NCPA - National Center for Policy Analysis


January 20, 2009

Barack Obama's policy plans are driven by the belief that New Deal economic programs ended the Great Depression.  Not so.  In fact, thanks to New Deal policies and programs, the U.S. economy faltered for years longer than it might otherwise have done, says Mark Levey, senior managing director at Lotsoff Capital Management in Chicago.

Just like Obama, Franklin Delano Roosevelt (FDR) came to office shouldering an economic crisis that began under his predecessor, Herbert Hoover:

  • In 1933, unemployment hit nearly 25 percent, as people lost jobs and homes in towns across the country.
  • Believing that government played a key role in restarting growth, FDR created an alphabet soup of new agencies that mandated actions or controlled public spending and impacted private capital flow within the U.S. economy.
  • After four years, joblessness declined to 14.3 percent, but then things turned for worse again: by the fall of 1937, the United States entered a secondary depression and unemployment began to rise, reaching 19 percent in 1938.

The problem was that neither Roosevelt nor Hoover grasped the essential nature of the crisis, which was not the stock-market crash, but global deflation.  The same perils are now confronting Obama, as the risk of deflation casts a long shadow over the economy, says Levey.

Yet, the quickest way to strengthen the credit system and begin the end of this crisis is to get money into the economy for true job creation, and not into government work programs.  The way to do this is to slash taxes. 

The U.S. corporate tax rate, currently the highest in the world, should be cut to zero; the capital-gains tax should be cut further.  If the United States is to lead the international economic community out of this crisis, this is the place to start, says Levey.

Source: Mark Levey, "Leave the New Deal in the History Books," Wall Street Journal, January 17, 2009.

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