OBAMA'S FAILED "NEW DEAL"
President Obama acts a lot like Franklin Delano Roosevelt. Obama is inventing program after program in a head long rush to direct economic growth through centralized government planning and to pump tax dollars and beyond into favored industries, all in an effort doomed to fail. Although no amount of federal spending will revivify the American economy; it will leave us with a legacy of debt that will impoverish generation after generation. The economy will rebound when consumer confidence in free enterprise returns and when small and medium sized businesses begin to invest in new products and ventures. Until then, no pet federal project will do anything to sustain economic growth. Each “stimulus” wears off with a wicked hangover for the federally dependent: unemployment worse than before the make work program began. Sustained economic growth comes only from liberating entrepreneurs to enter markets at low cost, invest, take risks, and on occasion succeed magnificently.
Roosevelt was the first American president to presume government capable of directing, controlling, and uplifting the American economy. Despite a myriad of new federal agencies (what have been referred to as the alphabet soup agencies because their acronyms seemed to bring together virtually every letter in the alphabet), the programs universally failed to bring America out of the Great Depression. It took the Second World War to do that, forcing mass mobilization of industry to sustain the fight against Hitler, Mussolini, and Hirohito. After the war began, unemployment levels returned to normal and the Congress abandoned many key New Deal programs (but the interest in delegating governing power to regulatory commissions remained and served as a catalyst for the creation of dozens of new agencies from then until now).
The National Industrial Recovery Act was the centerpiece of Roosevelt’s New Deal. Under that Act, Congress delegated the President enormous and largely undefined power to make law (to create codes) that governed everything from the wages and prices of products, to the quantity of products that could be produced, to the hours workers were allowed to be employed. President Roosevelt signed into law hundreds of these codes without a single one coming before Congress. His “General” in charge of the NRA coerced, cajoled, and collaborated with industry to achieve, at best, partial code compliance. The codes invariably gave anti-competitive advantages to the largest industries in America whose top executives became bosom buddies of the Administration.
By March of 1934, many Roosevelt contemporaries began to appreciate that the NRA had been a costly failure and a dangerous authoritarian turn for the federal government. In Supreme Power: Franklin Roosevelt vs. The Supreme Court Jeff Shesol records the reaction of journalist George Creel:
“The NRA was headed hell-bent for a bust . . . Going back to Washington was like a journey into bedlam, for all touch with the sane and simple had been lost. Each visit founds scores of new agencies, boards, and commissions, headed by campus experts and . . . theorists; and the spread of bureaucratic mania had the sweep of a pestilence.”
Were George Creel alive today, he would likely remark that the pestilence had over time consumed its host such that only pestilence remains, a gargantuan, self-perpetuating, and, at times, cannibalistic infestation. The bureaucracy is now largely untethered from any branch of government. In its own sphere, each bureaucratic agency is totalitarian, unanswerable to the Courts, the Congress, and the American people. Whereas before, delegation to the agencies largely meant delegation to an all-power executive (e.g., President Roosevelt); now delegation to the agencies largely means delegation to an all-powerful agency, operating in all but the rarest occasions independent of any outside government influence or control.
In a manner comparable to Roosevelt, Obama is intent on building a corporatist state, one where entire industry sectors (banking, automobile, health care, insurance) are coopted by entering into an above market rate of return-government regulation quid pro quo. In exchange for market leaders conceding to the government regulatory control over matters they previously decided independently, the government rewards them with new market protection (regulatory barriers to market entry). Various industry leaders are thus becoming bosom buddies of the Obama Administration; the President and his leaders in Congress are making good for themselves with the titans of industry. That will help them financially and politically long past the time they leave government service (service defined as serving themselves).
The New Deal did not end the Great Depression, and the present enormous expansion of federal programs and debt is likewise not effecting a change in market realities, except to make market entry and competition far more difficult to sustain. United States government spending (at about $6.4 trillion in 2010) is a whopping 43.85% of the Gross Domestic Product (GDP). In other words, a figure equal to nearly half of the value of all goods and services we produce (approximately $14.62 trillion per year) is what the United States government pays to fatten its bloated ugly self. Our national debt is presently about $16.64 trillion and will rise to $19.52 trillion by 2012. Annual tax revenues are $4.4 trillion, falling short of spending by $2 trillion this year alone.
The unemployment rate is grossly understated by the U3 figure the Department of Labor touts to the public; it is closer to the U6 number Labor also records. U3 includes only those who are without jobs but who are available for work and are actively seeking it. U6 includes the U3 people plus those who have given up looking for work because they cannot find it and those who have taken part-time jobs because they cannot find full-time employment. U3 unemployment is currently about 10%. U6 unemployment is about 17%. In reality, close to one in five Americans is either unemployed or working part-time rather than at a desired full-time job. Economists have estimated that in 1933 at the peak of the Great Depression some 38% of Americans, one in three adults, were either unemployed or working part-time rather than full. In Nevada, Michigan, and California (the states with the highest unemployment rates), the U6 figures hover around 20% (one in five adults) with the official U3 figures consisting of 14%, 13%, and 12%, respectively. Anytime unemployment tops 8%, economists get the jitters. When it hangs on month after month at higher levels, the economy is malfunctioning.
