Tuesday, February 02, 2010

Retracing the mistakes of the past

Amity Shlaes sees strong echoes in Obama's anti-business rhetoric with the move that FDR took in his second term that led to the so-called Roosevelt Recession in 1937-38. When the recovery and unemployment rates were sluggish, FDR shifted to bashing business and the rich and urging legislation that would increase taxes and regulations on the rich. The result was that businessmen slowed down investing and hiring.
The result of it all was the Depression within the Depression of 1937 and 1938, when industrial production plummeted and unemployment climbed back into the higher teens. Even John Maynard Keynes chided FDR for his attitude about businessmen: "It is a mistake to think they are more immoral than politicians."

Among themselves, the New Dealers acknowledged failure. FDR's second Treasury Secretary, Henry Morgenthau, eventually determined that the problem was lack of what he labeled "business confidence."
Does any of that sound familiar when you listen to President Obama talk about the wealthy? As Walter Jacobson points out, Obama's budget is counting on raising $1 trillion in revenue over the next decade by raising taxes on couples earning over $250,000 and individuals earning over $200,000. As Jacobson reminds us, projections of revenue raised by taxing the rich always fall short. The wealthy shift their income or find some other way to decrease their tax burden. Governments never gain as much from those taxes as projected.

Add in the Obama budget's rosy scenarios on economic growth and how he's anticipating savings from health care proposals and cap-and-trade bills that seem to have little likelihood of passing, and whatever scary chart of future deficits that you happen to be looking at, you can safely assume that they will be much worse. And the differences won't be made up by badmouthing the very people who help build the economy.

UPDATE: As Chris Edwards points out, you can't trust any president's predictions on spending over a decade. They're always wrong.