The View From 1776

To justify their proposals for socializing health care and health insurance, Senators Clinton and Obama proclaim the repeatedly disproved socialist argument that government is more efficient than private enterprise, because private business is driven by greed and overcharges the public to make a profit.

For a counter argument, read this opinion piece from the Washington Times:

Dangerous delusions

May 1, 2008

By Richard W. Rahn

Have you ever wondered why so many people see higher taxes and more government as the solution to every problem, despite the empirical evidence that more government reduces economic efficiency and growth and diminishes our liberties?

As will be shown, the arguments from the big government advocates are usually based on a combination of economic and historical ignorance, including an inability to think beyond Stage 1, envy, and just plain delusional thinking.

The New York Times editorial page has long been a bastion of this delusional thinking. On April 24, the paper produced one of its classic inane editorials in favor of higher taxes on labor and capital, which contained this gem of a sentence: “Memo to McCain: 401(k) savers get no benefit from a low capital-gains [tax] rate.”

Everyone who has ever taken basic economics should know a lower tax rate on an investment (i.e., the capital-gains tax) will lead to a higher rate of return, and hence the investment will be worth more. Other things being equal, lower capital gains tax rates will lead to higher stock prices, and all who hold stocks will benefit, whether or not they pay a particular tax on that stock. Though this concept is not difficult for most people to understand, it seems beyond the knowledge and reasoning ability of those who write editorials for the New York Times.

Unfortunately, the Times has plenty of global company when it comes to economic ignorance, envy and delusional thinking. We find it among many politicians in almost every government. International organizations, such as the United Nations, and even the Organization for Economic Cooperation and Development and their dependent allies, are filled with those who advocate higher taxes on capital and labor, all in the name of “tax harmonization.”

The following are only some examples of what those who advocate higher taxes on capital and labor either do not understand or willfully choose to ignore:

• Many studies by leading economists, including those from even the International Monetary Fund and World Bank, have shown most countries tax and spend at a level higher than that which would maximize their economic growth and social welfare.

• Financial capital (productive savings and investment) is the “seed corn” of modern economies, and when it is taxed there are fewer funds available for businesspeople to create new jobs and invest in new productivity, including life enhancing and lifesaving innovations.

• When labor is taxed at high rates, it discourages people from working (at least in the legal economy) and increases the cost of hiring by employers, which reduces their demand for workers.

• Most government programs do not live up to their billing in that they cost far more than projected and produce less than promised. Recent U.S. government studies have shown that about 50 percent of all taxpayer dollars do not achieve the promised results. There is little reason to believe most other governments perform any better. There is no evidence that governments spending more money use it any more efficiently than those spending less, and the contrary is more often the case.

• There are few examples of governments balancing their budgets or improving their fiscal situations by increasing tax rates, but there are many examples of governments balancing their budgets through spending restraints and, at times, reducing tax rates. The federal surpluses during the last Clinton administration in the late 1990s only occurred after the newly elected Republican Congress imposed strict spending limitations and the capital gains tax rate was cut by Congress and signed into law by President Clinton.

• Most people can make better decisions about how to spend their money to aid their families than can politicians and government bureaucrats. When taxes rise, people’s ability to take care of themselves is reduced and they more become dependent on government.

• Higher tax rates reduce individual liberty by denying people the fruits of their own labor.

• Some of those who claim tax rates must be increased use the argument that the cost of government pension (Social Security) and medical aid programs are growing faster than the economy. Yet these same people ignore (or arrogantly dismiss) many of the cost-saving and privatization proposals from reputable public policy organizations and scholars, which would not only to lower costs but improve results. The fact is, unless the rate of cost increases is brought down, no tax rate increase can possibly solve the problem.

• Finally, there are some tax increase advocates who still have the long discredited socialist mentality that even when a tax increase hurts everyone, it is justified in the name of “fairness.” When Sen. Barack Obama was informed that his proposal to nearly double the capital-gains tax rate would most likely result in less revenue for government, he said it was still justified in the name of “fairness.”

