In the 1920s, Republican protectionists ushered in the Great Depression by passing the Smoot-Hawley Act, which raised tariffs and stifled free trade. And in 1929, after the stock market crash, Herbert Hoover tried to save the economy by “bailing out big banks and corporations.”
Sound familiar? Congress today appears determined to follow the same disastrous course as Hoover or, worse, the ill-fated programs of Franklin Roosevelt.
In 1932, and again in 1936, Roosevelt campaigned on a platform of “balancing the budget.” Disastrous government policies such as paying the richest farmers not to grow food at a time when people were starving, dumping milk into ditches to raise prices, and paying slave wages of a dime an hour to those who worked on make-work projects such as the the Forest Conservation Corps led to the Roosevelt Depression of 1937. That depression made the Hoover Depression of 1929 look like a picnic.
So disastrous were Roosevelt’s economic policies that in 1937, an exasperated John Maynard Keynes wrote the president, urging him to abandon his platform of balancing the budget and raising taxes. At that time, the newly implemented payroll tax was extracting still more money from the pockets of hapless consumers. Instead, Keynes asked Roosevelt to concentrate on stimulating consumption, either by government spending on a more massive scale than the make-work programs previously implemented, or by a reducing taxes.
The 1937 Depression deepened after Roosevelt ignored Keynes, but his recommendations were adopted by default when America went to war. The massive spending of World War II finally aimed purchasing power where it should have been directed in the first place: to consumers. This stimulated the economy into recovery.
Today, President Barack Obama has recognized the need to seek advice from the most qualified economists in the United States. Although these advisers have urged him to cut taxes and put purchasing power back into the hands of consumers, Obama is now being confronted by his ideological campaign backers who resist such proposals.
The reason for such resistance is clear in an economy in which virtually half the population pays no federal income taxes at all. The bottom 50 percent of income earners now pay less than 3 percent of the taxes. Since any income tax reductions would not benefit those who pay no taxes at all, the ideologues are urging Obama to ignore the economists and instead place reliance on the make-work programs of the Great Depression.
Whether Obama can place the welfare of the economy over the ideological demands of his political supporters will be the first great test of his presidency.
Robert Hardaway is professor of law at the University of Denver Sturm College of Law.
