More Government Please? Give Me a Break

Thomas Frank’s “Easy Chair-More Government Please!”(More_Government_Please) which recently appeared in Harper’s Magazine is yet another short sighted plea in a mainstream publication for the benevolence of government to aid in the effort of putting people back to work.  In what amounts to nothing more than a Robert Reich-like worship of Franklin Roosevelt’s massive vote buying scheme known as the Civil Works Administration (CWA) and Works Progress Administration (WPA), Frank makes the call for a 21st century jobs bill.  The failure of the first stimulus bill, the American Recovery and Investment Act, to make a significant dent in the unemployment rate goes unacknowledged.  President Obama later joked about the lack of “shovel -ready” jobs contained in the bill; it’s always comforting when a president finds humor in generational theft without substantive results.  What also goes unmentioned is the newly proposed “American Jobs Bill” which saw a quick death in the Democrat controlled Senate.  Frank lumps blame on the Republicans for refusing to pass another short sighted spending measure despite the outright snubbing by the President’s own party in upper house of Congress.

In reference to the CWA Frank writes:

To create jobs, the CWA did not offer tax breaks or fine-tune the regulatory climate.  No, the CWA simply hired unemployed people and put them to work…The program’s administrator, Roosevelt confidant Harry Hopkins, had famously spent more than $5 million in his first two hours of as a federal official.

Yes, nothing screams success like the squandering of stolen funds amounting to $5 million in a mere two hours.  One can only imagine the careful thoughtful process Hopkins employed in spending such a large amount of money (in that day) in such a short period of time.  In summing up the success of F.D.R.’s employment schemes, Frank states:

At the CWA, he (Hopkins) found jobs for 4 million people in two months…The WPA, which Hopkins ran from 1935 to 1938, ultimately created about 3 million jobs per year…The Civilian Conservation Corps…employed another 3 million.

Despite the millions employed, the unemployment rate remained stubbornly high during the period Washington gorged on spending:

Again, such facts elude Frank’s government worshiping.  He goes so far as to praise the building of murals in Post Offices and the paying of artists to paint and theaters to direct plays that plagued the New Deal’s desperate attempt at job creation.   Being that such activities are unprofitable in most instances, government funding of such boils down to wealth destruction.  While jobs in the private sector are the result of productive enterprise, Frank falls under the oft-made presumption that all job creation is equal.  If that were the case, the government could just spend trillions paying the unemployed to dig ditches with their bare hands.  No real wealth would be created but jobs are ultimate goal, right?

The fallacy with government spending to compensate for the lack in the private sector has been outlined many times before by economists not infatuated by the incoherent rambling of Keynes’ General Theory.  In short, every dollar spent by the government comes at the expense of the private, productive sector.  If the money isn’t borrowed or taken with the point of a gun (aka taxation), then it is printed into existence and spending is monetized under the Federal Reserve.  Government owns no resources; this can never be stressed enough.  Cries of “not enough aggregate demand” normally serve as a rational for increased government spending but demand is never inadequate in terms of human nature marked by infinite desire.  As I wrote in a recent American Thinker piece titled “It’s Not Aggregate Demand, Stupid“:

What’s at work here is the fundamental concept of Say’s Law that Keynes failed to disprove: markets clear.  A perceived lack of aggregate demand doesn’t mean products won’t get purchased.  Every consumer good is bought if the price falls low enough.  Producers must find this price in order to adopt a new production structure to begin meeting this demand.  Most people aren’t going to pass up a 36-inch television for $5 at Best Buy.  Sure, the television producer may fail to garner a profit on this new sales price, but that is why price signals are so important.  They tell producers the structure of production can be adjusted in order to meet this new equilibrium.  Capital not allocated to producing 36-inch televisions means investment in more profitable operations.

Armchair economists like to assume that human action is predictable and calculable.  But action, based solely on individual preference, isn’t measurable with econometric formulae.   

Frank spends a great deal of time trying to explain away the prospect that Uncle Sam’s overbearing taxation and regulatory structure is sending unfriendly signals to entrepreneurs and businessman.  Ironically, while he offers unlimited praise for F.D.R., he ignores the unprecedented attempts of micro managing the economy that made the Great Depression really “Great.”  As economist Robert Higgs noted:

Industry was virtually nationalized under Roosevelt’s National Industrial Recovery Act of 1933. Like most New Deal legislation, this resulted from a compromise of special interests: businessmen seeking higher prices and barriers to competition, labor unionists seeking governmental sponsorship and protection, social workers wanting to control working conditions and forbid child labor, and the proponents of massive spending on public works. 

The legislation allowed the President to license businesses or control imports to achieve the vaguely identified objectives of the act. Every industry had to have a code of fair competition. The codes contained provisions setting minimum wages, maximum hours, and “decent” working conditions. The policy rested on the dubious notion that what the country needed most was cartelized business, higher prices, less work, and steep labor costs.