The logical consequence of this notion of “fairness” would be a much lower standard of living for everyone, which I doubt is what the good senator desires. Despite their delusional rhetoric, I even doubt the editors of the New York Times really want to see their own incomes fall to that of the average person, let alone to the level that would result from their economic policy proposals.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

High Oil Prices – Blame The Government You Elected!
By Thomas D. Segel

Tom@thomasdsegel.com
http://www.thomasdsegel.com

Harlingen, Texas, April 28, 2008:  Yesterday I topped off my tank at $3.499 a gallon.  But, I am lucky.  My home is in one of the lowest cost-of-living regions of the country.  In California, for example, my brother filled up his tank again at $3.899 a gallon…and he shops for “cheap” gas. The high price of gasoline is on the lips of everyone you meet these days.  Also, everyone has his or her own idea about whom we should blame for our latest economic woes.

Those of us who dabble in writing politically oriented commentary expect to have our views challenged.  However, reflecting back on my multiple years of journalistic ranting, I can remember no article that generated more comment than last week’s “A Gallon of Milk, A Gallon of Oil and the Ethanol Hoax”.  While the majority of readers corresponding with me agreed with my attack on the liberal left and the environmental loonies who have caused most of our problems, there were still ample emails telling me I had no clue about the reality of our current plight.

My argument is very basic.  If any blame is to be assessed, it must be laid at the feet of our national government.  The problem starts with the price of oil, which everyone must agree is a commodity and seeks out the highest dollar buyers are willing to pay.  Supply and demand determine high and low prices.  To get lower prices you can either reduce the demand or increase the supply.  Now what has been controlled for more than 35 years?  Supply is the answer.  And who has controlled the supply of oil in the United States?  The answer to that big question is the United States Government.

We all know there is abundant oil in the Artic National Wildlife Refuge.  We know more oil is in the Dakotas and even Wyoming.  We know there are huge deposits of oil off the California and Florida coasts.  We know there are tons upon tons of oil shale in the West.  We know that thousands of oil wells were capped and are no longer in production.  Deep deposits of oil at up to 16,000 feet and natural gas, more than 3 miles underground and off shore await us… and we know the technology exists to bring them to the surface.

We know that in the past three and one half decades no new oil refineries have been built, nor have the existing ones been modernized due to the restrictive rules and regulations placed upon the industry by governmental agencies.

While people are forced into making choices between buying gasoline to drive to work, or placing food on the table for their families, a few of our capped wells in California and other locales are being reopened.  In California alone, there are currently more than 3,000-capped wells and many have seen only between 20% and 25% of their oil extracted.  Some were capped just waiting for new technology and higher prices.  Many were capped due to environmental objections.  To be completely objective, we must also admit a large number were capped because they had turned into dry holes.

We have allowed the far left environmental movement to cripple the economy by its marriage to the Democratic Party and a few brain-dead Republicans.  We have allowed the left to keep screaming in our ears that everything is the fault of Big Oil. As the politicos chant this mantra, we buy into the false claim because most of us get our facts from bubbleheads in the media who also are without a clue to reality.

According to Walter Youngquist writing in “Myths and Realities of Mineral Resources”, the six largest Big Oil companies really belong to America.  He says, “Nearly 200 mutual insurance companies hold close to 16 million shares. Ninety-one colleges own these stocks and about 1,000 charities and educational foundations in the United States are holders of these oil company securities.  In direct ownership more than 2.3 million Americans hold stock in these six companies.”

Our own citizens, investing in these combined resources have allowed the “big” companies to drill some very expensive wells.  A single hole can cost a million dollars and more, without any assurance of success.  And this is the Big Oil that should be punished with higher taxes that politicos yell about in the national ear.

