Thomas Sowell writes Best Way to Aid Economy? Just Do Nothing in the Investors Business Daily, 9/14/11.
The grand myth that’s been taught to whole generations is that the government is “forced” to intervene when there is a downturn that leaves millions of people suffering. The classic example is the Great Depression of the 1930s. What most people are unaware of is there was no Great Depression until after politicians started meddling in the economy.
There was a stock market crash in October 1929 and unemployment shot up to 9% — for one month. Then unemployment started drifting back down until it was 6.3% in June 1930, when the first major federal intervention took place. That was the Smoot-Hawley tariff bill, which more than a thousand economists across the country pleaded with Congress and President Hoover not to enact.
But then, as now, politicians decided they had to “do something.” Within 6 months, unemployment hit double digits. Then, as now, when “doing something” made things worse, many felt the answer was to do something more.
Both President Hoover and President Roosevelt did more—and more, and more. Unemployment remained in double digits for the entire remainder of the decade. Indeed, unemployment topped 20% and remained there for 35 months, stretching from the Hoover administration into the Roosevelt administration.
In 1987, when the stock market declined more in one day than it had in any day in 1929, Ronald Reagan did nothing. There were outcries and outrage in the media. But Reagan still did nothing. That downturn not only rebounded, it was followed by 20 years of economic growth, marked by low inflation and low unemployment.
The Obama administration’s policies are very much like those of the Roosevelt administration during the 1930s. FDR not only smothered business with an unending stream of new regulations, he spent unprecedented sums of money, running up record deficits, despite raising taxes on high-income earners to levels that confiscated well more than half their earnings.
Like Obama today, FDR blamed the country’s economic problems on his predecessor, making Hoover a pariah.
Yet, six years after Hoover was gone, and nearly a decade after the stock market crash, unemployment hit 20% again in the spring of 1939.
Sowell dispels the narrative that government must save us from the imperfections, or at least the short term dislocations inherent in capitalism. Perhaps the opposite is more true. The political battle centers on who controls the narrative and which one we accept.
Tips to Gary Meyers.