As the state sector drained the private sector, controlling it in alarming detail, the economy continued to wallow in depression. The combined impact of Herbert Hoover’s and Roosevelt’s interventions meant that the market was never allowed to correct itself. Far from having gotten us out of the Depression, FDR prolonged and deepened it, and brought unnecessary suffering to millions.

With Obamacare, Frank-Dodd, auto company bailouts, the propping up of the housing market, endless quantitative easing by the Fed, and the Wall Street bailout, it is clear such attempts at cartelization have once again been resurrected.  It only makes sense the effect on unemployment and the business climate remain the same.  The desperately needed market correction isn’t occurring and the can is being kicked by politicians focused on the next election rather than the next decade.  Crisis is serving once again as an excuse for a power grab by Leviathan.  Despite the unprecedented increase in spending and the monetary base over the past three years, the economy remains stagnant.  A recent report by the Phoenix Center found that government spending has had no net effect on private sector hiring within the past fifty years.  To those who understand basic economics, this comes as no surprise.  To government apologists, it’s just another report to brush aside while preaching the divinity of an institution they believe is capable of the impossible: eliminating the fundamental concept of scarcity.

The New Deal is often pointed to as demonstrative that increased government spending can offset the business cycle. Yet it took over ten years for unemployment to come down as military conscription for World War II created the mirage of “full employment.” Economist Paul Samuelson famously worried that post World War II cuts in government expenditures would lead to massive unemployment. The economic boom that followed should have put the nail in the coffin of the notion that sustained government spending is necessary for economic growth. Instead, Samuelson’s college textbook “Economics” was a best seller for decades and has been responsible for a generation of economists equating cuts in taxes and government spending with economic Armageddon. Perhaps an even better example on the success of government not engaging in countercyclical policy was the seldom-discussed Depression of 1920-1921. The deflation driven downturn that began in 1920 as a response to the previous inflationary policy during World War I saw unemployment hit 12% as GNP fell 17%.  Yet President Harding slashed income tax rates, cut the government almost in half within two years, and the national debt was reduced by a third.  The Federal Reserve’s intervention was “hardly noticeable” according to historian Tom Woods.  What followed would be classified as an economic miracle by today’s standards as unemployment fell to 2.4% in 1923.  The market had effectively been allowed to clear without Washington coming to the rescue by simply spending money. It’s funny how freedom works when allowed to reign.

If there is one bright point on Frank’s article riddled by elementary reasoning, it is his criticism of the worshipping the stalwart of conservatism, Ronald Reagan, gets from Republicans claiming to distrust big government. He writes:

Rhetoric aside, Ronald Reagan was a world-champion deficit spender. Read his memoir, An American Life, and you will also find Reagan referring to the Works Progress Administration, among the biggest government jobs programs of all time, as “one of the most productive elements” of Franklin Roosevelt’s New Deal.

Murray Rothbard exploded the “Regan myth” years ago:

There was no “Reagan Revolution.” Any “revolution” in the direction of liberty (in Ronnie’s words “to get government off our backs”) would reduce the total level of government spending. And that means reduce in absolute terms, not as proportion of the gross national product, or corrected for inflation, or anything else. There is no divine commandment that the federal government must always be at least as great a proportion of the national product as it was in 1980. If the government was a monstrous swollen Leviathan in 1980, as libertarians were surely convinced, as the inchoate American masses were apparently convinced and as Reagan and his cadre claimed to believe, then cutting government spending was in order. At the very least, federal government spending should have been frozen, in absolute terms, so that the rest of the economy would be allowed to grow in contrast. Instead, Ronald Reagan cut nothing, even in the heady first year, 1981.

At first, the only “cut” was in Carter’s last-minute loony-tunes estimates for the future. But in a few short years, Reagan’s spending surpassed even Carter’s irresponsible estimates. Instead, Reagan not only increased government spending by an enormous amount – so enormous that it would take a 40 percent cut to bring us back to Carter’s wild spending totals of 1980 – he even substantially increased the percentage of government spending to GNP. That’s a “revolution”?

Reagan was anything but a fighter for limited government. As long as “just like Ronald Reagan” remains a talking point politicians employ for cheap applause, don’t expect this fictional revisionism to be corrected anytime soon.

In the end, Frank’s plea for more government spending on job creation ignores basic economics through blind idolizing of Roosevelt’s New Deal and the decade of misery it plagued upon the nation. In the course of all debatable affairs, I am firm believer in Occam’s razor: the simpler and more concise explanation is the best. For proponents of statism, Ludwig von Mises excels in explaining their worldview. From Human Action:

It is important to remember that government interference always means either violent action or the threat of such action.  The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning.

Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

Frank’s article is lacking in both historical evidence and rational economic thought; such is often the case for advocates of government spending.  As long as such suggestions pass as conventional wisdom, the economy will continue to struggle under the vice grip of a State that knows no bounds to its reach.

 

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