Another governmental con job is the political falsehood that oil deposits in such places as the wildlife refuge or off the Florida coast don’t contain enough resources to make drilling worthwhile.  Well, think about this. In the United States we use just under 20 million barrels of oil a day.  A field that produces 100 million barrels of oil is considered huge.  However, it takes years to use up the supply.  If that 100 million barrel field were used to supply America’s daily needs, it would be gone in less than a week. But, that never happens.  The oil is pumped over years and years.  So, when you hear the political chatter about there “is only about 90 days worth of oil in that Alaskan refuge...and it won’t pay us to drill there”, remember not a single field is ever used to supply needed oil, and a field that could supply 90 days worth of Black Gold is huge. That would be a field containing multiple hundreds of millions of barrels. It would be assisting in our nation’s energy needs for decades.

The other chant from the left is we can wean ourselves off our oil addiction by conservation.  There is nothing that can be saved through conservation efforts other than short-term relief.  If you conserved until your economy fell apart, it would still not increase the supply.  People fail to understand we can no longer rely upon our own resources for oil independence.  We passed the point of self-sufficiency in 1970.  Each year, as our population expands, our dependence upon foreign oil and other energy sources increases.  We now consume far more than we can create from our own resources.  The government has added to this burden by its massively restrictive regulations and mind-numbing pandering to the environmental left.

Removing governmental restrictions and adding to our refinery capacity would go a long way toward easing the heavy toll this major price hike has taken on both the national economy and the personal pocketbooks of Americans.  Increased drilling, combined with the small amount of relief that can be brought about by alternative energy would go a long way toward easing the bidding war of oil speculators.  That’s is not going to happen with the democratic majority in Congress.  They will continue to point their collective fingers at the oil companies and never admit to their own actions or non-actions that have caused this crisis. 

Read the Wall Street Journal’s lead editorial for today: The Fed’s Bender.

For more background on what the Fed has been doing, see Federal Intervention Always Has Negative Results, with its links to related postings on this website.

A Gallon of Milk, A Gallon of Gas and the Ethanol Hoax
By Thomas D. Segel

Tom@thomasdsegel.com

Harlingen, Texas, April 24, 2008:  When I read the newspaper or view the nightly television news shows I can’t help but feel almost uncontrollable anger. And the truth is, I really don’t know where that anger should be directed. I listen to my fellow citizens anguish about the price of fuel, the price of food and sticker shock at everything they want to purchase. They have great concerns about the price of gas at the local station and the cost of milk at the super market.  And they blame the politicians for inaction, along with greedy farmers and Big Oil for high prices.  With their next breath they are crying for more of our corn based ethanol to help lower prices at the pump.  It is enough to make a rational person want to bash his or her head against the nearest hard object in complete frustration.

For the past thirty plus years we have allowed the environmental activists of the Democratic Party to stop all forward movement in our national quest for energy independence.  We know how to obtain oil from places such as Alaska, Wyoming and the Dakotas, but legislation to drill has been blocked.  We know oil is waiting offshore, but we are not allowed to drill due to environmental impact, even though other nations are reaching for that same oil, just a few miles away.

We have even allowed these same activists to stop the building of new oil refineries for the past 30 years.

Our energy demands from abroad could be reduced by nuclear power, but the socialist led environmentalists have swayed enough pandering politicians to stop the production of nuclear power plants.  Other socialist-activists who hide behind the green wall of environmentalism have slowed the much touted wind farms of this country to almost a standstill.  When construction is almost at hand there is always another call for a study to see if these wind farms will kill migrating birds, or perhaps block Ted Kennedy’s oceanfront view.

Though the United States has enough coal to handle the majority of our energy needs for decades, political roadblocks keep on appearing to slow the rapid development of coal based technology.

While on the topic of energy concerns, lets not forget the political love affair with corn-based ethanol.  To say this bio fuel is a gigantic con game perpetrated by corn producers and politicos would be an understatement.  We must add into the mix major corporations that keep the myth of reduced dependence on oil alive, because they are financially invested in bio-fuels.

