Over the past several days I have had the opportunity to read Amity Shlaes’ recent book, The Forgotten Man. This book examines the Great Depression, including the events that precipitated it and the blundering acts of the Federal government to address the human suffering associated with this economic crisis. Unfortunately, it appears that many of those government actions may have prolonged, rather than ameliorated, that suffering. And in some cases, some politicians may have deliberately caused or prolonged suffering for political gain. There is, sadly, no Hippocratic oath for politicians.
The fact that this era was called the Great Depression is no coincidence; reading about this period and the solutions proposed by the New Dealers is a definite downer. Raising taxes on capital and enacting confiscatory tax rates on the “rich” no doubt made the climate for investment less attractive for domestic and foreign capital. Some industries, like public utilities, had it particularly difficult where government agencies threatened to take over the entire industry. Vacillation about monetary policy also made foreign investment less attractive, and of course there were trade barriers that interrupted the global economy. Government interference with price setting and other market functions was running amok, and the powerful influences of government were coming down hard on good, hardworking citizens like the Scheckter brothers, just to make a point.
Times were not good. Though some look with great nostalgia on this era, the phenomenon of a sanitized memory must be working quite well for those people. The reality seemed horrific.
The crisis of the Depression presented a real crisis of government, where stark choices were presented. Leaders had to choose whether they represented a republican form of government, where principles of liberty undergirded by private property and market economics would reign supreme, or whether they represented true populist democracy, where the majority could vote to take the property of others and remove their liberty, all in the name of the good of the people. We got something in between, but the populist democracy tendencies were nevertheless strong and substantial. And the threats they posed to people were very real.
Sadly, the republican government vs. populist democracy battle is far from over. I would like to think that we have learned a lot about economics since the New Deal, and that the errors of those days would not be repeated. But then I turn on the news and hear politicians (mostly Democratic ones, but I confess they don’t have a monopoly on populist demagoguery) calling for higher taxes on capital and on citizens with higher incomes. Comrades, do those politicians not understand the likely impact of such taxes on investment and job creation? Do they believe that government will “invest” that money better than the private investors?
And instead of government taking over electric utilities, we have similar arguments being made about taking over the health care system. That is another topic, but the parallels and concerns are also significant.
I have more to say about this book. I particularly like the discussion of Andrew Mellon's gift of the National Gallery of Art as a poignant statement about the power of individuals to do good and to influence the world with their wealth. However, for now, I will just say that it is a good read, even though it might be somewhat depressing.