Archive for January, 2012

The Coming Election

Thursday, January 12th, 2012

I don’t think that a more important election has occurred in 75 years than the one later this year. I am not all that enthusiastic about any of the current candidate in the primary. Mitt Romney will probably win but he has been wounded seriously by attacks from other Republican candidates which alleged that his career as a venture capitalist and management consultant was an ethical issue. One expects this sort of thing from Democrats, about 53% of whom prefer Socialism.

53% of Democrats feel positively towards it.

Romney has defended himself with some vigor, which is a positive development. Others have defended him with a more effective argument.

We are now in an election campaign that may well be centered on our country’s economic system. Is capitalism (or free market economics as preferred by some) the best way for our economy to work? History has been written by people who are not positive about capitalism. Recently, revisionist history has appeared that tries to balance the story. Academic studies have been published that suggest that the Depression was a result of Roosevelt’s policies.

The writings of John Maynard Keynes have been quoted in support of leftist economic policies. The problem is that his policies have never been tried. He advocated countercyclical programs which ran deficits in times of economic slowdowns and recessions but surpluses in good economic time. The net result was zero deficits, a marked contrast with policies followed since 1960.

In fact, politicians of both parties have never been willing to run the surpluses that Keynes advocated. In good times, spending rose whether taxes were raised or not. Jimmy Carter said he would balance the budget with higher taxes. Instead, his compatriots (not allies) in Congress spent even more, leading to an inflation and stagnation crisis.

Ronald Reagan reinvigorated the economy with a large tax cut in 1980. The beneficial effect was delayed to 1982 when Bob Dole, the Senate Majority Leader, succeed in delaying the tax cut. The result was a predictable delay in economic activity as taxpayers waited for the lower rates, and the loss of the Senate majority in 1982.

Bill Clinton raised taxes in 1994 (His wife, Hillary, avoided the higher tax rates by taking her bonus prior to January 1, 1993, when the higher rates took effect. The result showed her prudence but also suggested hypocrisy in the Democrats’ enthusiasm for higher taxes.

George Bush I raised taxes in 1992 in spite of a promise not to do so. He lost the 1992 election, mainly because of Ross Perot’s candidacy splitting natural Republican voters. I was interested in Perot at the time but he started acting strangely before the election and I voted for Bush with reservations. Had he not raised taxes, I think he would have been re-elected. I have had some suspicion in spite of denials, ever since that the Democrats extracted a promise to raise taxes in return for voting for the first Gulf War. It is well known that All Gore required concessions in return for his vote for the war.

The Roosevelt legacy

Sunday, January 1st, 2012

Since 1936, history has been written by historians supportive of Franklin Roosevelt’s policies. The policies of Warren Harding and Calvin Coolidge have been ridiculed and the ridicule continues. A recent excellent book on the first US ambassador to Hitler’s Germany repeats a common slur against Coolidge. He is said to have replied to a question about the World War I allies’ difficulty in repaying war loans by saying, “They hired the money, didn’t they ?” In fact, he did not say that. His administration tried to modify loan terms with the Dawes Plan but the reparation demands that led to the loan repayment difficulties were the direct responsibility of the French and Woodrow Wilson who had little interest in economics. The French thought they could make Germany pay the costs of the war and the damage to northern France. In fact, they had no idea of the laws of economics which required an active economy to generate the funds to allow Germany to recover. Keynes polemic book, “The Economic Consequences of the Peace”, was his attempt to ingratiate himself with his Bloomsbury friends but it was disastrous for the world economy in the 1920s. It suggested that the TReaty of Versailles was a Carthaginian Peace intended to destroy Germany. Hitler would make use of this impression a few years later and Britain justified appeasement with the same argument. In fact, the Treaty of Versailles was destructive and led to great economic harm. It is likely that the Versailles Treaty had the same effect in 1929 as the 1870 Prussian defeat of France had in the Panic of 1873.

There are those who blame the Federal Reserve for the Depression. It is likely that it is to blame for the nearly 100% inflation since 1928 but the Depression was most probably due to the progressive policies of Hoover and Roosevelt. High tariffs contributed but the hostile anti-business climate of the early New Deal plus the fascist policies of the early Roosevelt administration were the most proximate cause. Farmers slaughtered hogs and chickens rather than sell them at prices below cost, as required by the New Deal when people were hungry. The Wagner Act encouraged strikes and kept wages above the market rate while unemployment exceeded 25%.

Reading the revisionist literature is the best antidote to the leftist historians, who had no idea how an economy worked. I recommend Amity Schlaes’ book, “The Forgotten Man,” which will be followed by an entire literature setting the historical record straight.