When we examine the politician’s incessant praising of corn based ethanol, we fail to understand these are really people who are prostituting themselves for more votes and financial support from the agro-community. 

Ethanol, as we produce it today, is 20% less efficient than gasoline.  It takes 450 pounds of corn to produce enough ethanol to fill the tank of the average American automobile. (Think about that for a minute.  It also takes about 450 pounds of corn to feed one person for a year.) It is too corrosive to be shipped via pipeline and must be trucked to distribution points.  Added to these negatives…it takes more than one gallon of fossil fuel, coal, oil, or natural gas, to produce one gallon of ethanol.

Writing on the Mother Jones website, Cameron Scott says, “To grow enough corn for ethanol to replace our oil addiction would require approximately 482 million acres of cropland. exceeding the total of 434 million acres of cropland used for all food and fiber.  This does not even account fro projected growth of oil consumption in the U.S.”

Added to these problem areas, ethanol production increases, rather than reduces, environmental concerns.  Production requires the application of petroleum-based fertilizers that have contributed heavily to the emission of nitrous oxide, a greenhouse gas 300 times more potent than carbon dioxide.  To produce a gallon of ethanol requires three to five gallons of water and results in 13 gallons of toxic trash and wastewater.  It takes the energy equivalent of 113 liters of gas to treat this waste.

Dr. Walter Williams, the distinguished author, columnist and professor at George Mason University says, “The grain based ethanol hoax is a sterling example of a program economists refer to as narrow, well-defined benefits versus widely dispersed costs. It pays the ethanol lobby to organize and collect money to grease the palms of politicians willing to do their bidding because there is a large benefit to them – higher wages and profits.  The millions of fuel consumers, who fund these benefits through higher fuel costs and food prices, as well as taxes, are relatively uninformed and have little clout.”

So, we tolerate $6.00 corn used to produce $2.00 ethanol, which is also subsidized by the government to the tune of $1.05 to $1.38 per gallon, because it would not survive on the free market.  Thus, we allow the costs to each of us personally to increase even more, because those subsidies come directly from our tax dollars.

But, we haven’t finished here.  How about that box of cereal, or that steak, or that gallon of milk?  Have you checked market prices lately?

Last night a woman on the evening news was telling the reporter that, “ I had to choose between paying about $3.50 for a gallon of gas, or buying a gallon of milk for my children.”

A convenience store operator told the news reporter that the high price of gas had resulted in him losing customers.  “People don’t fill their tanks”, he said.  “And they don’t come in to the store and buy things like they did before.  I am making much less money in my business.”

Yes, prices have sky rocketed on everything from beef to milk and cereal to soda pop.  Even beer has jumped in price, because corn and other grains are being diverted into producing fuels.

Reporting in the Des Moines Register, Philip Brasher has noted “A Senate-passed energy bill would require the use of 15 billion gallons of ethanol by 2015, more than double what motorists are expected to use this year.  The mandate would be raised to 36 billion gallons by 2022.”

At the same time difficulties in transporting the bio fuel to distant locales have produced a glut of ethanol in Iowa and Nebraska, thus dropping the price by 50 cents a gallon and, of course, increasing the subsidies paid to the producers. Even with this happening dozens of plants are under construction and current distilleries are being expanded. More corn is being planted to feed the bio fuel industry and less corn and other grains are being raised to feed the hungry.

So, as you look at high prices everywhere there are a lot of people you can blame.  You can point your rage at Big Oil, Big Industry, Big Farmers, Big Politicians…and on and on. But, the person you really should be angry at owns that face you see every day in the mirror.  Too many of us expected the politicians to be fathers, mothers and nannies combined.  What they really ended up doing is stealing our modern way of life.

Congress, led by Representative Barney Frank, is planning to overhaul regulation of the financial community, and Treasury Secretary Paulson has already proposed a broad program for that purpose. 

