Questions from Obama to Palin

I think this Rush Limbaugh piece is a lot of fun! RUSH: I want to go over this experience business another way. The libs are saying that Sarah Palin doesn't have any experience. Neither does Obama. I want to illustrate that. Let's say that Obama and Sarah Palin got together. What are some of the questions that Sarah Palin would have for Senator Obama? I can't think of anything he could teach her. What, however, could she teach him? So, Senator Obama's first question would be: Can you show me the proper and safe way to handle and fire a gun? And are all NRA members as pretty as you are? Second question, Obama to Sarah Palin: Is hunting scary? And when you go fishing, do you bait your own hooks? I mean you could cut your finger doing that. Do you do it yourself? Next question, Obama to Sarah Palin: When you found out your baby would be born with Down syndrome, did you consider killing it before or after the due date? You mean you had the baby? You really had the baby? Question number four: What's it like to be a governor, Mrs. Palin? Do you worry that you're going to be held responsible for your decisions? Question number five, Obama to Sarah Palin: Did you believe all that garbage that we've said about women at the Democrat convention? Are you worried that breaking the glass ceiling will just make a big mess? Question number six, from Obama to Sarah Palin: Is it fun or scary to ride a snowmobile? Don't you get cold? Question number seven, Obama to Sarah Palin: Is it scary to live so close to the Russians? Question number eight, Obama to Sarah Palin: Your son's in the army. Did you teach him how to shoot guns? Question number nine, Obama to Sarah Palin: Since you're a former sports broadcaster, if I bet on a football game, can I call you for advice? Question number ten, Obama to Sarah Palin: Come on, tell me the truth: Can we really drill for oil and not destroy the planet? Algore says we're destroying the planet, but your husband works in that business. Can we really drill for oil and not destroy the planet? Well, I don't know what Sarah Palin would ask Obama. She wouldn't want a sweetheart mortgage. That's the thing. Mr. Obama, could you tell me how to get a sweetheart mortgage or maybe get some crook friend to sell me, you know, a little strip of his land below market value? She wouldn't ask that question. Obama did. She might reference it in a debate if it comes up.

Quotes

Government remains the paramount field of unwisdom because it is there that men seek power over others - and lose it over themselves. --Barbara Tuchman

Monetary Policy Surrounding The Great Depression

From Secrets of The Temple by William Greider, pp. 296-303.

Ben Strong, the dominant central banker in America during the Fed's first formative decades, understood the political advantage in blurring the central bank's influence over prices and the economy. The Fed would always be caught between the conflicting interests of consumers and producers, between finance and farmers, between lenders and borrowers. "There you are," he said, "between the devil and the deep sea."

"It seems to me that if the Federal Reserve System is recognized as a price regulator," Strong explained, "it is going to be somewhat in the position of the poor man who tried to stop a row between an Irishman and his wife. They both turned in and beat him.^„16

Benjamin Strong died in October 1928, and one year later, the Fed­eral Reserve System suffered its historic disgrace. The stock market crashed and the American economy collapsed with it. The "new era” of permanent properity was abruptly demolished, followed by the Great Depression with unemployment at 25 percent and desperate poverty for tens of millions of Americans. Tens of thousands of busi­nesses were bankrupted, and the panic of bank failures also returned —destroying more than forty percent of all American banks. The Fed­eral Reserve was blamed for failure to act on both sides of the Great Crash—first for letting it happen, then for failing to reverse the dev­astation. The Fed's defenders liked to imagine that had Benjamin Strong lived, maybe the worst of the disaster could have been averted. It sounded like wishful thinking in hindsight.

Certainly, Strong saw the outlines of the gathering crisis before others did. In the summer of 1928, three months before his death, he warned a colleague that banks and investors were caught up in a dangerous frenzy of speculation, borrowing heavily to make specula­tive stock-market forays, bidding up prices so high that the rosy ex­pectations could not possibly be fulfilled. The nation was giddily enjoying the Republican prosperity. The New York Fed was privately worrying about its collapse.

"The problem now," Strong wrote, "is so to shape our policy as to avoid a calamitous break in the stock market, a panicky feeling about money, a setback to business because of the change in psychology, and at the same time accomplish if possible some of the purposes enumerated above." The Reserve Banks, he said, must dampen credit and restrain the speculative lending, but without setting off that "ca­lamitous break."

