Obama's New Deal
David Henderson
On a recent talk show, I made the point that although Obama's fiscal "stimulus" is likely to destroy wealth, at least he is not making four major mistakes that Herbert Hoover and FDR made: (1) substantially raising tariffs (Hoover with Smoot-Hawley), (2) cajoling (Hoover) or coercing (FDR) businessmen to have high wages, (3) increasing income taxes (Hoover), and (4) keeping prices of goods high (FDR with the National Recovery Administration and the Agricultural Adjustment Administration).
Well, I might have to strike (4). According to an editorial in the January 28 Wall Street Journal, "dairy and beef cattle producers butted heads over talk that the government might buy up dairy cattle for slaughter to drive up depressed milk prices." Of course this might not happen, but it might. One of the most destructive things government can do in a recession is reduce output. Just as FDR's output-destroying agricultural policies and NRA kept prices higher than otherwise, thus reducing output and extending the Great Depression, so government purchase and destruction of dairy cattle would restrain output and extend this recession.
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Obama's New Deal, Part 3
David Henderson
In a recent post, I said that whatever other mistakes Obama was making, at least he was repeating only 1 of 4 mistakes that Hoover/FDR (I think I'll start calling them Herbert Delano Roosevelt) made. Commenters pointed out correctly that Obama might be repeating a second mistake: the protectionist (I call it "barrierist") mistake that Hoover made.
Well, now Obama is going for the trifecta. According to the WaPost:
Obama issued an executive order Friday requiring federal agencies to consider putting in place agreements that set wages, work rules and other benefits when awarding major construction contracts.
In other words, Obama is trying to maintain wage rates on construction projects at an artificially high level. That's, of course, something Hoover and FDR did with wage rates generally, with devastating effects.
The Post continues:
The executive order "has the unfortunate potential to limit contractors' ability to compete for projects" at a time when 1 million construction workers have been laid off, Stephen Sandherr, chief executive of the Associated General Contractors of America, said in a statement.
Also:
"If the purpose of these projects is to get Americans back to work, why would we pick an approach that would allow only a small percentage of the construction workforce to participate?" asked Jerry Gorski, national chairman of the Associated Builders and Contractors. The industry group says 84 percent of the country's construction workers are not in labor unions.
How does Obama justify this? Here's the following from Obama spokesman Tommy Vietor:
"We think it will make procurement dollars more efficient so taxpayer dollars aren't wasted," he said. "It creates a more smooth and efficient process that protects workers and employers before the project begins."
Get it? Adding a constraint makes things smoother and more efficient.
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