No doubt, much of what is proposed is needed.  But it should be obvious from repeated experience over the decades that regulations alone will not prevent periodic economic booms and busts.

Only by dealing with the root cause will we moderate economic cycles.  And that root cause is the ineluctable human tendency to over-expand bank credit when the money supply is artificially enlarged.

Today’s proposed subprime mortgage regulations may prevent tomorrow’s repetition of that phenomenon, but they will have no restraining impact upon whatever the next speculative bubble may be.  Sarbanes-Oxley regulation was instituted after the dot.com bubble-burst and the corporate collapse of Enron, but it had no restraining effect upon the speculative housing bubble, of which subprime lending is merely a symptom, not a cause.  Before that, we had the speculative explosion of commercial real estate over-building that ended with the collapse of the savings and loan institutions in the 1980s. 

Beginning with our nation’s first financial panic in 1819, similar boom-and-bust patterns appear every five to ten years, except in extraordinary circumstances such as wartime.

In one respect, Karl Marx’s economic analysis was on the mark.  Before the advent of commercial banks, there were no economic recessions or financial panics.  In a basically agrarian economy, good and bad crop years increased or reduced incomes, but there were no mass collapses of businesses. 

The coming of industrialization in the late 18th century brought about the beginnings of modern banking, and with it the periodic over-expansion of credit that led to periodic over-investment in long-term, fixed productive assets.  As bank credit expanded, businessmen responded by investing in more productive capacity than available real savings could support. 

In every such cycle, the end point must be retrenchment: failure of some business ventures, liquidation of inventories at fire-sale prices, layoffs of excess workers, and strenuous efforts to reduce other costs until businesses can again produce at a profit.

The one and only really effective thing government can do is to maintain restraint upon expansion of the money supply, which is the fuel that banks use to build the fires of speculative over-expansion.  Bankers, being human, will always seek ways to invest money when it is injected into the economy by the central bank.  Businessmen, being human, will always find new ways to employ readily available bank credit. 

The process is self-reinforcing, as early business expansion proves to be wildly profitable.  As it continues, however, the effect of over-expansion of the money supply is evidenced increasingly in general price inflation and depreciation of the currency.

That is the stage of the Federal Reserve-created bubble we are experiencing today.  In those circumstances, when the Federal Reserve continues to expand the money supply in order to lower interest rates, as it is doing today, all the wrong signals are given to businesses and consumers. 

Carried forward too long, the end point is the massive inflation, double-digit short-term interest rates, high unemployment, and low economic production that was dubbed stagflation in the 1970s.

In an April 9th editorial, the Wall Street Journal opines:

‘You don’t have to predict it. We’re in it.” Thus did [former Federal Reserve chairman] Paul Volcker respond to a question Tuesday about whether he still predicted a “dollar crisis” in the coming years…

The world has been staging a run on the greenback, with damaging results if it continues. Mr. Volcker noted that when “concerns about recession are rife,” the central bank will be tempted to “subordinate the fundamental need to maintain a reliable currency” to the impulse to shore up a flagging economy. The danger is that you lose both battles, as the U.S. did in the 1970s, and wind up with stagflation.

The present climate, Mr. Volcker told his audience, reminded him of nothing so much as the early 1970s. Then as now, certain commodity prices were rising fast – he cited oil and soybeans as two examples. Then as now too, these were explained away as speculative price run-ups and not as a harbinger of a broader inflationary trend…

But the Fed has a particular duty to defend the integrity of the “fiat currency” in its charge. And exchanging dollars for “mortgage-backed securities of questionable pedigree” both raises the specter of moral hazard and potentially undermines the world’s faith in the integrity of the Fed’s balance sheet.

In a key respect, however, the Journal’s account is not factual.  The editorial states that Chairman Volcker broke the back of our nation’s worst inflation in the 1980s by raising interest rates.

