Rothbard on Bush, Obama
I've been reading Murray Rothbard's America's Great Depression recently to see what kind of insights into the current recession might be gleaned, given all of the noteworthy similarities. As he lays the theoretical underpinning of his argument, he offers the following passage, which I thought was pretty telling:
If, in fact, we list logically the various ways that government could hamper market adjustment, we will find that we have precisely listed the favorite "anti-depression" arsenal of government policy. Thus, here are the ways the adjustment process can be hobbled:
- 1. Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.
- 2. Inflate further. Further inflation blocks the necessary fall in prices, thus delaying adjustment and prolonging depression. Further credit expansion creates more malinvestments, which, in their turn, will have to be liquidated in some later depression. A government "easy money" policy prevents the market's return to the necessary higher interest rates.
- 3. Keep wage rates up. Artificial maintenance of wage rates in a depression insures permanent mass unemployment. Furthermore, in a deflation, when prices are falling, keeping the same rate of money wages means that real wage rates have been pushed higher. In the face of falling business demand, this greatly aggravates the unemployment problem.
- 4. Keep prices up. Keeping prices above their free-market levels will create unsalable surpluses, and prevent a return to prosperity.
- 5. Stimulate consumption and discourage saving. We have seen that more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of saved-capital even further. Government can encourage consumption by "food stamp plans" and relief payments. It can discourage savings and investment by higher taxes, particularly on the wealthy and on corporations and estates. As a matter of fact, any increase of taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption. Some of the private funds would have been saved and invested; all of the government funds are consumed. Any increase in the relative size of government in the economy, therefore, shifts the societal consumption-investment ratio in favor of consumption, and prolongs the depression.
- 6. Subsidize unemployment. Any subsidization of unemployment (via unemployment "insurance," relief, etc.) will prolong unemployment indefinitely, and delay the shift of workers to the fields where jobs are available.
In highlighting these policies, Rothbard is pointing specifically to the 1929-1933 period of the Great Depression and criticizing the interventionist policies of the Hoover Administration. These ill-advised polices were subsequently expanded on by the Roosevelt Administration, causing the Depression to drag on for the remainder of the decade.
One would do well to note the similarities to the current recession as many of these interventionist policies were actively pursued by the Bush Administration and are now being expanded upon by the Obama Administration. In fact, the only policies highlighted here that have not, as yet, been implemented on a large scale are price and wage controls. Hence, we should perhaps all be on the lookout for these anti-recovery policies to rear their head in the near future.