than before the New Deal.

While 46.5% is about 20 percentage points below the current rate, the population in 1900 was considerably younger, and one thing we do know is that homeownership is positively correlated with age.  In 1900, 54% of the US population was under the age of 25, a reasonable cut-off for homeownership.  Today, that number is 35%.  I don’t think it would be a stretch to say the greatest driver behind the homeownership rate over the last 100 years has been the aging of the US population, probably followed by the increase in household incomes (homeownership and income are also closely correlated).

Hopefully this will put to rest the myth that FDR and the New Deal gave homeownership to the masses.  The fact is that homeownership was fairly widespread long before the New Deal.  I await the next myth from the Fannie Mae apologists.   If they are wise, they will try one that isn’t so easily falsified.

Misunderstanding Inflation through the Years

NPR reports on rising food prices across the world. They may have played some role in the revolts in Tunisia and Egypt, and if so, those wouldn’t be the first revolutions sparked by inflation. NPR reporter Marilyn Geewax mentioned several reasons that food prices are rising – droughts, floods, oil prices, financial speculation – but not the obvious one: the continuing creation of unbacked money by central banks around the world. As Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon.” And as Jerry O’Driscoll wrote just two weeks ago, about rising food prices, “Inflation is here.” But that point isn’t yet universally understood, at least not at our government radio network.

Anyway, I turned off the radio and turned on the television, where TCM was just broadcasting the 1942 MGM propaganda film “Inflation” (made at the request of the Office of War Information but then never released because it was too anti-capitalist even for wartime propaganda). Edward Arnold plays the Devil, in league with Hitler and posing as a businessman who who encourages people to buy more, evade price controls, stockpile goods, and use the black market. (The film was made by Cy Endfield, who had been a member of the Young Communist League at Yale and went on to make such films as Zulu and Universal Soldier.) The film features what appears to be President Franklin D. Roosevelt’s April 28, 1942, radio speech, “Total War and Total Effort.” As the young couple in the film go to buy a new radio, the shopkeeper turns on the radio and they hear FDR say:

You do not have to be a professor of mathematics or economics to see that if people with plenty of cash start bidding against each other for scarce goods, the price of those goods (them) goes up.

Yesterday I submitted to the Congress of the United states a seven-point program, a program of general principles which taken together could be called the national economic policy for attaining the great objective of keeping the cost of living down. I repeat them now to you in substance:

First. we must, through heavier taxes, keep personal and corporate profits at a low reasonable rate.
Second. We must fix ceilings on prices and rents.
Third. We must stabilize wages.
Fourth. We must stabilize farm prices.
Fifth. We must put more billions into War Bonds.
Sixth. We must ration all essential commodities which are scarce.
Seventh. We must discourage installment buying, and encourage paying off debts and mortgages.

As it happens, I have a 1942 OWI poster with that same message hanging in my kitchen:

In fact, of course, price inflation was the natural result of a substantial increase in the money supply before and during the war. All of FDR’s policies – cartels, destruction of crops, wage and price controls, rationing – were misguided attempts to deal with the consequences of monetary manipulation and other bad policies.

By the way, FDR famously said, “The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.” Which might explain another propaganda film produced by MGM, this one in 1933, that extolled the virtues of FDR’s policy of inflation, utilizing the argument that is variously called “stimulus” or “the broken window fallacy.” The film cited the successful results of Civil War inflation. “What inflation has done before it will do again! … What a man! And what a leader! Yowzer! Happy days are here again!” Yeah, that went well. And by 1942 MGM was back on board, making a government propaganda film opposing inflation.

For background on inflation, read Cato adjunct scholar Lawrence H. White at the Concise Encylopedia of Economics.

Toward Restoring Constitutional Government

Today POLITICO Arena asks:

In light of today’s reading of the Constitution in the new House, what misinterpretations of the Constitution do you regularly see in American politics? And are House Republicans implying that the previous Democratic majority did not have a firm grasp of the government’s founding document?

My response:

Thanks to the Tea Party, as I wrote in Tuesday’s Wall Street Journal, Congress seems to be rediscovering the Constitution – or at least many House Republicans seem to be. When members read the document aloud today, apparently for the first time in the nation’s history, they’ll be throwing down a marker: “We take the Constitution seriously, and intend to abide by its principles.” If true, how refreshing.

This is not a partisan matter. As many Republicans have said – albeit, some only after November’s elections – both parties for years have ignored the Constitution’s limits on political power. To confirm that, we need look no further than to James Madison, the principal author of the document, who assured skeptical ratifiers in Federalist 45 that the powers authorized by the Constitution were “few and defined.” That hardly describes today’s federal behemoth.

Thus, the main “misinterpretation” has been over the very idea of constitutional limits – particularly as inherent in the doctrine of enumerated powers, the principle that “We the People” gave Congress only 18 enumerated powers. The Commerce Clause, for example, was written mainly to ensure interstate commerce unfettered by state interference, not to enable Congress to regulate every aspect of life. And the General Welfare Clause was meant to limit Congress’s taxing power pursuant to its enumerated ends to objects of national, not particular, concern: it wasn’t meant to enable Congress to redistribute private wealth at will.

The great change came during the New Deal, of course, after FDR’s infamous Court packing threat, when a cowed Court began turning the Constitution on its head. But don’t take my word for that constitutional legerdemain. Here’s Roosevelt, writing to the chairman of the House Ways and Means Committee in 1935: “I hope your committee will not permit doubts as to constitutionality, however reasonable, to block the suggested legislation.” And here’s Rexford Tugwell, one of the principal architects of the New Deal, reflecting on his handiwork some 30 years later: “To the extent that these new social virtues [i.e., New Deal policies] developed, they were tortured interpretations of a document [i.e., the Constitution] intended to prevent them.” They knew exactly what they were doing.

So when today’s liberals tell us the Constitution authorizes the vast federal programs that now reduce so many Americans to government dependents, they reveal their historical ignorance – or their political ambition. And they’re reduced to the silliness we saw in Tuesday’s New York Times, where the Times editorialists ranted against today’s constitutional reading as “a theatrical production of unusual pomposity.” Illustrating their own penchant for pomposity, they then dug into their bag of adjectives and let loose: “a self-important flourish,” “their Beltway insider ritual of self-glorification,” “a presumptuous and self-righteous act,” “an air of vacuous fundamentalism,” ”all of this simply eyewash,” “a ghastly waste of time.” They must have been emotionally drained when they finished their screed.

The Constitution is not a blank slate, details to follow, as decided by transient majorities. Were it that, it never would have been ratified. After all, we fought a revolution to rid ourselves of overweening government, and fought a Civil War to institute at last the grand principles of the Declaration of Independence. Nor will those principles be restored in a day. But today’s reading will start a debate that is sorely needed, at the end of which one can hope for restoration.