Mr. Volcker himself said that he decided to let interest rates seek whatever level they might and, instead of tinkering with rates, to curtail the money supply.  That, he said, is the only way to control inflation.

The Los Angeles Times Blog recently reported:

In the very first words she uttered reacting to John McCain’s speech on the housing market crisis Tuesday, Hillary Clinton evinced part of her appeal to older voters: her frame of reference is theirs.

“It sounds remarkably like Herbert Hoover,” Clinton said of McCain’s assertion that he is not inclined—and probably never will be—to embrace aggressive, sweeping government efforts to confront the problem of rising home foreclosures.

Specifically, McCain opined that “it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

By mentioning Hoover, whose tepid response to the Great Depression helped keep the White House in Democratic hands for 20 straight years after he was bounced from office in the 1932 election, Clinton invoked what once was a can’t-miss applause line among Democrats.

What are the facts, fully detailed and documented by commentators writing at the time?

President Herbert Hoover was a leading exponent of socialist-progressivism in government, despite his characterization by liberal historians as a laissez-faire conservative.  So much so that Austrian School economists date the inception of the New Deal to the inauguration of Hoover in 1929.  Much of what President Franklin Roosevelt did with disastrous results, from 1933 until late 1940, was merely a continuation and expansion of President Hoover’s policies.

The problem was, not that Hoover was a laissez-faire conservative, but that his liberal-progressive policies failed miserably, just as President Roosevelt’s did from 1933 until the outbreak of World War II. 

Socialist supporters of President Roosevelt’s New Deal had to do something to differentiate his identical policies from those of President Hoover.  To do so they resorted to the Soviet Union’s standard tactic of rewriting history to discredit former allies of Lenin and Stalin who had been declared enemies of the state and thus had been made non-persons.

Progressives, the American sect of the European socialist religion, had a love affair with experts and the theory that government bureaus could more effectively manage the whole of the nation’s economy via collectivized power than could the millions of individual workers and businessmen who made decisions, hour by hour, every day, where the rubber met the road. 

Liberal-progressivism thus stands in irreconcilable opposition to the individual political and economic liberties for which the colonists had fought in 1776 and for the protection of which the Constitution was written in 1787.

As Amity Shlaes wrote in the Wall Street Journal:

The premier line in the standard history is that Herbert Hoover was a right-winger whose laissez-faire politics helped convert the 1929 Crash into the Great Depression. But a review of the new president’s actions reveals him to be a control freak, an interventionist in spite of himself. Hoover signed the Smoot-Hawley Tariff Act, which worsened a global downturn, even though he had long lived in London and understood better than almost anyone the interconnectedness of markets. He also bullied companies into maintaining high wages and keeping employees on their payrolls when they could ill afford to do so. Perhaps worst of all, he berated the stock market as a speculative sinner even though he knew better. For example, Hoover opposed shorting as a practice, a policy that frightened markets at an especially vulnerable time.

President Hoover began his interventions in December 1929, shortly after the great Wall Street crash.  His opening salvo was jaw-boning businessmen and threatening to retaliate with government regulations if businessmen allowed normal market forces to reduce wages to levels at which they could profitably resume production.  President Franklin Roosevelt’s active support of socialist and communist labor unions to force abnormally high wages continued Hoover’s game in spades.

Artificially-high wage costs in unionized industry were one of the two main factors, along with economic distortions induced by the Federal Reserve’s 1920s over-expansion of the money supply, that kept unemployment at double-digit levels throughout the Depression.  Unions’ prevention of wage adjustments in ratio to sales price declines both held down resumption of full production,and kept the great majority that were non-unionized labor at even lower wages.

