Freedom from Fear: The American People in Depression and War, 1929-1945

David M. Kennedy is a history professor at Stanford who combines economic analysis with his historical analysis.  In this book he has provided a detailed look at the Great Depression and the New Deal, the social safety net tools of Social Security, unemployment compensation, and others which he asserts served to lay a foundation of security that was missing prior to their creation.  Kennedy argues this "security" structure, while having no immediate impact on the economy, was instrumental in restoring confidence in the financial/banking sector and ultimately provided a strong platform for growth in the quarter of century after the end of WWII.  Meantime in the latter part of the '30's,  FDR began to demonize businessmen as "malefactors of great wealth", etc, the up-to-then fledgling recovery began to fail, unemployment rose and things in general got much worse until the war buildup finally put everyone to work in the early '40's, at least temporarily.  The similarities between FDR's demonization of businessmen,m capitalism and the profit motive and what Obama has been doing recently are striking.  Two years into the Obama administration,  it appears that unemployment is once more rising and business activity is declining.  Kennedy points out that FDR created great uncertainty and destroyed the confidence of the business class by demonizing them. Unsurprisingly business then refused to hire and expand their businesses and the recession dragged on.  Obama might read this book and learn that it is only the business class that creates jobs and when they are skeptical of the direction of the administration they will not be hiring.  Case closed.

The Lingering recession

There are those who argue that the length and depth of the 1930's depression was caused by actions of the federal government designed to solve the problem. There were all the alphabet entities, the NRA and all the price control mechanisms, the Wagner Act to strengthen unions, the myriad regulations to control the activities of financial institutions and corporations, and on and on. Of course the depression/recession went on and on throughout the 30's with high unemployment and weak commercial activity. It wasn't until the the latter part of this decade, after the Supreme Court ruled many of the New Deal activities unconstitutional that business conditions slightly improved, unemployment came down, slightly, and commerce picked up again, slightly. Are we seeing a repeat of the 30's with the Obama administration? Some are arguing we are, that Obamacare and the new wave of virulent regulations are causing the same uncertainty that existed during the New Deal era causing small or medium size businesses especially, to not invest, take risks, expand, and hire new people as they do when they feel confident and not threatened by a hyper active government. Here are a few quotes from a blog thread on this subject:

"Whole swaths of the economy are being affected. The nuclear industry is frozen because because Obama suspended the Yucca Mountain waste site. The food industry is fretting because of the sweeping new powers given to the FDA that basically federalizes food safety inspection down to every co-op garden and food stand. The banks are reluctant to lend because of new capital requirements.

The oil industry is threatened with loss of the DPA tax credit and depletion allowances, blocking new oil exploration. Gulf drilling permits are still being withheld (despite what Obama says). Many oil rigs have left for Brazil and will not return.

The EPA has declared that it intends to regulate carbon dioxide and is busy preparing draconian new limits on allowed CO2 emissions from power plants and factories.

Private colleges are worried they will be put out of business by regulatory fiat with Obama’s strict new student-loan default-rate limits (that dont apply to public colleges).

The NLRB has decided that it can prohibit Boeing from building its new factory in a right-to-work state (SC), even though the factory is nearly complete and 1000 employees have already been hired.

In 2013 who knows what will happen? Will the regulatory insanity stop or will it continue? Will employers get hit with the 8% ObamaCare payroll tax or will it get repealed? What will the capital gains tax rate be?"

In this regulatory environment it is a wonder that any long-term project or investment can be accomplished.

Here follows another interesting perspective from a small business CEO, describing his reluctance to hire and expand his business:

Stephen L. Carter, a professor of law at Yale University has a new article there, linked to by the Insta-professor. It’s built around his chatting onboard during a flight, presumably from somewhere on the west coast to Minneapolis, with a midsized company’s CEO who’s explaining to Carter why his business isn’t hiring:

My seat-mate seems to think that I’m missing the point. He’s not anti-government. He’s not anti-regulation. He just needs to know as he makes his plans that the rules aren’t going to change radically. Big businesses don’t face the same problem, he says. They have lots of customers to spread costs over. They have “installed base.”

For medium-sized firms like his, however, there is little wiggle room to absorb the costs of regulatory change. Because he possesses neither lobbyists nor clout, he says, Washington doesn’t care whether he hires more workers or closes up shop.

We will be landing shortly in Minneapolis. I ask him what, precisely, he thinks is the proper role of government as it relates to business.

`Invisible’

“Invisible,” he says. “I know there are things the government has to do. But they need to find a way to do them without people like me having to bump into a new regulation every time we turn a corner.” He reflects for a moment, then finds the analogy he seeks. “Government should act like my assistant, not my boss.”

We are at the gate. We exchange business cards.

On the way to my connection, I ponder. As an academic with an interest in policy, I tend to see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same. We rarely encounter the simple human face of the less- than-giant businesses we constantly extol. And when they refuse to hire, we would often rather go on television and call them greedy than sit and talk to them about their challenges.

Recessions have complex causes, but, as the man on the aisle reminded me, we do nothing to make things better when the companies on which we rely see Washington as adversary rather than partner.

Carter describes himself as “As an academic with an interest in policy,” who tends to “see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same.” In that respect, his article’s title, “Economic Stagnation Explained, at 30,000 Feet,” might have unintentionally hit a little too close to home.

But if Carter sees business as an abstraction, imagine how truly abstracted they are in the mind of a former academic who can actually make policy.  As a former business owner/operator, I understand exactly where this CEO is coming from.

May 28, 2011 - 2:47 am   Link to this Com