Tags: obama | new | deal

Expert: Obama 'Change' Would Turn Back Clock

Wednesday, 29 Oct 2008 02:50 PM

By Dave Eberhart

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As Barack Obama’s supporters look heavenward for the salvation of his coming new deal, a scholar looks to history’s original New Deal and finds Obama’s plan won’t pull the U.S. economy out of limbo.

Michael Barone, resident fellow at the American Enterprise Institute in Washington, reminds us that the purpose of FDR’s New Deal legislation was not, as commonly thought, to restore economic growth — but rather to freeze the economy in place at a time when it seemed locked in a downward spiral.

The New Deal policies “did break the downward spiral, but . . . they failed to restore growth,” Barone says. “Double-digit unemployment continued throughout the 1930s. Despite population growth, the economy failed to rebound to 1920s production levels. High taxes on high earners . . . financed welfare payments (‘spread the wealth around’) but reduced investment and growth.”

“When financial crisis looms, there is an impulse to freeze everything in place and accept what is as the best there can ever be: Barack Obama’s new ‘new deal,’ ” Barone says. “The history of the old New Deal suggests this is not a sustainable approach in the long run.”

The Old New Deal

The historic New Deal’s keystone program, the National Recovery Administration, created 700 industry councils for firms and unions to set minimum prices and wages.

The Agricultural Adjustment Act limited production to hold up prices. Unionization, which the recovery administration and the 1935 Wagner Act encouraged, was meant to keep workers in jobs that the unemployed would have taken at lower pay.

The postwar Republican Congress wisely nixed some New Deal anti-growth policies, Barone explains in his history lesson.

“Labor unions’ powers to strike were sharply restricted. Tax rates were lowered, and wage and price controls were dismantled. Many hold-the-economy-in-place policies were retained until the deregulation of the 1970s and 1980s. But the New Deal was transformed sufficiently to permit buoyant economic growth for two decades after the war.”

Like the social engineers of the New Deal era, “Obama seems determined to follow policies better suited to freezing the economy in place than to promoting economic growth,” Barone says.

Obama Deal Highlights:

  • Higher taxes on high earners, for one. (Obama told Charlie Gibson he would raise capital gains taxes even if that reduced revenue: less wealth to spread around, but at least the rich wouldn’t have it.)

  • Moves toward protectionism like President Hoover’s.

  • National health insurance that could threaten to lead to rationing and to stifle innovation.

  • Promoting unionization by abolishing secret ballot union elections.

    Same Old, Same Old

    Barone laments that, in his opinion, the Obama impulse toward social engineering is unmistakable:

  • Government officials would allocate resources, redistribute income, and ration good and services.

  • Government stakes in banks, insurance companies and Detroit auto manufacturers would be used to maintain the position of those already in place — at the cost of preventing the emergence of new enterprises that might have been spawned by the capital being allocated.

    This latter stifling of new enterprises bullet item is vital, explains Barone: “Roosevelt in the 1930s had some extremely competent social engineers, like Harry Hopkins, Harold Ickes, and Fiorello LaGuardia, who could enroll 750,000 people on welfare in three weeks and build an airport in less than a year.

    “But even they could not spur the economic growth produced by utterly unknown and unconnected people, as Warren Buffett and Bill Gates were in 1970.”

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