This was a tricky business, though Strong thought it could be done. After his death, his successors tried fitfully and failed. They applied "moral suasion," pleading with commercial banks to stop making loans for stock-market speculation. When that failed, they argued among themselves. Without Strong to impose his will, the Reserve Banks and the Federal Reserve Board were stalemated through most of 1929. Belatedly, they voted a modest Discount increase in August, intended to slow down the rapacious bank lending. The speculative bubble continued. Stock-market prices went higher and higher.

On October 24, 1929—Black Thursday—the bubble burst, the "ca­lamitous break" that Strong had feared. Within a matter of days, the Standard and Poor's composite index of stocks fell from 245 to 162, wiping out more than one-third of the stock market's value. Something on the order of $7 billion in bank loans to financial investors was rendered worthless. A "panicky feeling about money," as Strong had called it, swept the nation and the world.

In the tendentious postmortems over what exactly caused the Crash of '29, Strong was himself blamed for the debacle. Adolph Miller of the Federal Reserve Board, among others, charged that Strong had personally engineered the major easing of credit in the summer of 1927—Discount-rate reductions and open-market purchases of $340 million—that pumped excessive liquidity into the banking system and permitted the artificial investment boom to take off. Strong's easy-credit policy in 1927, Miller said later, "was father and mother to the subsequent 1929 collapse."

The 1927 error, if it was an error, was at least motivated by Strong's desire to aid the real economy. When he had leaned on his colleagues at the other Reserve Banks to reduce their Discount rates, he was worried. Employment was slipping, wholesale prices were declining again and business appeared to be sliding back into recession. The easier credit was intended to avert another contraction. But Strong had another more controversial motive—helping out the central banks of Europe. Presiding at the New York Fed, Ben Strong regularly col­laborated with the central bankers of England and the Continent, trying to stabilize things so the gold standard could be restored inter­nationally. The great international banking houses, from Morgan to Rothschild, had always worked closely with one another, borrowing and lending capital among themselves to balance out the worldwide demands for credit. From the start, Strong discreetly assumed the same role for himself—personal responsibility for representing Amer­ica in global financial coordination, in an era when most Americans still thought of their nation as totally independent.

In mid-1927, Montagu Norman of the Bank of England called on Strong and urged him to ease U.S. credit. Strong promptly agreed to do it. The Fed would provide excess liquidity for the American bank­ing system and that money could flow abroad, through foreign loans, to ease credit in the European financial markets, where tightening conditions threatened to push up interest rates. If rates rose sharply in London and Paris and Vienna, that would depress business and perhaps set off a general contraction. The explanation would certainly have rankled citizens of the United States if they had known it. World War I had left a great tide of isolationism in its wake. The suspicion that the Federal Reserve secretly served the needs of international banking at the expense of domestic interests would become a peren­nial source of resentment.

As Strong himself argued, however, the U.S. assistance was also self-interested—what damaged European business would in time also damage America's. If Europe's economies contracted, for instance, then Midwestern grain farmers would find no buyers for the surplus crops they exported. Like it or not, the world's industrial economies were already closely interlocked, through both finance and produc­tion, long before the Federal Reserve came into existence. The "global economy" celebrated by modern commentators was different only in the degree of complexity, the volume and speed of international trans­actions. Despite his autocratic manner, Strong was ahead of his time in his internationalism.

Strong's maneuver, in any case, did not work. It backfired. Given the weakened state of the real economy, the flush of excess liquidity he had pumped into the banking system was not needed for transac­tions in real commerce or production. The surplus of money flowed, instead, into financial markets—artificially inflating financial values and fueling the run-up of stock prices that ended abruptly in the autumn of 1929.

After the crash, the Federal Reserve System did nothing. If Ben Strong had been alive and in charge, perhaps he would have acted to stop the collapse. At least, when he was expressing his fears of a ^"calamitous break" back in 1928, Strong understood that the Federal Reserve could quickly reverse such a disaster.

I think you realize, as I do [Strong had written to a colleague], that the very existence of the Federal Reserve System is a safeguard against any­thing like a calamity growing out of money rates. Not only have we the power to deal with such an emergency instantly by flooding the street with money, but I think the country is well aware of this and probably places reliance upon the common sense and power of the System. In former days the psychology was different because the facts of the banking situation were different. Mob panic, and consequently mob disaster, is less likely to arise.

