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One of the biggest myths about the great depression is that FDR’s NEW Deal and the related government intervention and public works projects got us out of the Great Depression. The truth is that the New Deal did not work. Instead of creating growth in the private sector, it created government growth that squeezed out the private sector.

Of course, the number one public golf course in the country Bethpage Black (where the US Open played this year)  was a was a New Deal Federal works project, but that only cures MY depression, it did little for the country.

As late as 1938, nine years into the depression, almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation. But that was not an even trade-off. As the root cause of a great deal of mismanagement and inefficiency, government was responsible for a lost decade of economic growth which the US did not climb out of until World War II.

Some leading economists are now saying, that in many ways, President Obama’s economic policies are a repeat of FDR’s new deal and will possibly lead to the same long term economic malaise..or worse:

There are “troubling similarities” between the US President’s actions since taking office and those which in the 1930s sent the US and much of the world spiralling into the worst economic collapse in recorded history, says the new pamphlet, published by the Institute of Economic Affairs.
 
In particular, the authors, economists Charles Rowley of George Mason University and Nathanael Smith of the Locke Institute, claim that the White House’s plans to pour hundreds of billions of dollars of cash into the economy will undermine it in the long run. They say that by employing deficit spending and increased state intervention President Obama will ultimately hamper the long-term growth potential of the US economy and may risk delaying full economic recovery by several years.

…The study represents a challenge to the widely held view that Keynesian fiscal policies helped the US recover from the Depression which started in the early 1930s. The authors say: “[Franklin D Roosevelt’s] interventionist policies and draconian tax increases delayed full economic recovery by several years by exacerbating a climate of pessimistic expectations that drove down private capital formation and household consumption to unprecedented lows.”

Although the authors support the Federal Reserve’s moves to slash interest rates to just above zero and embark on quantitative easing, pumping cash directly into the system, they warn that greater intervention could set the US back further. Rowley says: “It is also not impossible that the US will experience the kind of economic collapse from first to Third World status experienced by Argentina under the national-socialist governance of Juan Peron.”

The economists confirm the the claims of the pundits who say the deficit will be the ruin of the American economy:

The policy responses to the debt bubble demonstrate crude political consideration rather than economic understanding. If excessive government indebtedness is a major source of the problem, why increase the government debt? Why encourage households to go yet further into debt?

The prognosis is catastrophic if projected government policies are not cut back. According to the White House’s own estimates, the federal budget deficit in 2009 will be $1.6 trillion, approximately 11.2pc of the overall economy, the highest on record since the end of the Second World War. In 2019, the national debt will represent 76.5pc of the US national economy, the highest proportion since just after the Second World War. In such circumstances, the international reserve status of the US dollar will not survive. As it fades, so interest rates on government securities will rise and the real burden of servicing the debt will increase. In such circumstances, the US economy will teeter on the edge of a black hole.

Prosperity and full employment in the US will only be restored by a return to laissez-faire capitalism. Our study outlines a radical, but politically feasible, approach. Monetary policy should be expansionary. But, on the micro-economic side, tariffs and other trade barriers should be repealed unilaterally; a “Right-to-Work” Act should reduce the minimum wage and curtail the powers of unions; and business regulation should be reduced. Individual banks and their counterparties should not be bailed out, although the system should be protected by ensuring that failing banks are wound up in an orderly fashion – this is the only way to restore market discipline.

They say that Adam Smith would not be optimistic with today’s American economy, as long as the liberal wing of the Democratic Party is running the country, neither are the rest of us.

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