In continuing my study of the Great Depression of the 1930s, I am struck by the fact that economists are more interested in why the depression lasted so long than what started or finished it. This is hugely important in light of the massive intervention from the FDR government at the time and today, with Obama poised to massively intervene in our economy again.
The big difference between the 1930s governmental intervention and the 2009 version is that FDR created millions of “government” jobs whereas Obama will create millions of “private sector” jobs; the distinction is very, very important.
FDR created government agencies like the WPA that hired people to do certain jobs. FDR was anti-big business and blamed big business for the depression (socialist). In fact, FDR competed with the private sector (business) and in so doing prolonged the depression.
Let me explain this further by contrasting what FDR did with what Obama will do. Obama has also stated that he will create millions of jobs but these will be private sector jobs. Obama will give billions of dollars to states that in turn will give the money to private companies to perform certain tasks. These tasks will involve many areas including infrastructure (roads & bridges), schools, medical facilities, etc. The companies charged with performing these tasks will have to hire people to work on these tasks.
Companies will prosper, people will find jobs, local governments will collect taxes, workers will spend money and things may start getting back to normal.
Under FDR, businesses got nothing; well we cannot say that they got nothing. They did get higher taxes on corporate profits and they did get unions rammed down their throats (Wagner Act – NLRB). I am not saying that big business was a bunch of angels helping the common folk; they did need some slapping around but not to this level and not at this time.
Businesses, scared of FDR, basically just laid low; no expansion, no investment and no new hiring; they just didn’t know what to expect from FDR and his regulators.
Unlike FDR who used high corporate taxes to fund his public projects, Obama promises to cut corporate and personal taxes to help businesses expand and give individuals cash to spend. This goes against Democratic Party thinking who, like FDR, prefer to use tax money to fund their social programs.
Obama is sending a signal to the Republicans that he will not just soak the rich or those with money, to give to the poor or those who need money. He will let market forces stir the economy back into action with a little help from the Feds.
Potential problems that could derail Obama’s efforts have to do with labor and the unions. Under FDR, unions were allowed to grow and gain power. Under FDR wages and rules of employment were regulated by the government in effect, preventing businesses from operating their companies as they saw fit.
Today, unions are already getting ready to pass legislation that will give them more power to organize various businesses without secret ballot elections; they call this the Freedom of Choice Act.
They are also getting ready to dismantle the requirements demanded by the “auto bailout” contract that unions reduce their benefits to that of the foreign auto companies operating in the U.S. The contract specifically stipulates that if the unions call a strike against GM or Chrysler, the Fed will ask for its money back immediately which would, de facto, force GM and Chrysler into bankruptcy.
The unions are saying that as soon as Barack is in office, they take over and make things union friendly again.
FDR was anti-big business and pro-union and that was a big factor in prolonging the Great Depression. Obama cannot afford to follow FDR’s footsteps because many of those footsteps actually caused damage to the 1930s economy and will do the same to our current economy.
The big difference between the 1930s governmental intervention and the 2009 version is that FDR created millions of “government” jobs whereas Obama will create millions of “private sector” jobs; the distinction is very, very important.
FDR created government agencies like the WPA that hired people to do certain jobs. FDR was anti-big business and blamed big business for the depression (socialist). In fact, FDR competed with the private sector (business) and in so doing prolonged the depression.
Let me explain this further by contrasting what FDR did with what Obama will do. Obama has also stated that he will create millions of jobs but these will be private sector jobs. Obama will give billions of dollars to states that in turn will give the money to private companies to perform certain tasks. These tasks will involve many areas including infrastructure (roads & bridges), schools, medical facilities, etc. The companies charged with performing these tasks will have to hire people to work on these tasks.
Companies will prosper, people will find jobs, local governments will collect taxes, workers will spend money and things may start getting back to normal.
Under FDR, businesses got nothing; well we cannot say that they got nothing. They did get higher taxes on corporate profits and they did get unions rammed down their throats (Wagner Act – NLRB). I am not saying that big business was a bunch of angels helping the common folk; they did need some slapping around but not to this level and not at this time.
Businesses, scared of FDR, basically just laid low; no expansion, no investment and no new hiring; they just didn’t know what to expect from FDR and his regulators.
Unlike FDR who used high corporate taxes to fund his public projects, Obama promises to cut corporate and personal taxes to help businesses expand and give individuals cash to spend. This goes against Democratic Party thinking who, like FDR, prefer to use tax money to fund their social programs.
Obama is sending a signal to the Republicans that he will not just soak the rich or those with money, to give to the poor or those who need money. He will let market forces stir the economy back into action with a little help from the Feds.
Potential problems that could derail Obama’s efforts have to do with labor and the unions. Under FDR, unions were allowed to grow and gain power. Under FDR wages and rules of employment were regulated by the government in effect, preventing businesses from operating their companies as they saw fit.
Today, unions are already getting ready to pass legislation that will give them more power to organize various businesses without secret ballot elections; they call this the Freedom of Choice Act.
They are also getting ready to dismantle the requirements demanded by the “auto bailout” contract that unions reduce their benefits to that of the foreign auto companies operating in the U.S. The contract specifically stipulates that if the unions call a strike against GM or Chrysler, the Fed will ask for its money back immediately which would, de facto, force GM and Chrysler into bankruptcy.
The unions are saying that as soon as Barack is in office, they take over and make things union friendly again.
FDR was anti-big business and pro-union and that was a big factor in prolonging the Great Depression. Obama cannot afford to follow FDR’s footsteps because many of those footsteps actually caused damage to the 1930s economy and will do the same to our current economy.
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