Time Magazine reported in its Monday, Dec. 02, 1929 edition:

Prosperity Pledgers

“I WILL APPRECIATE IT IF YOU WOULD MAKE IT CONVENIENT TO ATTEND A SMALL CONFERENCE IN MY OFFICE ON THURSDAY MORNING AT 10 O’CLOCK TO DISCUSS MATTERS CONNECTED WITH MY STATEMENT OF LAST SATURDAY

“HERBERT HOOVER”

Philip H. Gadsden, president of the Philadelphia Chamber of Commerce, received this telegram, hastily “made it convenient” to go to Washington. For “my statement of last Saturday” was, as all the world knows, President Hoover’s announcement of a series of conferences to devise means of preventing the Stockmarket decline from affecting U. S. business.

36 major business leaders, ranging from Henry Ford to the heads of General Motors and General Electric, were summoned by the President’s “invitation.” The results, with the prominent exception of Henry Ford, were pledges not to lower wages, formation of a permanent national economic council to deal with emergencies, cheaper credit and further money-supply expansion by the Federal Reserve, and manifold pledges by business to expand expenditures for plant and equipment construction (surely one of the most bizarre and counter-productive measures imaginable for an economy that had fallen into recession precisely because of misaligned expenditures that resulted in vast over-capacity for production).

The Federal government itself pledged to increase its public building program from $248,000,000 to $423,000,000.

The Reconstruction Finance Corporation later was President Roosevelt’s primary financing vehicle for creating and funding “off the books” Federal agencies and for bailing out failing companies.  It was created, not by Roosevelt, but by Hoover.

None of this could be described accurately as laissez-faire capitalism.

Two of the most detailed and best accounts of President Hoover’s socialist-progressivism are Benjamin Anderson’s Economics and the Public Welfare and Murray Rothbard’s America’s Great Depression.

Mr. Anderson was for many years chief economist for the Chase National Bank and was a participant in most of the major conferences of central bankers and major private bankers before World War I and into the 1940s.

Mr. Rothbard was a leading exponent of the Austrian school of economic analysis.  The following is quoted from “America’s Great Depression.” It can be found on the Mises.org economic blog.

Laissez-faire, then, was the policy dictated both by sound theory and by historical precedent. But in 1929, the sound course was rudely brushed aside. Led by President Hoover, the government embarked on what Anderson has accurately called the “Hoover New Deal.” For if we define “New Deal” as an antidepression program marked by extensive governmental economic planning and intervention-including bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending (e.g., subsidies to unemployment and public works)-Herbert Clark Hoover must be considered the founder of the New Deal in America…

Franklin D. Roosevelt, in large part, merely elaborated the policies laid down by his predecessor. To scoff at Hoover’s tragic failure to cure the depression as a typical example of laissez-faire is drastically to misread the historical record. The Hoover rout must be set down as a failure of government planning and not of the free market.

To portray the interventionist efforts of the Hoover administration to cure the depression we may quote Hoover’s own summary of his program, during his Presidential campaign in the fall of 1932:

“we might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action. . . . No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times. . . . For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered. . . . They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.
Creating new jobs and giving to the whole system a new breath of life; nothing has ever been devised in our history which has done more for . . . “the common run of men and women.” Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom. . . . We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.”

...Characteristic of all Hoover’s interventions was the velvet glove on the mailed fist: i.e., the businessmen would be exhorted to adopt “voluntary” measures that the government desired, but implicit was the threat that if business did not “volunteer” properly, compulsory controls would soon follow.

...The government was supposed to correct “our marginal faults"-including undeveloped health and education, industrial “waste,” the failure to conserve resources, the nasty habit of resisting unionization, and seasonal unemployment. Featured in Hoover’s plan were increased inheritance taxes, public dams, and, significantly, government regulation of the stock market to eliminate “vicious speculation.”

...So “forward-looking” was Hoover and his program that Louis Brandeis [a prominent socialist and Supreme Court Justice], Herbert Croly of the New Republic [the most prominent liberal-progressive publication from World War I until the 1950s], Colonel Edward M. House, Franklin D. Roosevelt, and other prominent Democrats for a while boomed Hoover for the presidency.