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Greatly Depressing

A Commentary By Howard Rich

Wednesday, April 22, 2009

History is written by many people, but those who write government school textbooks tend to hold disproportionate sway.

Sadly, their vision of America – which has driven conventional wisdom and popular opinion for decades – is built on many myths.

The biggest myth of them all?

That capitalism and our free market system caused the Great Depression – and that only a massive expansion of the federal government saved America from permanent economic ruin.

Nothing could be further from the truth – and yet as the true history of government meddling repeats itself all around us (with the direst of consequences for future generations), America seems incapable of learning from these mistakes for the simple reason that no one has ever taught them how destructive interventionism has been in the past and present.

Over a decade ago, Lawrence Reed of the Mackinac Center – a Michigan-based research and educational institute – penned an important analysis of the Great Depression. Written at the height of the dot-com boom (and shortly after President Bill Clinton told us that “the era of big government is over”) Reed’s treatise breaks the Depression down into sections and analyzes the cause and effect associated with each new development.

His conclusion?

It’s a complete reversal of the textbook myth, an unflinchingly-candid, meticulously-documented proof that “government intervention worsened (the Depression) and kept the economy in a stupor for over a decade.”

“The calamity that began in 1929 lasted at least three times longer than any of the country’s previous depressions because the government compounded its initial errors with a series of additional and harmful interventions,” Reed writes.

Anyone who follows things like money supply and interest rate adjustments knows that the Federal Reserve’s policies in the months leading up to the Great Crash of 1928 courted disaster.

But it was the effect of government interventionism after the crash that did the real damage – which given the unprecedented $13 trillion intervention currently underway in our country should send shivers up and down every American’s spine.

Perhaps most importantly, Reed’s paper shatters once and for all the myth that President Herbert Hoover was the laissez-faire capitalist recalled by American textbooks.

For starters, Hoover’s administration – with Congressional support – dramatically increased government spending from 16.4 percent to 21.5 of GNP in one year. Hoover also signed a foolhardy tariff that crippled trade, as well as the largest tax hike in American history in the spring if 1932.

On top of that, during Hoover’s tenure the Federal Reserve imposed the biggest interest rate increase in its history.

High tariffs, huge subsidies, deflationary monetary policy, tax increases – does that sound like a laissez-faire capitalist to you?

Ironically, Franklin Delano Roosevelt – whose New Deal policies were later revealed to have been taken straight out of Hoover’s playbook – won election by blasting his predecessor as “reckless and extravagant,” and presiding over “the greatest spending administration in peacetime in all of history.”

Roosevelt, the “limited government” advocate, even bemoaned Hoover’s desire to “center control of everything in Washington.”

Obviously, Roosevelt flip-flopped after he was elected and put Hoover’s interventionist approach on steroids – much as President Barack Obama has done with the failed bailout mentality of his predecessor.

The reality, though, is that none of these leaders differ all that much in their ideological approach to recession.

Now the question is this – does the big government approach work?

Absolutely not.

Prior to the Great Depression, no American recession had lasted longer than four years. Most were over in two. The Great Depression dragged on for nearly twelve years, however, with unemployment reaching as high as 25% at one point.

And just as it is doing now, government over-taxed and over-regulated the economy the whole way through, starving it of desperately needed capital while consolidating frightening levels of power in Washington.

But that’s not the story told by government textbooks – just as it’s not the story that’s being told today by the America’s mainstream media.

Politicians are relying on big government’s myth to make – and promote – some of the most monumentally foolhardy economic decisions in our nation’s history.

Frankly, it’s past time that we started telling the truth about our past – and applying common sense to the future.

The longer we wait, the deeper we dig the hole for future generations.

Howard Rich is President of Americans for Limited Government .

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