Tuesday, August 30, 2011

How is President Obama Like FDR, Let Us Count the Ways

The Great Recession

The period we are living in now is unfortunately not too dissimilar from the Great Depression, when FDR got elected 4x to office. Government policy interventions are preventing the market from working, unemployment is high and prolonged, and we face an uncertain business climate, or, what Robert Higgs calls "regime uncertainty".

So what exactly makes FDR and President Obama ("O") similar, let us count the ways:

1) O keeps-up the rheotoric of "tax the rich" just like FDR kept raising taxes in the 1930's. Many if not most economists know that you tax the things you want to decrease the existence of. Taxing the rich (in the USA) means less rich (in the USA), and it is the "rich" who have the capital to invest in job-creating technologies and innovations. Therefore O's rheotoric has scared off those who have capital to invest in the USA, just like FDR's rheotoric and policies did the same.

2) O like FDR enjoys labor union support. FDR did the Wagner Act giving monopoly bargaining power to the unions, which increased unionization and therefore labor immobility by 200% in the 1930's, while O has a new National Labor Relations Board which creates fear in one of America's largest exporters (Boeing). The new activist NLRB makes potential USA manufactoring people think twice about investing in the USA and so go with China or Korea, Taiwan, India, Brazil, etc.

3) FDR created the SEC, while O has created the Financial Stability Oversight Council, neither of which address the problem of debt-creation (and write-off of interest on debt payments while equity, ownership interests, are taxed 2x) under the US taxcode, which started with the introduction of the Income Taxe in 1914. At least the SEC was created as a watchdog (albiet one which has shown agency capture theory has a non-disprovable hypothesis) while the latest under O is a pro-active rendition, one which makes the Administration and not the court system the arbiter of bancruptcy for privately-owned businesses if the goverment deems someone "too big too fail". This destroys decades of common-law bancruptcy practice in the USA and creates again more regime uncertainty. That giant sucking sound you hear is people running away from investing in the US economy due to a now ambiguous rule of law.

4) While FDR had his Works Progress Administration (WPA) which gave jobs to people building unneccesary public works in politically advantageous locales (those who gave FDR votes or those whose votes FDR needed), O has his "fiscal stimulus" doing the same, "creating jobs" for political reasons. Of course in both cases then these people are not available for real sustainable work in private sector profitable activities.

So then. The Great Recession (prolonged high levels of unemployment) which began with the housing market crash in the Bush II era in 2007 (the bubble and crash itself a product of bad policy) continues under the President Obama era.

Just like the stock market crash of 1929 under President Hoover ushered in FDR (and 10 years of an average 15% unemployment), unfortunately we find the same today. The housing-finance crash under Bush II, ushered in O, and so far we have had 3 years of higher than 9% unemployment (depending on how you measure it, some say as high as 18%). Prior to the 2007 financial crisis average unemployment in the US economy had been a satisfactory 5% for the previous 20 years.

Marx might call the similarities between O and FDR "history repeating itself as farce". Too bad.... no wonder US Government debt has garnered a down-grade.