One of the biggest myths about the great depression is that FDR’s NEW Deal and the related 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, 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.
President-elect Obama is looking towards creating a new NEW DEAL to get us out of our present economic problems, history tells us that government infrastructure spending will not work, unless of course you are a golfer. Read More Below:
By RICH LOWRY
DEMOCRATS see the road to economic recovery, and it has been bulldozed, flattened out by a road grader and covered with pavement.
Barack Obama says a fiscal stimulus will be the top priority of his new administration. The initial offer is $500 billion, 4 percent of US gross domestic product. It will include billions for new construction projects, as the nation tries to claw its way back to economic growth one road, flyover and bridge at a time.
Democrats are enjoying a New Deal reverie wherein a Democratic president solves an economic crisis with public-works projects. The new issue of Time magazine features Obama on the cover decked out in the trappings of FDR. This image would accurately capture the moment, (1) if Obama – president-elect for all of two weeks – had actually accomplished something, and (2) if Franklin Roosevelt’s economic program had really ended the Great Depression.
Neither is true. As Amity Shlaes documents in her book “The Forgotten Man,” the economy limped along under FDR’s stewardship in the 1930s. Many of the era’s public-works projects were undertaken for political reasons as well as economic ones. Government crowded out private initiative and neglected policies to promote the private sector. Net private investment declined at times during the 1930s.
In any downturn that doesn’t last years, infrastructure spending suffers from a basic problem: By the time money is actually spent on construction, the recession has passed. “Practically speaking, public works involve long start-up lags,” the Congressional Budget Office wrote in a study this year. “Large-scale construction projects of any type require years of planning and preparation. Even those that are ‘on the shelf’ generally cannot be undertaken quickly enough to provide timely stimulus to the economy.”
This common-sense objection to the stimulative powers of infrastructure spending has been made even by Obama advisers. One of Obama’s chief economic advisers, Jason Furman, wrote with former Clinton aide Douglas Elmendorf in January, “In the past, infrastructure projects that were initiated as the economy started to weaken did not involve substantial amounts of spending until after the economy had recovered.”
Another Obama economic adviser, Alan Blinder, noted “the lengthy time lags” in infrastructure projects in a 2004 paper and argued that “accelerating the pace of spending on public works for [economic] stabilization purposes would be inefficient and wasteful.”
Infrastructure spending is proffered as a means to stimulate our way out of a potential deflation of the sort that gripped Japan after its stock and real-estate bubbles burst in the 1990s. But the Japanese passed stimulus package after stimulus package, including billions of dollars for infrastructure, to no avail. They paved anything that stood still. In a project only Ted Stevens could love, they spent $7 billion on a bridge between two islands, even though the ferry service between them was barely used.
The spending failed because it went to wasteful projects favored by politicians for parochial reasons. Japan also made the mistake of raising taxes in 1997 to pay for all the spending, depressing the economy again. It makes you wonder: What US political leader has been promising more public-works spending – to be allocated by a pork-happy Congress – funded by tax hikes? (Hint: See the guy with the cigarette holder on the cover of Time).
The cliché of the hour is that we suffer from “crumbling” infrastructure. There is truth to it. Miles traveled nearly doubled from 1980 to 2005, and the transportation network hasn’t kept up. But if investment in infrastructure isn’t applied intelligently – more intelligently than it’s possible to imagine in the current panic – it will only fund a make-work program to create concrete monuments to pork-barreling congressmen. “Infrastructure should be seen,” writes Sam Staley, co-author of the new book “Mobility First,” “as a way to boost the speed of information and movement of goods, not as a quickie jobs program.”
No matter. Congress will soon try to pave our way to economic redemption. [email protected]