Strong was mistaken about the "mob" and its faith in the Fed. When the market broke, the same psychology that had driven banking panics in 1907 and earlier took hold, swept across America and Eu­rope, and ultimately destroyed 9,800 U.S. commercial banks over the next five years. But Strong was making a more fundamental point: the Federal Reserve had ample power to stop such a crisis almost instantly "by flooding the street with money."

That is what his successors failed to do. At first, they accepted the ruinous deflation as a natural, even desirable outcome. As the contrac­tion deepened, they bickered among themselves about the correct reponse. Finally, rather late in the crisis, they tried briefly to reverse the decline, then abandoned the effort before it had a chance to suc­ceed.

Money disappeared on a massive scale. As billions of dollars of bank debt were liquidated by defaults and bankruptcies in the economy, involving farmers and businesses along with the stock-market specu­lators, the process naturally extinguished money and the supply of money contracted. From 1929 to early 1933, U.S. money shrank in volume by more than one-third. The Federal Reserve could have in­tervened to reverse the contraction. It could have reduced interest rates sharply to stimulate renewed borrowing and business activity. More importantly, it could have purchased millions or billions in gov­ernment securities—pumping new money into the banking system to reverse the price deflation and restart the dead economy. Instead, as President Herbert Hoover lamented, the Fed became a "weak reed for a nation to lean on in time of trouble." ¹⁷

Long afterward, the 1929 debacle left the general impression in political circles that it could never happen again. The Fed would not permit it. If another similar collapse ever occurred, the central bank would simply begin pumping up the money supply, creating new money abundantly until the crisis was reversed. When the Great Crash occurred, it was said, the failure stemmed from the Federal Reserve's ignorance and impotence. Fed officials lacked sufficient knowledge of the economy to understand what was happening. They lacked the proper monetary tools to intervene successfully.

Comforting as the mythology was, it was not quite right. It was not that Federal Reserve governors lacked the tools to reverse the waves of failure after 1929. They could have pumped money into the econ­omy by open-market purchases—"flooding the street," as Strong had said—and that would have restarted the economic engine. But the governors argued among themselves over whether to use these powers to halt the collapse—and they decided against it. The Federal Re­serve's failure was a failure of human judgment, not the mechanics of money. Unless one assumed that the Fed had subsequently become all-wise, such decisive errors would always still be possible.

The central bankers of 1929 did not view the economic collapse as an unfolding tragedy, at least in its opening phases. On the contrary, they regarded it as a normal correction to excess. Ten months after the stock-market crash, amidst soaring unemployment, collapsing prices and an ominous new wave of bank failures, George W. Norris of the Philadelphia Fed sounded almost pleased by developments.

The consequences of such an economic debauch are inevitable [Norris told his fellow Reserve Bank officers]. We are now suffering them. Can they be corrected or removed by cheap money? We do not believe that they can. We believe that the correction must come about through re­duced production, reduced inventories, the gradual reduction of consumer credit, the liquidation of security loans and the accumulation of savings through the exercise of thrift. These are slow and simple remedies, but just as there is "no royal road to knowledge," we believe that there is no shortcut or panacea for the rectification of existing conditions.

The leading commercial bankers who advised the Fed agreed. The Federal Advisory Council urged the central bank to let nature take its course. "The present situation will be best served if the natural flow of credit is unhampered by open-market operations," the council de­clared in November 1930.

Andrew Mellon made the same case with chilling clarity. The way out of the Depression, he confided to President Hoover, was more failure and unemployment, more liquidation. "Liquidate labor, liqui­date stocks, liquidate the farmers, liquidate real estate," Mellon de­clared. The Treasury Secretary believed, and many other Fed officials agreed, that panic and recession were good for people. "It will purge the rottenness out of the system," Mellon explained. "People will work harder, live a more moral life. Values will be adjusted and enter­prising people will pick up the wreck from less-competent people."

Hoover was not so sure this was the answer, but the President had little influence over the independent leaders of the Federal Reserve System. Herbert Hoover, of course, became the political scapegoat for their failure; his name would be invoked by a generation of Demo­cratic orators as the symbol of Republican indifference to human suf­fering.

