Posted by: Debby Durkee | October 1, 2010

Obama and the Great Depression.

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Obama and the Great Depression.

Why is the United States faltering in its economic recovery? Why are European countries not experiencing the huge unemployment percentages of this country? Phil Graham says it’s because Obama and the Democrats are using the same failed policies of FDR’s from the 1930’s, which caused the United States to lag far behind the rest of the world in its recovery then too. Add to that uncertainty and the vilification of business and you have a reluctance of businesses to expand, which retards employment. Graham, a former U.S. senator from Texas, is also a former professor of economics at Texas A&M. This is from the Wall Street Journal.

During the average recovery since World War II, gross domestic product (GDP) surpassed the pre-recession high five quarters after the recession began. It has never taken longer than seven quarters. Yet today, after 11 quarters, GDP is still below what it was in the fourth quarter of 2007. The economy is growing at only about a third of the rate of previous postwar recoveries from major recessions.

We keep hearing from Obama and Geithner that if the U.S. didn’t spend like drunken sailors that the economy would have fallen off the cliff. Well, Graham has something to say about that as well.

The chart (below) compares total 2007 employment levels in the United States, the United Kingdom, the 16 euro zone countries, the G-7 countries and all OECD (Organization for Economic Cooperation and Development) countries with those of the second quarter of 2010. There are 4.6% fewer people employed in the U.S. today than at the start of the recession. Euro zone countries have lost 1.7% of their jobs. Total employment in the U.K. is down 0.6%, G-7 average employment is down 2.4%, and OECD employment has fallen 1.9%.

This simple comparison suggests two things. First, that American economic policy has been less effective in increasing employment than the policies of other developed nations. Second, that if there was a cliff out there, no country fell off. Those that suffered the most were the most profligate, such as Greece, and their problems can’t be blamed on the financial crisis. While the most recent quarterly growth figures are just a snapshot in time, it is hardly encouraging that economic growth in the U.S. (1.7%) is lower than in the euro zone (4%), U.K. (4.8%), G-7 (2.8%) and OECD (2%).

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Most striking about these comparisons is their similarity to the U.S. experience in the Great Depression. Using data from the League of Nations’ World Economic Survey, we can look at unemployment in developed nations between 1929 and the end of 1938. Ten years after the stock market crash, total employment in the U.S. was still almost 20% below the pre-Depression level. The decline in France was similar. But in the U.K. and Italy, total employment was up 10% and 12%, respectively. Industrial production on average in the six most developed countries was almost 16% above their 1929 levels by the end of 1938, but industrial production had declined by 20% in the U.S.

Today’s lagging growth and persistent high unemployment are reminiscent of the 1930s, perhaps because in no other period of American history has our government followed policies as similar to those of the Great Depression era. Federal debt by the end of 1938 was almost 150% above the 1929 level. Federal spending grew by 77% from 1932 to 1934 as the New Deal was implemented—unprecedented for peacetime. Snip –

And, as we all know from our history books, the Depression continued on and on until the 1940’s and World War II.

The top individual income tax rate rose from 24% to 63% to 79% during the Hoover and Roosevelt administrations. Corporate rates were increased to 15% from 11%, and when private businesses did not invest, Congress imposed a 27% undistributed profits tax.

In 1929, the U.S. government collected $1.1 billion in total income taxes; by 1935 collections had fallen to $527 million. In 1929, individual income taxes accounted for 38% of government revenues, corporate taxes accounted for 43%, and excise taxes for 19%. By 1939, individual income taxes made up only 26% of federal revenues, corporate income taxes made up 29%, and excise taxes made up 45%.

Graham goes on to describe FDR’s war on business. He lambasted businesses so much that even the League of Nations and Winston Churchill suggested he was cutting off his nose to spite his face. Here’s what the League of Nations said in 1939:

“The relations between the leaders of business and the Administration were uneasy, and this uneasiness accentuated the unwillingness of private enterprise to embark on further projects of capital expenditure which might have helped to sustain the economy.”

Churchill, who was generally guarded when criticizing New Deal policies, could not hold back. “The disposition to hunt down rich men as if they were noxious beasts,” he noted in “Great Contemporaries” (1939), is “a very attractive sport.” But “confidence is shaken and enterprise chilled, and the unemployed queue up at the soup kitchens or march out to the public works with ever growing expense to the taxpayer and nothing more appetizing to take home to their families than the leg or wing of what was once a millionaire…Snip —

It sounds kind of like Russia and Castro warning Obama today that his policies won’t work, doesn’t it? Nothing like the United States getting lectured on capitalism by two communist countries – pretty ironic.

Despite the striking similarities between then and now, there is one major difference: Roosevelt’s policies remained popular even as the economy faltered….

Today, however, the Obama program appears to be failing politically as well as in the marketplace. The trauma of the financial crisis did not approach that of the Great Depression, and Americans do not appear to have lost faith in our economic system or come to see government as the savior…

Graham goes on to say that FDR didn’t face the united front against him that Obama has faced with a strong Republican opposition. FDR also didn’t have the Tea Parties spring up on him only one month into his first term. We are in a race with Obama at this time. He will not change course, it’s pretty apparent, so the American people have to put up roadblocks to stop his destruction of our economy. That’s why this election is so important. Read all of Graham here:

http://online.wsj.com/article/SB10001424052748704116004575522351201224286.html?mod=WSJ_Opinion_LEADTop

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Responses

  1. We may be on the way from Bush’s recession to Obama’s Depression (he certainly depresses me).
    We are now experience the Obama malaise, where people are reluctant to act to create jobs because of the anti job policies of a bloated government. I still contend that unless we do something to stabilize the energy situation we will continue to flounder.

  2. The Obama Dems have thrown so much crap against the walls, it’s going to take the Republicans a while to figure out what to tackle first. I hope they’ve got people studying all of this to help them focus once they regain the House (and Senate?) They need to strip all of these czars and agencies (such as EPA and Energy) of their ability to basically write their own regulations without the approval of Congress. Not sure how that works, but something’s gotta give.


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