Elephant in the Room The Definition of Insanity

Author: Stefan Claypool

Thirteen months into a historic recession, it's become clear that President-elect Barack Obama plans to address the crisis with a combination of neo-Keynesian policies and carefully lowered expectations. As he prepares to unleash a $775 million stimulus package on our country, Obama has worked hard to convince Americans that we are on the cusp of the next Great Depression, aided and abetted by an eager-to-please media desperately searching for a way to boost ratings and newspaper sales.

But what is being billed as the greatest increase in government's role in the private sector since the Roosevelt administration will most likely result not in a successful economic turnaround, but rather in a continued downward spiral that could very well make Obama's prediction of a depression a self-fulfilling prophecy. The critical point that Obama's team seems to be missing is that wealth and prosperity are derived from markets with free-flowing capital and risk-taking entrepreneurs, rather than federal programs and massive works projects.

In one of the more egregious instances of shared cultural self-delusion, modern history books proclaim that Franklin Roosevelt's New Deal rescued the American economy and ushered in a new era of prosperity. In reality, the Roosevelt programs resulted in only minimal shifts in the unemployment rate, despite a sharp increase in the number of government-sponsored jobs and public works projects. Furthermore, Roosevelt's Keynesian policies actually removed valuable capital from the private sector by reassigning equipment and personnel to government jobs. Massive tax increases did little to aid the turnaround as well. It wasn't until World War II that the fabled Roosevelt economic boom happened, about a decade too late and for reasons beyond the administration's control. The obvious lesson: that this sort of Keynesian meddling is about as useful as a urinal in a convent.

Unfortunately, that's not the lesson we took away from the experience, and now we are cursing the Greedy, Evil Corporations™ for destroying our economy and expecting Big Brother Government to step up and step in to save us from ourselves. And so we're repeating the mistakes that we made in the 1930s, and then again in the 1970s, in the hope that this time, with this administration, maybe it will work. It's understandable ­- we want to believe that a benevolent government can harness the power of the economy for good, but the fact of the matter is that no managerial entity can ever truly control an economy simply because of the challenges of size and information. (I highly recommend Leonard E. Read's essay "I, Pencil" for a wonderful explanation of this principle.)

Although it has become fashionable to blame George Bush's economic policies for the crisis, it must be noted that Bush's method of handling the recession is not radically different from what Obama is proposing. In fact, the majority of Obama's plan is merely a "What Bush did, but more" package, similar to how many of Roosevelt's New Deal programs were simply the logical extensions of Hoover policies. Bush increases the federal budget by $1.5 trillion in eight years? Obama says he'll boost it by an additional $1 trillion in one hundred days. More bailouts? More deficits? Check and check. Not exactly change we can believe in.

And for what? So that we can shamelessly rehash failed policies in the desperate hope that maybe this time, with the right people in charge, we can spit in the face of economic reality and suffer no consequences? President-elect Obama's plan isn't about innovation and change, it's about a return to the failed policies of the 1930s and the 1970s, the Keynesian meddling that has consistently proved ineffective but is touted by elites because it shows that the government is "doing something." Well, count me among the declining number of Americans who would rather see a solution dedicated to utilizing our strengths than to stifling them. The longer we kid ourselves that this benevolent form of nationalization that President-elect Obama and his economic team are thrusting upon us is the solution to all of our problems, the longer we will suffer for it. Instead, give us a plan that emphasizes the creative powers of our private sector and provides incentives for Americans from all walks of life to help get the economy back on its feet.