As the Depression deepened, the Federal Reserve persisted in its passivity in part because the Fed's money principles—the "real bills" doctrine—called for passivity. Again and again, in their private min­utes and memoranda, the Reserve Bank officials insisted that the Fed's role was merely to provide Discount loans to the commercial banks that asked for them—accommodating the credit needs of the economy. Of course, almost nobody was asking for new loans in 1930 or 1931. The economy was contracting and the banking system did not need expanded credit from the Fed. On the contrary, banks found themselves floating in an excess of reserves—a pool of surplus lending capacity—because they could find no customers who wanted to borrow.

When others urged the Fed to inject more money into the financial system, Norris of the Philadelphia Fed reminded his colleagues of the operating principle thay had formally adopted in 1923 on the System's tenth anniversary: "The Federal Reserve supplies the needed addi­tions to credit in times of business expansion and takes up the slack in times of business recession." That was the whole idea of an "elastic currency"—expanding or shrinking the money supply in response to business demands for credit. Norris complained that even the modest steps the Fed had taken on its own initiative would be regretted. "We have been putting out credit in a period of depression, when it was not wanted and could not be used," he warned, "and will have to withdraw credit when it is wanted and can be used."

Logical as it sounded, the theory was fatally flawed. The "real bills" approach meant the Federal Reserve would always be passively fol­lowing the direction of the economy and exaggerating its cycles on both the upside and the downside—providing more and more new money to banks during a period of expansion and withdrawing more and more money during an economic recession. Thus, the Fed's be­havior deepened the great contraction through its self-imposed stance of impotence. The Discount rate, its principal means of control, was like an empty sail on a becalmed sea.

What was needed, as some Fed officials recognized, was an activist money policy that pulled against the economic tide rather than drifting with it—a countercyclical policy, economists would say, rather than the procyclical policy implicit in the "real bills" doctrine. In short, the Fed must be willing to inflate the currency on its own initiative—"flooding the street with money"—in order to counteract the natural forces of deflation and contraction that were under way. The Federal Reserve System had neither the desire nor the courage to do that.

Federal Reserve officers had another reason not to act—a rather ugly reason considering the human suffering abroad in the land. Reserve Bank presidents held back because they were anxious to protect the earnings of private commercial banks. That sounded callous and narrow-minded, but political scientist Thomas Ferguson and econo­mist Gerald Epstein found confirming evidence in their research of the central bank's archives—blunt private statements by the Reserve Bank presidents that no more additional money should be supplied because it was hurting the important banks in their districts.

For two years, some Fed officials, including the board chairman in Washington, Eugene Meyer, had pleaded with their colleagues to in­ject massively through open-market purchases. That would pull down interest rates and get prices and wages rising again, restimulating economic activity. In October 1931, the Reserve Banks actually did the reverse—raising the Discount rate by two percentage points in two weeks. Industrial production fell another 26 percent in the next six months. The money base shrank by another $90 million.

Finally, by April of 1932, Meyer and others prevailed, supported by the Morgan bank and important Wall Street financiers. They per­suaded the Reserve Banks' open-market committee to pump up the money supply and quickly. The New York Fed began buying Treasur­ies on an unprecedented scale—$100 million a week for eleven weeks, $1.1 billion in additional reserves. If the campaign had continued, it would have produced a turnaround in the economy.

But, in early summer, the Reserve Banks abruptly abandoned the initiative. The bold experiment was over. When the contraction re­sumed a few months later, a third wave of bank failures swept the country, more severe than the first two. Another five thousand banks would close.

James McDougal of the Chicago Fed was among the Reserve Bank presidents who objected to the Fed's attempted activism. Major banks in the Chicago district, he complained, were suffering an earnings squeeze because of the Fed's easy money. The expanded money sup­ply drove down interest rates on government securities to a minuscule level, and in these slack times, the banks held large portfolios of government securities as their principal source of income. "We be­lieve that the additional (open-market) purchases made were much too large," McDougal wrote a colleague, "and have resulted in creating abnormally low rates for short-term government securities."

Norris of the Philadelphia Fed agreed: "Further increases in excess reserves would adversely affect bank earnings. . . ." Owen D. Young of the Boston Fed, who had voted against the open-market initiative in the first place, was "apprehensive that a program of this sort would develop the animosity of many bankers." ¹⁸ All in all, the episode was perhaps the starkest evidence in support of historian Gabriel Kolko's estimate of the Federal Reserve as a political institution: it was cre­ated to serve the most important banks and, in this instance, it did, despite the horrendous losses it was to cause the nation at large.

