Thursday, April 4, 2013
A MANAGED ECONOMY? IT FAILED ONCE, WHY TRY IT AGAIN?
I'm now reading a book by one of my favorite authors, H.W. Brands. It is entitled "Traitor To His Class, The Privileged Life and Radical Presidency of Franklin Delano Roosevelt." I'm not a fan of FDR. He is a big government guy. I'm not. As evidence I submit to you the "Blue Eagle." FDR was a product of the Wilson presidency. I'm not of fan of his either. For example, he was a progressive and on his watch the 16th, 17th, and 18th Amendments passed. Even worse, the Federal Reserve Act passed which set up the Federal Reserve Board. This agency controls the money supply. The reason it passed was that the currency had a tendency to flucuate and this agency was designed to ensure that it kept equilibrium. It hasn't done its job evidenced by the Great Depression and the Great Recession. The worst is that it operates without congessional oversight. Doesn't the Constitution give the power of the purse to the Congress?
FDR came into power at the beginning of the Great Depression in 1933. He, being a product of the Wilson administration, felt it necessary to take action. His inaugural address asked for power analogous to that in wartime. My students listen to and discuss this speech. What are its implications? As FDR seized power he set up, with a sycophantic congress, an alphabet soup of programs in order to fix the economy. The most insidious was the National Industrial Recovery Act and the worst part of that was the National Recovery Act. It negotiated with business, a scheme to fix prices. This scheme, embraced by most of big business, served to squeeze out small businesses and constrict profits. Businesses eventually withheld investment and the economy plunged into a double dip depression which was alleviated only by the ramped up manufacturing related to WWII.
The moral of the story is that "managed economies" and "managed currencies" don't work.
FDR's legacy is as a war president, not as an economic savior.