Jim Powell, on continuing failed attempts to rehabilitate FDR’s Depression record:
Black commits one of the most familiar fallacies by reciting a litany of New Deal projects — libraries, schools, public works, and so forth — as if their funding came out of thin air. But government doesn’t have any money other than what it gets by (a) taxing people now, (b) borrowing money now and taxing people later, or (c) inflating the currency, which is another form of taxation. Every New Deal project on Black’s list meant that less money was spent elsewhere because it was taxed away. New Deal economics basically involved robbing Peter to pay Paul, with added inefficiencies along the way and a net loss for everyone.
Remember, too, that the New Deal was mainly paid for by the middle class and the poor, because the biggest revenue generator for the federal government during the 1930s was an excise tax on cigarettes, beer, chewing gum, and other cheap pleasures enjoyed disproportionately by those two groups. Until 1936, the federal excise tax generated more revenue than the federal personal income tax and the federal corporate income tax combined. Not until 1942 did the personal income tax become the biggest source of federal revenue. You can look it up in Historical Statistics of the United States, Colonial Times to 1970, volume 2, page 1107.
Perhaps Black is suggesting that politicians have a special talent for spending other people’s money in a way that will do more to stimulate the economy than if those people had spent it themselves. That proposition is laughable. All the available evidence verifies the common-sense truth that people are less careful with other people’s money than they are with their own. That’s true even when their intentions are good and their motives are pure — which was rarely the case in the New Deal. FDR’s spending programs stimulated a mad scramble among political bosses for control of the loot and the patronage.
This is an important debate to continue, because mindless and ahistorical worship of the New Deal lies at the heart of the current disastrous policies.
Yes, well, good luck with that project. I’ve always felt that there’s something like the Second Law of Thermodynamics operating when it comes to government meddling in the economy, something like it’s impossible for government to transfer wealth from one place to another in the economy without a net overall loss in wealth. So you can certainly use government to reapportion wealth for social justice or law ‘n’ order purposes. But this must come at an overall cost, a small but definite reduction in everyone’s standard of living.
The use of government for the sole purpose of increasing total wealth of course violates the “Social Second Law,” meaning it is the equivalent of a perpetual motion “energy for free” machine.
The fact that in the real world of engineering people still come up with perpetual motion machines, and still get massive belief and investment in them (although no more patents), tells me that convincing people far and wide of the much more subtle Social Second Law is probably a pretty hopeless task.
Heck, getting people to believe the Social First Law (TANSTAAFL, or “you can’t get blood from a stone”) seems impossible. I’m not sure H. sapiens is smart enough to grasp either.
It’s sometimes helpful to push an idea to its limit to see that it isn’t sound. For example, if raising the federal minimum wage really reduces poverty as claimed, why not make it $100 an hour? Surely everyone would be wealthy then, right?
Likewise, if massive government spending is so great, why not spend a trillion dollars a day? We’d all be rich then, right?
Ah, no.
Carl – I’d say we’re smart enough to get both of your “Social Fundamental Laws,” and I’d love to see a completed trifecta, to be placed alongside the Thermo version. The problem is, we only get them when we’ve seen them up close, firsthand, and to our own individual detriment. It’s like an economic version of the “don’t touch the hot stove” lesson.
Larry – The thing I love about the “time standard” of money, as represented by the minimum wage, is that it makes a great example for learning about currency debasement and the effects of inflation. It’s a redeeming feature, in my opinion – and while I hope it stays low, I also hope we keep it.
The Federalists Papers point out that the
Founding Fathers believed the Federal Government
to be quite good at working on matters where in
more then one state had a matter of interest, but,
that neither party could adequately coordinate
when the other party could easily defect on their
efforts.
The example they used was fixing navigational
lights in the delaware bay.
All parties would benefit from this, it would be very
hard to collect revenue from parties using this
interstate waterway and while every state could promise
to contribute in kind, each party had a real benefit
in defecting. Consequently if the Feds paid for this,
the common welfare would be enhanced and
all parties could equally benefit through a federal tax.
The role in government has always been to provide
public goods, and while Grover Norquist may not
believe that, the rest of the citizenry is very happy
with Fire Service, Police service, parks, sidewalks
and defense services.
The FDR Spending program built much of the
public infrastructure still in use 70 years later.
The role in government has always been to provide
public goods, and while Grover Norquist may not
believe that, the rest of the citizenry is very happy
with Fire Service, Police service, parks, sidewalks
and defense services.
I strongly disagree with the initial assertion. I’ll get to that. BUT let’s first discuss your examples. Most of those services aren’t provided by the federal government. Even if the federal government has a role as mediator among the states, a mediator doesn’t fund education or universal medical care, current Obama interests. That’s not a role of a mediator.
Instead, I see the federal government’s primary role is as the insurer of last resort. When some disaster overwhelms every other institution or a risk exists beyond the reach of other institutions (like interstate crime), they’re the final line.
When the federal government takes roles beyond that, it’s taking away from the economy. These opportunity costs are hidden. We see the infrastructure that FDR built, we don’t see what is missing because FDR built using other peoples’ money.