The President blames the markets and presumes that a corrupt government can do better not by taking over the markets but by co-opting them. Cooptation is far more advantageous for politicians. A simple takeover pays no personal financial dividends. Cooptation can enable politicians to acquire perks as executives wriggle through hoops in an effort to get to the other side where the government creates artificial barriers to market entry. On that side, the executives can enjoy above market rates of return, knowing that the price for that state-sponsored condition is a payback to the politicians.
On May 27, 1935, the Supreme Court graciously put an end to the ill-conceived federal cooptation program, the NRA, in Schechter Poultry Corp. v. U.S. In Schechter Poultry the Court unanimously held the congressional grant of code-creating power to President Roosevelt an unconstitutional delegation: “We think that the code-making authority thus conferred is an unconstitutional delegation of legislative power.” Following the decision, Justice Louis Brandeis (considered a New Deal ally) confidentially told President Roosevelt’s aides: “This is the end of this business of centralization, and I want you to go back and tell the President that we’re not going to let this government centralize everything.” But, alas, Roosevelt had the last laugh, rending the Constitution another fateful and lasting time. His Attorney General Homer Cummings drafted a bill that would grant the President authority to add one additional justice to the Supreme Court for each aged 70 and a half, up to a maximum of six. He could then pack the Court with New Deal adherents who would run roughshod over the nondelegation doctrine and permit an endless grant of legislative power to the executive, effectively creating a dictatorship in America.
The bill was introduced shortly after Roosevelt’s landslide re-election in 1936. Following a fireside chat in which he urged public support for the bill, the Supreme Court engaged in what newspapers of the time called “the switch in time that saved nine.” Associate Justice Owen Roberts switched sides, voting in favor of a Washington state minimum wage law in West Coast Hotel Co. v. Parish, signaling a change in the Court favorable to allowing New Deal agency to stand. The Judicial Reorganization Bill of 1937 was never passed; given “the switch in time,” there was no need. From that time to the present, the Supreme Court has not held any delegation of governing power from Congress to an independent regulatory commission unconstitutional. For nearly a century, now, every time Congress delegates law-making, prosecutorial, and judicial power to an independent regulatory commission, the Supreme Court looks the other way. Through this process, we have been transformed from a limited federal republic (the Constitution’s design) into an unlimited bureaucratic oligarchy antithetical to Founders’ core principles.
Unlike Roosevelt, who experienced economic recovery fortuitously from the build-up required to meet the Axis threat in World War II, Obama has no such galvanizing force to lift America out of its recession. Instead, he proceeds with his own version of “alphabet soup agency” planning, building free enterprise stifling regulatory institutions that are best buddies with leading industry in the hopes that this will somehow jump start the economy. It did not do so then, and it will not now.
There is a remarkably simple alternative to this paternalistic approach, one that trusts in freedom rather than in government control. That alternative is unpopular with elected officials because it leaves them with no opportunity for paybacks. That alternative is to cut government to the bare essentials (Justice, State, Treasury and Defense) and liberate the American people from the income tax and the regulatory strictures that impede their entry into markets.
One simple measure could have a profound effect. Total U.S. tax revenue from all sources is about $4.4 trillion. The income tax brings in only $1.4 trillion. In 1980, Ronald Reagan called for elimination of the federal Department of Education. That was a grand idea then and a reform long overdue today. There is no appropriate role (none whatsoever) for the federal government in education. Its presence has helped dumb down and standardize education, doing nothing to lift our country from among the lowest public education achievers in the world. Sixteen percent of the federal budget is spent on federal education related initiatives. The budget for education is $1.2 trillion annually. By eliminating all federal involvement in education and complimenting President Reagan by closing the Department of Education, we would save annually roughly the same amount of money that the federal government taxes from American citizens. We could also then eliminate the federal income tax. The government would run on $3 trillion instead of $4.4 trillion, and Americans would save, invest, and spend their own money, catapulting the American economy out of the recession. Year after year that $1.4 trillion would remain where it is earned without being pilfered by half-wits in Washington who think they know better than you do how to spend your money.
Roosevelt was saved by the Second World War. Obama is unlikely to have a war of comparable magnitude to save his presidency. If opposed by a person of intelligence, eloquence, and dedication to constitutional government, he might well lose re-election. If he does, the lesson for those coming in to replace him is that each era of government cooptation of the private sector has been a monumental failure for the American people, comes only at the expense of their freedom, and must never again be repeated. The Democrats are not alone in embracing this failed approach. George Bush, Jr. embraced it with the most liberal Democrats on the Hill. He broke faith with Ronald Reagan and, by so doing, contributed mightily to the mess enveloping the nation.
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When the economy sours, we should be looking for ways to eliminate government at the federal and state levels and for ways to free citizens of tax and regulatory burdens to lighten their load so they can rebuild the economy. The opposite course fails time and again but at great long-term cost (debts that future Americans must pay and that retard their opportunity to translate freedom into prosperity).
� 2010 Jonathan W. Emord - All Rights Reserved