**File** In this March 23, 1932 file photo, three unemployed men start a fire for cooking in this vacant lot in New York City, where they live when they are not searching for work. The Great Depression is mentioned a lot these days, even though the current crisis is a long way from exacting such a heavy toll. Still, we live in its shadows. And its history teaches us about responding to a financial crisis. Now, the nation is being tested on how much it has learned from the past. (AP Photo)Some people - not most economists and historians - seem to think that the New Deal slew the Great Depression.
First, one must remember that after the stock-market crash in 1929, President Hoover increased federal spending by more than 50 percent and put pressure on companies to keep wages fixed. At the same time, he built protectionist trade tariffs and increased our top income-tax rate from 25 percent to 63 percent, which sounds eerily familiar.
Second, in 1933, Franklin D. Roosevelt became president with unemployment at 25 percent. President Roosevelt pursued the New Deal, raising federal spending, implementing income taxes, encouraging strong unions and higher wages than lagging productivity justified, on the theory that workers’ spending would be stimulative. Instead, corporate profits - prerequisites for job-creating investments - were excessively drained into labor expenses that left many workers priced out of the market.
Third, in 1937 - five years into the New Deal and eight years after the stock-market collapse - the biggest industrial collapse occurred!
Unemployment in the country only declined when America began selling materials to nations engaged in a war America would soon join.
President-elect Barack Obama proposes similar governmental rescue plans for our economy and the middle class. His proposals include a tax credit for businesses “for each new employee they hire” in America during the next two years.
The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies - labor costs not justified by value added.
In addition, as Mr. Hoover and Mr. Roosevelt did, Mr. Obama will increase taxes, increase spending and raise protectionist trade tariffs on all programs that are strongly argued against by economists and by historians with economic backgrounds. Those who forget history are doomed to repeat it, and it appears Mr. Obama is about to do just that.
ED JOHNSON
Royal Oak, Mich.
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