The Federal Reserve backed off. The infusions of new money were halted. And nature followed its course to a climax of destruction. By early 1933, as Franklin D. Roosevelt awaited his Inaugural, a new wave of collapsing banks was under way, accompanied by still higher unemployment and many more business failures. As Democrats came to power, the national economy was ruined and the American banking system was ruined with it. Also destroyed was the reputation of the Federal Reserve System.

The Land of Makebelieve

Great Depression Myths

excerpts from Great Myths of the Great Depression by Lawrence Reed of Mackinac Center

...many people today continue to accept critiques of free-market capitalism that are unjustified and support govern­ment policies that are economically destructive.

“The terror of the Great Crash has been the failure to explain it,' writes economist Alan Reynolds.

Old myths never die; they just keep showing up in economics and political science textbooks. With only an occasional exception, it is there you will find what may be the twentieth century’s greatest myth: Capitalism and the free-mar­ket economy were responsible for the Great Depression, and only govern­ment intervention brought about America’s economic recovery.

The Great Depression was not the country’s first depression, though it proved to be the longest. Several others preceded it. The calamity that began in 1929 lasted at least three times longer than any of the country’s previous depressions because the government compounded its initial errors with a series of additional and harmful interventions.

Regarding Fed policy, free market economists who differ on the ex­tent of the Fed’s monetary expan­sion of the early and mid-‘20s are of one view about what happened next: The central bank presided over a dramatic contraction of the money supply that began late in the decade. The federal government’s responses to the resulting recession took a bad situation and made it far, far worse.

The central bank took further deflationary action by aggressively selling government securities for months after the stock market crashed. For the next three years, the money supply shrank by 30 percent. As prices then tumbled throughout the economy, the Fed’s higher interest rate policy boosted real (inflation-adjusted) rates dra­matically.

The distor­tions in the economy promoted by the Fed’s monetary policy had set the country up for a recession, but other impositions to come would soon turn the recession into a full-scale disaster.

On the very morning of Black Thursday, the nation’s newspapers reported that the political forces for higher trade-damaging tariffs were making gains on Capitol Hill.

The stock market crash was only a reflection — not the direct cause of the destructive government policies that would ultimately pro­duce the Great Depression: The market rose and fell in almost direct synchronization with what the Fed and Congress were doing. And what they did in the 1930s ranks way up there in the annals of history’s greatest follies.

Though modern myth claims that the free market “self-destructed' in 1929, government policy was the debacle’s principal culprit. If this crash had been like previous ones, the hard times would have ended in two or three years at the most, and likely sooner than that. But unprecedented political bungling instead prolonged the misery for over 10 years.

Did Hoover really subscribe to a “hands-off-the-economy,' free-market philosophy? His opponent in the 1932 election, Franklin Roosevelt, didn’t think so. During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions on the dole. He accused the president of “reckless and ex­travagant' spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,' and of presid­ing over “the greatest spending administration in peacetime in all of history.' Roosevelt’s running mate, John Nance Garner, charged that Hoover was “leading the country down the path of socialism."

The crowning folly of the Hoover administration was the Smoot-Hawley Tariff, passed in June 1930. The most protectionist legislation in U.S. history, Smoot-Hawley virtually closed the bor­ders to foreign goods and ignited a vicious international trade war. Trade is ultimately a two-way street; if foreigners cannot sell their goods here, then they cannot earn the dollars they need to buy here. Or, to put it another way, government cannot shut off imports without simultaneously shutting off exports.

American agri­culture was particularly hard hit. With a stroke of the presidential pen, farmers in this country lost nearly a third of their markets. With the collapse of agriculture, rural banks failed in record num­bers, dragging down hundreds of thousands of their customers. Nine thousand banks closed their doors in the United States between 1930 and 1933.

Smoot-Hawley by itself should lay to rest the myth that Hoover was a free market practitioner, but there is even more to the story of his administration’s interventionist mistakes. Within a month of the stock market crash, he convened conferences of business leaders for the purpose of jawboning them into keeping wages artificially high even though both profits and prices were falling. As economist Richard Ebeling notes, “The ‘high‑wage 'policy of the Hoover administration and the trade unions ... succeeded only in pricing workers out of the labor market, generating an increasing circle of unemploy­ment.”

