Will America trickle-down or go bottom-up? President-elect Barack Obama‘s New Deal-style economic vision is reminiscent of an American nightmare. The president-elect - professorial in his socioeconomic approach - may be forgetting one of history’s valuable lessons. Undoubtedly controversial, the New Deal marked a change in government socioeconomic oversight. But are there lessons to be learned from New Deal programs? After all, in an attempt to domesticate capitalism, many of its programs placed an unnecessary burden on businesses - the engine of the economy.
Franklin D. Roosevelt’s New Deal initiated social programs as an answer to the economic catastrophe of the Great Depression - many of which were clearly tainted with socialist premises. However ripe for its time, the American public, out of desperation, was willing to cling to the hope that New Deal programs offered. Does this sound familiar?
The New Deal did offer social programs that alleviated certain aspects of the Great Depression. Social Security is a successful, albeit forced, retirement and savings program. However, the point here is not to focus on the successes of the New Deal, but to focus on where it went wrong so that America can learn from it. After all, there is a reason why America phased out the majority of New Deal programs.
Roosevelt, like Mr. Obama, was facing devastating economic conditions propagated by greed-fueled economic irrational exuberance, which some consider to be inherent in a capitalist society. Marx believed the socialist ideology was an evolution from capitalism: The greed of capitalism needed to be played out before the people would see that socialism was the better practice. This is the scenario that Roosevelt faced and the scenario Mr. Obama now faces.
Some New Deal programs, along with Mr. Obama’s economic vision, oppose fundamental economic principles, principles that have proven to be accurate time and time again. The promises of Mr. Obama’s economic vision are similar to some New Deal programs that prolonged the Great Depression by seven years, as UCLA economists Harold L. Cole and Lee E. Ohanian have calculated.
The lesson to be learned from the New Deal is that if American businesses are used as a scapegoat - instead of a solution - to America’s economic woes, America runs the risk of magnifying an already bad situation.
Mr. Obama is going to make businesses, along with the wealthy, carry the social burden left by the economic crisis. Businesses will be plagued with higher costs from increased payroll and corporate taxes, and with carrying the health-care burden, to name a few. The wealthy will face increases in capital-gains taxes and income taxes. The very people who create opportunity in the marketplace are being forced to carry America.
Then there is the threat of unions. Mr. Obama wants to make it easier for unions to organize. Big Labor will undoubtedly increase wages across the board for those industries that are able to organize, resulting in further business expense increases.As we have learned from the automobile industry, when unions overreach in this global economy, business suffers and employees lose jobs. However, Mr. Obama has a solution for this. His solution is trade protectionism. American businesses will no longer have to fear overseas competitors that run the risks of driving them out of business. Unfortunately, protectionism will result in a much smaller economic pie for Mr. Obama to cut up and distribute to his favoredconstituents.
Do you see something wrong with this picture? As is the case with bottom-up economics, redistribution of wealth is used to alleviate pressure for those who are having fiscal difficulties. But a little more analysis depicts a different picture.
When costs rise for businesses, those costs are then passed onto the consumer. Although those who benefit from union organizing will see higher wages, those same “beneficiaries” will see that their purchasing power, as well as that of nonunion consumers, will be diminshed because of higher-priced consumer products and services. As the failed policies of socialist economies of the 20th century have shown, policies which increase the size of the pie will generally create more prosperity for all thanpolicies which merely redistribute pieces of a smaller pie.
Armstrong Williams’ column for The Washington Times appears on Mondays.