Barack Obama Accused of Making 'Depression' Mistakes
By Staff News & Analysis - September 08, 2009

Barack Obama is committing the same mistakes made by policymakers during the Great Depression, according to a new study endorsed by Nobel laureate James Buchanan. His policies even have the potential to consign the US to a similar fate as Argentina, which suffered a painful and humiliating slide from first to Third World status last century, the paper says. There are "troubling similarities" between the US President's actions since taking office and those which in the 1930s sent the US and much of the world spiraling into the worst economic collapse in recorded history, says the new pamphlet, published by the Institute of Economic Affairs. In particular, the authors, economists Charles Rowley of George Mason University and Nathanael Smith of the Locke Institute, claim that the White House's plans to pour hundreds of billions of dollars of cash into the economy will undermine it in the long run. They say that by employing deficit spending and increased state intervention President Obama will ultimately hamper the long-term growth potential of the US economy and may risk delaying full economic recovery by several years. The study represents a challenge to the widely held view that Keynesian fiscal policies helped the US recover from the Depression which started in the early 1930s. The authors say: "[Franklin D Roosevelt's] interventionist policies and draconian tax increases delayed full economic recovery by several years by exacerbating a climate of pessimistic expectations that drove down private capital formation and household consumption to unprecedented lows." – Telegraph

Dominant Social Theme: Wake up, America.

Free-Market Analysis: The British ride to America's rescue? The Institute of Economic Affairs, Britain's self-proclaimed oldest free-market think tank, supposedly inspired by one of our favorite economic thinkers, FA Hayek has come out against the Obama administration's prophylactic profligacy. The conclusions of the IEA study seem pretty good. We've mentioned them of course for nearly a year now in the pages of this modest journal, but we are happy that the IEA has joined the club.

As you can see from the above excerpt in the UK Telegraph (the study predictably doesn't seem to be getting a great deal of traction in the US, at least not so far), deficit spending – expanding the amount of money government spends – and more regs and general government interference are fingered as the main culprits in fiscal and monetary methodology that will surely do the exact opposite of what is supposedly intended.

We write "supposedly" because it beggars our tiny, collective mind that those in charge of economic policy at the White House really don't understand the true ramifications of what they have set in motion. Do Larry Summers, Ben Bernanke, et. al. really not understand the true impact of their policies? Do they really not – ever – read the expanding and impressive body of free-market literature on the ‘Net explaining in detail just why what they are implementing won't work? It is available. It is not hard to understand.

If those in American and European administrations really wished to end the current economic downturn and wished to set the West on the pathway to economic growth and prosperity, here's what they would do to begin with. They would cut taxes substantively across the board, and cut spending and cut regulation. If they were really inspired, they would jettison massive welfare and health programs. If they all took psychotropic drugs and wrote their last wills and testaments, they would scrub central banking and fiat money and replace same with a market-based gold and silver standard of the sort that existed in America (when America was growing great) before the Civil War.

Each of the above elements we have cited, in their current forms, are parts of what amounts to a command and control economy. High taxes, spending, regulation and tremendous government welfare programs are ways to ensure that the citizen is dependent on the government and those who run government from behind the scenes. The economy-killing measures are the way that government ensures it is an integral part of the daily fabric of most citizens' lives.

This is, unfortunately, why we have little hope that Western governments on their own will reconfigure their methodologies to do what is necessary to reinvigorate their economies. We think it is a better bet that Internet-savvy citizens who have figured out that free-markets work and managed markets do not will kick up such a ruckus that gradually some of the worst of the economy killing state structures will be pushed back.

Of course, from our perspective, the central stumbling block to prosperity is the central bank. Without this eternal fountain of phony money, Western governments simply wouldn't have the money or expectation of money to implement the various schemes that helped drag down world economies. Military, welfare and oppressive state programs would prove difficult to sustain without imposing even more punitive taxes and other measures.

Much of what we have mentioned above is prominently featured in the IEA's prescription of prosperity. Here is a salient paragraph summing up a good deal of what they suggest. It is written by the author's of the study, Rowley and Smith and appears in a separate Telegraph article entitled, "Adam Smith would not be optimistic in today's economic world."

Prosperity and full employment in the US will only be restored by a return to laissez-faire capitalism. Our study outlines a radical, but politically feasible, approach. Monetary policy should be expansionary. But, on the micro-economic side, tariffs and other trade barriers should be repealed unilaterally; a "Right-to-Work" Act should reduce the minimum wage and curtail the powers of unions; and business regulation should be reduced. Individual banks and their counterparties should not be bailed out, although the system should be protected by ensuring that failing banks are wound up in an orderly fashion – this is the only way to restore market discipline.

The one modest difference of opinion we would have with these two erudite and concerned professors would focus on five words that the stalwart few who read the Bell regularly will probably have picked up on already … "Monetary policy should be expansionary." We wonder how a think tank inspired by free-market thinker FA Hayek – who in no uncertain terms blamed business cycle volatility on central bank over-printing of money – can in good faith prescribe what amounts to price fixing as part of its package of free-market solutions.

Central banks fix the price of money. Price fixing is distortive to underlying economies. Fiat money, the almost inevitable product of central banks, inevitably collapses. That is what is happening now. These two fine gentlemen couldn't even call for a return to the gold standard which would at least limit the destructive capability of central banking. All they can muster is a plea for an expansionist monetary policy.

After Thoughts

So here we are. One of Britain's larger, conservative newspapers has taken up the cause of that nation's leading free-market think tank to publicize its latest proscription for prosperity written by two of that nation's most respected free-market thinkers. And what do they advocate? Fewer regulations, less taxes and … wait for it … a more expansive, central banking monetary policy! We surely live in an upside down Alice-in-Wonderland world. Is this the best Britain's leading free-market, Hayekian-inspired think tank can do? Advocate for a change in the direction of the monetary policy of the American Federal Reserve? We understand that think tanks such as these are funded by donations and are always in need of funds. Has the Bank of England contributed?

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