It's Deja Vu All Over Again

One of the best gifts I got for Christmas was the book "The Forgotten Man" by Amity Shlaes. This is the most informative, fairest and best written book I have ever read on the Great Depression and New Deal. If one wants to understand what is happening now and what will probably happen in the next few years it is important to have an appreciation of the 1920's and 1930's. The 1920's were a time of economic growth and expansion. They were also a time of Republican dominance in national politics. During this period liberal intellectuals and politicians, who were in the minority, were waiting for the economy to collapse so that they could take advantage of the situation in order to promote and install their policies.

That moment came with the stock market crash of October 1929 as the market tumbled and unemployment soared to as high as 30 percent. Ironically, the President, Herbert Hoover, was a "Compassionate Conservative, who was famous for his relief work in previous jobs. Hoover's response was to promote stimulus policies including a lot of public works projects. Hoover, however, unlike the current President, raised taxes and increased tariffs which helped make the depression a global disaster.

In 1932 Franklin Roosevelt and the Democrats won in a landslide. FDR, who came from a wealthy family, had been heavily influenced by liberal thinkers at Harvard and elsewhere. He had extraordinary communication skills and was able to connect with the average person. FDR made the federal government the dominant factor in the economy and enjoyed raising taxes on "the rich." Amity Shlaes book points out, however, that after all the government spending and great speeches the economy was still in a depressed state with high unemployment until the late 1930's and that it revived primarily because of the onset of World War II. She believes that had the market been allowed to deal with crash in a more normal manner, the economic downturn would have reversed itself in a relatively short time.

Primarily as a result of the September market meltdown Barack Obama and the Democrats will have total control of the federal government. They are promising a huge stimulus package that will probably mean that 25 percent of all spending will come from the federal government. This does not count state and local government spending. I hope I am wrong but I believe that we are in for time of great speeches and bad policies that will prolong our economic woes. Of course, the President-elect's followers in the media will tell us that Happy Days are Here Again.