We see two visions competing in America today on what is the best path for job creation and a stronger economy. Using simple categories, there are those who champion free market solutions versus the Keynesians who prefer greater government involvement in the economy. What can we learn from history?
The last time the American economy was in a bad way for a significant period of time was when Jimmy Carter was in the White House. Fortunately, the American people did not give this Democratic president a second term in office.
The economic policies of President Ronald Reagan got America back on track. Between 1980 and 1988, approximately 2 million old industry jobs did disappear in the United States, but dwarfing this number were the 18 million jobs created in the rapidly growing sectors of retail and real estate sales, new technologies, finance, and insurance. Lower taxes, deregulation, and renewed optimism resulted in a proliferation of new businesses and a “steady advance of American living standards.” Whereas incomes declined in the 1970s, the real income of Americans (at every level) increased in the 1980s. From 1980 to 1988, inflation dropped from 12.5 to 4.4 percent, and unemployment from 7.1 to 5.5 percent. The gross national product increased (in constant dollars) from $2.7 trillion in 1980 to $5 trillion in 1989.
Another lesson in history is the big government approach of the 1930s. The Great Depression that followed the Stock Market Crash in October 1929 resulted in terrible hardship for millions of Americans. In too many survey American history books, a common narrative of these difficult years is that President Herbert Hoover (1929-1933) maintained a laissez-faire approach and, consequently, worsened the economy. The argument goes that President Franklin Roosevelt (1933-1945) took over and saved the day with his New Deal of greater government intervention.
But this storyline has problems. Amity Shlaes, The Forgotten Man: A New History of the Great Depression (New York: Harper Collins Publishers, 2007) is one study of many that offers a corrective to a biased liberal historical interpretation.
Actually, President Hoover made things worse not by doing too little but by doing too much. He thought the answer was government planning. His support for the Smoot-Hawley tariff, his meddling in business (keeping wages high despite lower sales), and his assailing of the stock market (undermining market confidence) were all disastrous. Hoover could not even heed the warning of 1028 economists who signed an open letter published in the New York Times that urged him to veto the tariff legislation.
President Roosevelt is the hero of Democrats, but his New Deal did not exactly save the day. The problem is that he extended Hoover’s interventionist policies. One Roosevelt insider wrote: “The New Deal owed much to what he [Hoover] had begun.” The acceleration of interventionism had major consequences. Roosevelt’s overall economic program hurt businesses and frightened away capital. Overestimating the value of government planning, he failed to solve the economic problems of industrial malaise and high unemployment.
The New Deal did create jobs, Shlaes writes, “[b]ut what really stands out when you step back from the 1930s picture is not how much the New Deal public works achieved. It is how little… the New Deal recovery remained incomplete right through the 1930s…. The worst factor was Roosevelt’s war on business.”
So what are the numbers that many liberals choose to ignore? Approximately 5 years after Roosevelt entered the White House unemployment was above 17 percent (compare to the 3.3 percent of 1927 with President Calvin Coolidge at the helm).
Year unemployment Dow Jones Industrial Average
1927 3.3 % 155-168
Oct, 1929 near 5 343 (Oct 1)
Sept, 1931 17.4 140
Oct, 1933 22.9 93
Nov, 1934 23.2 93
July, 1935 21.3 119
Dec, 1936 15.3 182
Jan, 1938 17.4 121
When you hear someone criticize the free market and praise big government, suggest they take a closer look at the job results of President Obama’s big government approach. Sadly, other Democratic presidents before him also persisted with policies that prolonged the misery of many Americans.