Monday, August 18, 2008

Recipe for Destruction

Amity Shlaes wrote the essential reassessment of The Great Depression, The Forgotten Man, and she always gets my attention when she has something to tell us about today's economic situation. In the WashPost she describes Five Ways to Wreck a Recovery. It is not an attack on one political party or the other. It is simply a thumbnail sketch of 5 things the political class might do to derail our recovery from a small downturn and turn it into a full blown disaster. At every turn she warns us to learn from the many mistakes of Hoover and FDR.

The 5 Ways To Wreck a Recovery

1. Protectionism- then: Smoot-Hawley... now: populist politicians seeing votes in emotional attacks on free trade

2. Blaming the Messenger- then: evil stock operators wrecked the economy... now: evil banks/ lenders wrecked the credit markets

3. Increasing Tax Rates- then: Hoover took (The Great) Coolidge's 25% top rate and raised it to 63% followed by FDR taking it to 90%. Of course, capital left the marketplace and unemployment soared... now: Presumptive President Obama has talked about doubling the taxes on investment income, raising taxes markedly on the job producing "rich", and levying special "windfall" taxes on industries he doesn't like while giving gifts (AKA- subsidies & tax breaks) to those he likes. Capital will flee, unemployment will soar, and a long period of decline will follow until a Coolidge or Reagan comes along again to straighten the mess out.

4. Assuming Bigger Government Promotes Growth- then: the multiple disasters rolled up into the New Deal... now: both political parties to varying degrees

5. Ignoring the Costs of Inconsistency- then: FDR's "bold persistent experiment" which essentially was try every loopy thing no matter how it conflicts with everything else... now: hope & change for something (we know not what), running against a Republican who declares in ads the "the economy is in a shambles" and "we're worse off than four years ago"
NOTE: The 5 bullet points above come from Amity Shlaes, I added the then/ now that followed each one. For her far more lucid and better written ideas click on the Washington Post link above. Sorry for any confusion-- I shouldn't ever post anything before my 6th cup of coffee!