Hoover dramatically increased government spending for subsidy and relief schemes.

Commenting decades later on Hoover’s admin­istration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”

Though Hoover at first did lower taxes for the poorest of Americans, Larry Schweikart and Michael Allen in their sweeping A Patriot’s History of the United States: From Columbus’s Great Discovery to the War on Terror stress that he “of­fered no incentives to the wealthy to invest in new plants to stimulate hiring.” He even taxed bank checks, “which accelerated the decline in the availability of money by penalizing people for writing checks."

In September 1931, with the money supply tumbling and the economy reeling from the impact of Smoot-Hawley, the Fed imposed the biggest hike in its discount rate in history. Bank deposits fell 15 percent within four months and sizable, deflationary declines in the nation’s money supply persisted through the first half of 1932.

Compounding the error of high tariffs, huge subsidies, and defla­tionary monetary policy, Congress then passed and Hoover signed the Revenue Act of 1932. The largest tax increase in peacetime history, it doubled the income tax. The top bracket actually more than doubled, soaring from 24 percent to 63 percent.

Can any serious scholar observe the Hoover administration’s mas­sive economic intervention and, with a straight face, pronounce the inevitably deleterious effects as the fault of free markets?

Franklin Delano Roosevelt won the 1932 presidential election in a landslide, collecting 472 electoral votes to just 59 for the incumbent Herbert Hoover. The platform of the Democratic Party, whose ticket Roosevelt headed, declared, “We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.” It called for a 25-percent reduction in fed­eral spending, a balanced federal budget, a sound gold currency “to be preserved at all hazards,” the removal of government from areas that belonged more appropriately to private enterprise, and an end to the “extravagance” of Hoover’s farm programs. This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered.

Roosevelt did indeed make a dif­ference, though probably not the sort of difference for which the country had hoped. As a result of his efforts, the economy would linger in depression for the rest of the decade.

...as Dr. Hans Sennholz of Grove City College explains, it was FDR’s policies to come that Americans had genuine reason to fear: In his first 100 days, he swung hard at the profit order. Instead of clearing away the prosperity barriers erected by his predeces­sor, he built new ones of his own.

Frustrated and angered that Roos­evelt had so quickly and thoroughly abandoned the platform on which he was elected, Director of the Bureau of the Budget Lewis W. Douglas resigned after only one year on the job. At Harvard Uni­versity in May 1935, Douglas made it plain that America was facing a momentous choice: Will we choose to subject our­selves — this great country — to the despotism of bureau­cracy, controlling our every act, destroying what equality we have attained, reducing us eventually to the condition of impoverished slaves of the state? Or will we cling to the liberties for which man has struggled for more than a thousand years? It is important to understand the magnitude of the issue before us. ... If we do not elect to have a tyrannical, oppressive bu­reaucracy controlling our lives, destroying progress, depressing the standard of living ... then should it not be the function of the Federal government under a democracy to limit its activi­ties to those which a democracy may adequately deal, such for example as national defense, maintaining law and order, protecting life and property, preventing dishonesty, and ... guarding the public against ... vested special interests?

Economist Jim Powell ... points out that “Almost all the failed banks were in states with unit bank­ing laws” — laws that prohibited banks from opening branches and thereby diversifying their portfo­lios and reducing their risks. Pow­ell writes: “Although the United States, with its unit banking laws, had thousands of bank failures, Canada, which permitted branch banking, didn’t have a single failure ...” Strangely, critics of capitalism who love to blame the market for the Depression never mention that fact.

Congress gave the president the power first to seize the private gold holdings of American citizens and then to fix the price of gold. Washington and its reckless central bank had already made mincemeat of the gold standard by the early 1930s.

In the first year of the New Deal, Roosevelt proposed spending $10 billion while revenues were only $3 billion. Between 1933 and 1936, government expenditures rose by more than 83 percent.

The minimum wage law prices many of the inexperi­enced, the young, the unskilled, and the disadvantaged out of the labor market. (For example, the minimum wage provisions passed as part of another act in 1933 threw an estimated 500,000 blacks out of work).

