Obama's New Deal
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.