If the welfare state’s inflation, high taxes, militant labor unions, and strangling regulations had not driven so many private-sector jobs overseas, budget cuts under the new debt-ceiling deal would have no negative effect.
Many economists and liberal-progressive media pundits predict that the limited budget cuts in the Federal debt-ceiling deal will stall economic recovery or push us into a double-dip recession. Historically there was no such effect before arrival of the liberal-progressive-socialist welfare state under presidents Hoover and Roosevelt in the 1930s.
In Keynesian theory, the economy is dependent on consumer spending, which can be maintained or amplified only with government stimulus programs. Propagandists like the New York Times’s Paul Krugman believe that it’s essential for the Federal debt to grow almost without limit.
Theirs is a resurrection of the 1930s liberal-progressive conception that capitalism had died a deserved death, that from then onwards, and forever, creation of new jobs would require the ministration of academic state planners, funded by Federal spending. As today, in the business-bashing bombast of President Obama, the unstated thesis was that “the rich” had illegitimately accumulated most of the nation’s wealth and that redistributing such wealth via higher taxes and welfare handouts was the only way to revivify the economy.
This is egregiously wrong.
First, no Federal intervention during recessions was needed, from 1776 until 1922, a period during which the United States grew to become the greatest economic power on earth. Second, Federal intervention has never worked as predicted, but it has pumped up the cost of living roughly a thousand percent since 1933.
The real redistribution of wealth has been inflation’s robbing the purchasing power of people’s savings and retirement incomes.
The 1920-21 recession after World War I was nearly twice as severe as the Great Recession that commenced in 2007. In 1920-21, the Federal Reserve’s Index of Production dropped 27% , compared to a 16.2% decline in the Fed’s Index of Industrial Production, from its peak in 2007 to its bottom in 2009.
The Federal government, from 1920 until the end of the recession, did nothing to interfere with the free-market process of realigning capital goods capacities with market realities via cost-cutting and liquidating uneconomic companies and production facilities. In fact, Federal government expenditures declined more than 47% between the beginning of 1920 and the end of 1922. During that period, the Federal debt was reduced 5.5%.
Yet the economy rebounded sharply upward, once private business wage costs were reduced, along with excessive inventories and uneconomic capital investments. This was the last recession in which the Federal government had no policy to intervene directly in economic recovery.
Federal inaction in 1920-21 worked far better than President Roosevelt’s New Deal and better than the Obama administration’s massive stimulus spending and its take-over of General Motors and Chrysler, much of the banking system, and sectors of our energy production in the name of “green jobs.”
Under Franklin Roosevelt’s socialistic New Deal, unemployment was continuously in double digits, still at 17% in 1940. Obama’s vaunted academic advisory crew ballooned 8% unemployment to the current 17% level, counting workers seeking jobs and those who have stopped looking for work after more than two fruitless years of search.
It must be emphasized also that the 1920-21 recession lasted less than two years, compared to twelve years for the 1930s Great Depression and four years, so far, for the 2007 Great Recession.
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