Roosevelt secured passage of the Agricultural Adjustment Act, which levied a new tax on agri­cultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle. Federal agents oversaw the ugly spectacle of perfectly good fields of cotton, wheat, and corn be­ing plowed under (the mules had to be convinced to trample the crops; they had been trained, of course, to walk between the rows). Healthy cattle, sheep, and pigs were slaugh­tered and buried in mass graves. Secretary of Agriculture Henry Wallace personally gave the order to slaughter six million baby pigs before they grew to full size. The administration also paid farmers for the first time for not working at all.

...created a massive new bureaucracy called the National Recovery Admin­istration. Under the NRA, most manufacturing industries were suddenly forced into government-mandated cartels. Codes that regulated prices and terms of sale briefly transformed much of the American economy into a fascist-style arrangement, while the NRA was financed by new taxes on the very industries it controlled. Some economists have estimated that the NRA boosted the cost of doing business by an average of 40 per­cent — not something a depressed economy needed for recovery.

Benjamin M. Anderson writes, “NRA was not a revival measure. It was an antirevival measure. ... Through the whole of the NRA pe­riod industrial production did not rise as high as it had been in July 1933, before NRA came in.”

Roosevelt next signed into law steep income tax increases on the higher brackets and introduced a five-percent withholding tax on corporate dividends. He secured another tax increase in 1934. In fact, tax hikes became a favorite policy of Roosevelt for the next ten years, culminating in a top income tax rate of 90 percent. Senator Ar­thur Vandenberg of Michigan, who opposed much of the New Deal, lambasted Roosevelt’s massive tax increases. A sound economy would not be restored, he said, by following the socialist notion that America could “lift the lower one-third up” by pulling “the upper two-thirds down.”

Alphabet commissars spent the public’s money like it was so much bilge. They were what influential journalist and social critic Albert Jay Nock had in mind when he de­scribed the New Deal as “a nation­wide, State-managed mobilization of inane buffoonery and aimless commotion.”

Roosevelt has been lauded for his “job-creating” acts such as the CWA and the WPA. Many people think that they helped re­lieve the Depression. What they fail to realize is that it was the rest of Roosevelt’s tinkering that prolonged the Depression and which largely prevented the jobless from finding real jobs in the first place. The stupefying roster of wasteful spending generated by these jobs programs represented a diversion of valuable resources to politically motivated and economically coun­terproductive purposes.

...a (make-work)tax-supported paycheck cannot be counted as a net increase to the economy be­cause the wealth used to pay him was simply diverted, not created. Economists today must still battle this “magical thinking” every time more government spending is proposed — as if money comes not from productive citizens, but rather from the tooth fairy.

...the great majority of Americans were patient. They wanted very much to give this charismatic polio victim and former New York governor the benefit of the doubt. But Roosevelt always had his critics, and they would grow more numerous as the years groaned on.

Mencken excelled himself in attacking the triumphant FDR, whose whiff of fraudulent col­lectivism filled him with genu­ine disgust.

The American economy was soon relieved of the burden of some of the New Deal’s worst excesses when the Supreme Court outlawed the NRA in 1935 and the AAA in 1936, earning Roosevelt’s eternal wrath and derision.

Freed from the worst of the New Deal, the economy showed some signs of life. Unemployment dropped to 18 percent in 1935, 14 percent in 1936, and even lower in 1937. But by 1938, it was back up to nearly 20 percent as the economy slumped again. The stock market crashed nearly 50 percent between August 1937 and March 1938. The “economic stimulus” of Franklin Delano Roosevelt’s New Deal had achieved a real “first”: a depression within a depression!

Businessmen, Roosevelt fumed, were obstacles on the road to recovery. He blasted them as “economic royalists” and said that businessmen as a class were “stupid.” He followed up the insults with a rash of new punitive measures. New strictures on the stock market were imposed. A tax on corporate retained earnings, called the “undistributed profits tax,” was levied. “These soak-the‑rich efforts,” writes economist Rob­ert Higgs, “left little doubt that the president and his administration intended to push through Congress everything they could to extract wealth from the high-income earners responsible for making the bulk of the nation’s decisions about private investment.”

Columnist Walter Lippmann wrote in March 1938 that “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.”

