The Working File

It is hardly original to note that “The Forgotten Man” by Amity Schlaes has a particular relevance to what is happening economically and politically right now. The book is a reassessment of the New Deal and the Great Depression that advances the argument that the former caused more harm than good — or at least more harm than most anyone realizes. It also contains a reassessment of Hoover: not to rehabilitate him to to fix a rather complete misconception about his response to the Crash of 1929 and the start of the depression. In brief, Hoover was anything but a proponent of laissez faire capitalism. He was an engineer and successful businessman who specialized in fixing things. Before entering government he helped numerous companies and organizations worldwide increase efficiency and cut through unnatural barriers to progress. Acting as Calvin Coolidge’s Commerce Secretary — he was much more proactive than Cal would have liked, and Coolidge was not happy when it became apparent that Hoover would be his successor. The evidence is so clear and incontrovertible, that any opposition can only be based on ignorance, frankly. This is in contrast to Schlaes argument about the New Deal — while I am persuaded by her thesis, I can understand that reasonable, informed people could differ. But to believe that Hoover reacted to the crash and the economic turmoil that faced America with a hands-off approach is not a reasonably informed or honest opinion. His policies certainly did not work — but they were not based on a no tinkering ideology.
With that as background, here is the point. Most of the discussion comparing our current situation and President Obama to the Great Depression paints Obama as an updated FDR. Some people make the comparison favorably, and others consider it an indictment. But ready through an early chapter of “The Forgotten Man” last night an my way home from work, I found a passage that echoed an article I read earlier yesterday by Charles Krauthammer that criticized Obama’s handling of the financial crisis.
First, here is an excerpt from the Krauthammer article:

The logic of Obama’s address to Congress went like this:

“Our economy did not fall into decline overnight,” he averred. Indeed, it all began before the housing crisis. What did we do wrong? We are paying for past sins in three principal areas: energy, health care, and education — importing too much oil and not finding new sources of energy (as in the Arctic National Wildlife Refuge and the Outer Continental Shelf?), not reforming health care, and tolerating too many bad schools.
The “day of reckoning” has now arrived. And because “it is only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament,” Obama has come to redeem us with his far-seeing program of universal, heavily nationalized health care; a cap-and-trade tax on energy; and a major federalization of education with universal access to college as the goal.
Amazing. As an explanation of our current economic difficulties, this is total fantasy. As a cure for rapidly growing joblessness, a massive destruction of wealth, a deepening worldwide recession, this is perhaps the greatest non sequitur ever foisted upon the American people.
At the very center of our economic near-depression is a credit bubble, a housing collapse and a systemic failure of the entire banking system. One can come up with a host of causes: Fannie Mae and Freddie Mac pushed by Washington and greed into improvident loans, corrupted bond-ratings agencies, insufficient regulation of new and exotic debt instruments, the easy money policy of Alan Greenspan’s Fed, irresponsible bankers pushing and then unloading in packaged loan instruments highly dubious mortgages, greedy house-flippers, deceitful homebuyers.

The list is long. But the list of causes of the collapse of the financial system does not include the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates. Indeed, one could perversely make the case that, if anything, the proliferation of overeducated, Gucci-wearing, smart-ass MBAs inventing ever more sophisticated and opaque mathematical models and debt instruments helped get us into this credit catastrophe in the first place.

via RealClearPolitics – Articles – Deception at Core of Obama Plans.
Now, here is the passage from The Forgotten Man:

But this was only the beginning. This time, he thought, perhaps the president could broker the recovery. “Words are not of any great importance in times of economic disturbance,” he announced. “It is action that counts.” The problem with the economy, at least as it was evolving, was mostly a monetary or an international one – Germany was already in a depression. Yet at first Hoover focused on fixing it with domestic fiscal tools. And before a year would pass, Hoover had done damage that did matter on three fronts: by intervening in business, by signing into law a destructive tariff, and by assailing the stock market.
First came business. Hoover believed that business spending might make a difference. He thought he might cajole or bully Main Street, the industrial world, and labor leaders into pulling the economy back to recovery. Less than a month after Black Tuesday, on November 19, 1929, he therefore called a conference of railroad presidents in the cabinet room of the White House. Railroads mattered: they were at the time still the principal means of transport for both people and goods across the nation. The president asked the executives to sustain construction. Mellon came to the meeting. Later that week, industry leaders announced they planned a full billion dollars in outlays – an amount equal to more than a third of what the federal government had spent on all its budgeted projects in 1929.

In sum, both Hoover and Obama tried, and is trying, to fix an international monetary collapse through irrelevant domestic spending. It did not, and sadly, will not work. I fear we are repeating the mistakes tha made the 1929-30 depression into the 1929-40 Great Depression. We might still avoid the worst, but our government is not inspiring confidence.
Final note: before drafting, I wanted to see if anybody else had picked up on this passage in Schlaes’s book. Like I said in my opening, using her book as a template for analyzin the present is hardly original, but I had not seen anyone focus on this particular point. A Google search led me to exactly one site, Thinking Out Loud. I’ve never visited it before, but he made a similar point a month earlier than I did, and, well, he saved me some typing. I thought he deserved a link.