A Failed Obama Hero

by Walter E. Williams

Let’s think about President Obama’s failed economic stimulus program. Before getting to the
nitty-gritty of why stimulus packages fail, let’s look at the failed stimulus program of
Obama’s hero, Franklin Delano Roosevelt. FDR’s Treasury Secretary, Henry Morgenthau, wrote
in his diary: “We have tried spending money. We are spending more than we have ever spent
before and it does not work. … We have never made good on our promises. … I say after
eight years of this Administration we have just as much unemployment as when we started …
and an enormous debt to boot!”

Morgenthau was being a bit gracious. The unemployment figures for FDR’s first eight years
were: 18 percent in 1935; 14 percent in 1936; by 1938, unemployment was back to 20 percent.
The stock market fell nearly 50 percent between August 1937 and March 1938. Columnist Walter
Lippmann wrote, “With almost no important exception every measure he (Roosevelt) has been
interested in for the past five months has been to reduce or discourage the production of
wealth.” The last year of the Herbert Hoover administration, the top marginal income tax
rate was raised from 24 to 63 percent. During the Roosevelt administration, the top rate
was raised at first to 79 percent and then later to 90 percent. Hillsdale College economic
historian Professor Burton Folsom notes that in 1941, Roosevelt even proposed a whopping 99.5
percent marginal rate on all incomes over $100,000. Much more of the Hoover/FDR fiasco can be
found in “Great Myths of the Great Depression”.

The Great Depression did not end until after WWII. Why it lasted so long went unanswered until
Harold L. Cole, professor of economics at the University of Pennsylvania, and Lee E. Ohanian,
professor of economics at UCLA, published their research project “How Government Prolonged the
Depression” in the Journal of Political Economy (August 2004). Professor Cole explained, “The
fact that the Depression dragged on for years convinced generations of economists and
policy-makers that capitalism could not be trusted to recover from depressions and that
significant government intervention was required to achieve good outcomes. Ironically, our
work shows that the recovery would have been very rapid had the government not intervened.”
Professors Cole and Ohanian argue that FDR’s economic policies added at least seven years to
the depression.

Where do the trillion-plus dollars come from that Congress and Obama are spending in an effort
to stimulate the economy? How about Santa Claus, or maybe the Tooth Fairy? If you said, “Come
on, Williams, you’re being silly! The only way government can spend a dollar is to tax or
borrow it,” go to the head of the class. In the case of a tax, one should ask what would that
taxpayer have done with the dollar had it not been taxed away. He would have spent it on
something that would have created a job for someone. If the government hadn’t borrowed the
dollar, it might have been invested in some project that would have created a job. When
government taxes, borrows and spends, it shifts unemployment from one sector to another. Of
course, the sector that benefits tends to be a political favorite of the shifter.

Between 1787 and 1930, our nation has seen both mild and severe economic downturns, sometimes
called panics, that have ranged from one to seven years. During that interval, no one
considered it to be the business of the federal government to try to get the economy out of a
depression because there was no constitutional authority to do so. It took Hoover, FDR and a
frightened and derelict U.S. Supreme Court to turn what might have been a three- or four-year
sharp downturn into a 15-year meltdown.

Walter E. Williams’s Biography – Dr. Williams serves on the faculty of George Mason University
as John M. Olin Distinguished Professor of Economics and is the author of More Liberty Means
Less Government: Our Founders Knew This Well.

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