As pointed out earlier in this essay, Herbert Hoover’s own version of a “New Deal” had hiked the top mar­ginal income tax rate from 24 to 63 percent in 1932. But he was a piker compared to his tax-happy succes­sor. Under Roosevelt, the top rate was raised at first to 79 percent and then later to 90 percent. Economic historian Burton Folsom notes that in 1941 Roosevelt even proposed a whopping 99.5-percent marginal rate on all incomes over $100,000. “Why not?” he said when an advi­sor questioned the idea.

After that confiscatory proposal failed, Roosevelt issued an executive order to tax all income over $25,000 at the astonishing rate of 100 percent. He also promoted the lowering of the personal exemption to only $600, a tactic that pushed most American families into pay­ing at least some income tax for the first time. Shortly thereafter, Con­gress rescinded the executive order but went along with the reduction of the personal exemption.

Meanwhile, the Federal Reserve again seesawed its monetary policy in the mid-‘30s, first up then down, then up sharply through America’s entry into World War II. Contrib­uting to the economic slide of 1937 was this fact: From the summer of 1936 to the spring of 1937, the Fed doubled reserve requirements on the nation’s banks.

...Roosevelt tried in 1937 to “pack” the Supreme Court ...Until Congress killed the packing scheme, however, business fears that a Court sympathetic to Roosevelt’s goals would endorse more of the old New Deal prevented investment and confidence from reviving.

The relent­less assaults of the Roosevelt ad­ministration — in both word and deed — against business, property, and free enterprise guaranteed that the capital needed to jump-start the economy was either taxed away or forced into hiding. Not until both Roosevelt and the war were gone did investors feel confident enough to “set in motion the postwar investment boom that powered the economy’s return to sustained prosperity.”

Lummot du Pont, offered in 1937: Uncertainty rules the tax situ­ation, the labor situation, the monetary situation, and practi­cally every legal condition under which industry must operate.

Many modern historians tend to be reflexively anti-capitalist and distrustful of free markets; they find Roosevelt’s exercise of power, constitutional or not, to be impres­sive and historically “interesting.” In surveys, a majority consistently rank FDR near the top of the list for presidential greatness, so it is likely they would disdain the notion that the New Deal was responsible for prolonging the Great Depression. But when a nationally representa­tive poll by the American Institute of Public Opinion in the spring of 1939 asked, “Do you think the attitude of the Roosevelt adminis­tration toward business is delaying business recovery?” the American people responded “yes” by a mar­gin of more than two-to-one. The business community felt even more strongly so.

How was it that FDR was elected four times if his policies were deep­ening and prolonging an economic catastrophe? Ignorance and a will­ingness to give the president the benefit of the doubt explain a lot. Roosevelt beat Hoover in 1932 with promises of less government. He instead gave Americans more gov­ernment, but he did so with fanfare and fireside chats that mesmerized a desperate people. By the time they began to realize that his policies were harmful, World War II came, the people rallied around their commander-in-chief, and there was little desire to change the proverbial horse in the middle of the stream by electing someone new.

...the Truman adminis­tration that followed Roosevelt was decidedly less eager to berate and bludgeon private investors and as a result, those investors re-entered the economy and fueled a powerful postwar boom. The Great Depres­sion finally ended, but it should linger in our minds today as one of the most colossal and tragic failures of government and public policy in American history.

The genesis of the Great Depres­sion lay in the irresponsible mon­etary and fiscal policies of the U.S. government in the late 1920s and early 1930s. These policies included a litany of political missteps: cen­tral bank mismanagement, trade-crushing tariffs, incentive-sapping taxes, mind-numbing controls on production and competition, senseless destruction of crops and cattle, and coercive labor laws, to recount just a few. It was not the free market which produced 12 years of agony; rather, it was politi­cal bungling on a grand scale.

Those who can survey the events of the 1920s and 1930s and blame free-market capitalism for the economic calamity have their eyes, ears, and minds firmly closed to the facts. Changing the wrong-headed thinking that constitutes much of today’s conventional wisdom about this sordid historical episode is vital to reviving faith in free markets and preserving our liberties.

The nation managed to survive both Hoover’s activism and Roos­evelt’s New Deal quackery, and now the American heritage of free­dom awaits a rediscovery by a new generation of citizens. This time we have nothing to fear but myths and misconceptions.