Economics for Politicians Chapter 4: You Don’t Create Jobs – It’s Time to Get Over FDR!

Flopping Aces ^ | 09-06-11 | Brother Bob

[Starman417]

On weekends I lead tour groups here in the nation's capitol, and when I take my charges to the second room of the FDR Memorial I dispel the mythology that the New Deal created jobs. Here is the example I use for my group to better illustrate:I suggest a scenario where my tour group and I decide to run off to a remote island and form our own country, Bobylvania. We all have our own jobs that contribute to the country, but one day I lose my job. The good citizens decide that they want Bobylvania to be a leader in green energy, so they give me a government job creating windmills and solar panels to provide our energy, and they pay me a decent wage of $50,000 (or about $24 / hour) per year. This is great for me, but that money has to come from somewhere. If there are ten people in my tour group the easiest way to gather our revenue enhancements (or as we non-politicians call them, "taxes") is for each of them to pay $5,000 per year to fund my job. For simplicity we'll leave out my generous health benefits to which I don't contribute or the unfunded liability known as my pension that the children and grandchildren of Bobylvania will have to pay (The Association of Federated Bobs local 101 chapter are good negotiators).

Going back to the Great Depression as well as our current economic woes we need a brief aside on a school of thought that has paralyzed the left from taking constructive action known as Keynsianism. What the Keynesians (thinking modeled after the British economist John Maynard Keynes) believe is that an economy needs to be stimulated from time to time if there is not great enough aggregate demand (generally speaking - not enough money) for the economy's goods to be brought. Without the private sector to do this the task then falls onto the government to spend, or "stimulate" the economy. The government spends this money, puts it in people's hands, and they then spend it elsewhere, and that third party spends it elsewhere, creating what is called a "multiplier" effect. It is this exact thinking that enables Nancy Pelosi to make statements like food stamps being a stimulus. The government has pushed money into people's hands and the economy gets moving again. So why haven't the various stimulus programs worked? If the New Deal was such a triumph in creating jobs why, save for two brief periods, did unemployment never drop below 15% before the start of World War II? How come Japan hasn't fully recovered from its "Lost Decade" of the 1990's? And why does unemployment continue to remain "unexpectedly" high?Here is where we introduce you to another piece of economic theory known as the"Broken Window Theory", which originated with the French Economist Frederic Bastiat. Wealth cannot be created from nothing, nor can it be created via destruction. If you have a few minutes Declaration Entertainment's Bill Whittle does a great job of explaining how wealth is only created by producing something of value. The example that Bastiat uses to illustrate his theory is of a boy walking down the street who throws a brick through the local baker shop's window. When the baker comes out to express his unhappiness with what the boy has done the boy responds that he had helped the town. By breaking the window the boy has created a stimulus for the economy. The new window that the shop keeper buys will put money in the hands of the glazier, who might then use it to buy a new pair of shoes. The extra money in the cobbler's hands may help him to buy a new wagon, giving more money to the wagon maker to spend, and you get the idea. Lost in all of this is the baker. What Keynesians miss is all of the unseen activity that does not take place as a result of the wealth that they displace. The money that the baker is forced to spend on a new window might have been used in all of the places that the boy mentioned, or maybe the baker chooses to buy a better oven to produce more bread, which will force the baker to hire more employees to sell all of the extra bread that he sells (or as this private investment is called outside of DC, "Job creation"). Maybe the baker's store becomes successful enough that he believes he can earn more profits by taking the risk of opening more stores. In turn, he puts to work the people who build his shops or renovates an otherwise vacant space, and hires more employees, and maybe becomes successful enough to go public, and his bakery becomes one of the stocks that fuels the mutual funds that help to fund various pension plans and he makes enough money to build a bigger home, reinvest in other ventures, and put more people to work in our economy.

Or he can use that money to pay for a broken window instead

...this was the same effect with FDR's New Deal policy and with Obama's today. FDR kept passing ever more regulations that left businesses reluctant to expand because they were afraid of what he would do next. And many of FDR's programs caused more harm than good. His price supports for farmers guaranteed them minimum prices for their crops, while increasing the price of food. Since poor people pay a greater percentage of their incomes to buy food they were disproportionately punished by the president. FDR was big on having business collude to stay in business, but less competition leads to higher prices and fewer goods sold. Creating minimum wages, the 40 hour work week, and helping employees gain the right to unionize are not necessarily bad things on their own, but each of these makes hiring more expensive, which naturally leads to higher unemployment.

[mo]

Warren Harding figured it out in 1920...

Congress and the Executive Branch have lots to do.

So far they’re not doin’ it right..

Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.” 2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923.

http://www.firstprinciplesjournal.com/articles.aspx?article=1319&loc=r

BTW..ole Warren ALSO fixed immigration...

Mr. Harding signed into law the Emergency Quota Act[3] which sought to control immigration following World War I and preserve the distinctive American culture by ensuring the majority of immigrants came from the historically compatible cultures of Northern Europe. This law aimed to bring wages of hard working Americans under control by limiting immigration to 3% of the 1910 census. It was followed on by a similar act in 1924, after Mr. Harding’s death.[4]

A Warren Harding prescription...if filled ...would ignite the afterburners on the US job machine and the economy. However DC would have to yield on a tremendous amount of power. Our job as We the People...is to persuade them of the “utility” ..shall we say..of doing so. In all probability the same minds that made the mess...aren’t capable of the solution however.

BTW any takers that ‘Bammy couldn’t even tell you that Warren Harding was one of his predecessors in office?

Even more telling about what our betters in the RinoCracy think of a Constitutional President..

http://www.usnews.com/listings/worst-presidents/warren-harding

[GeronL]

The death of FDR and his policies and the end of WW2 is what boosted the economy.

[hosepipe]

[ It’s Time to Get Over FDR! ]

WHY?.. Social Security(SSA) is pure socialism..
And I mean PURE.. not a half heart attempt at it..
BUT PURE... socialism..

FDR set up America to fail.. his worldview was flawed.. scewed.. Because of FDR most Americans are socialists..

YOU are probably a socialist.. YES YOU!..