Today, the RealClearPolitics, one of my favorite sites, offers an instructive lesson in economics, the power of myth, and the sadness evils of a mind gone rancid with ideology. To complete the course, you need simply read and digest two short and contrasting articles.
The strophe is by Thomas Sowell and is called “Another Great Depression?” One of Sowell’s great gifts as a writer is the ability to articulate and then explode a piece of conventional wisdom that is all consensus and no wisdom. In this column, he takes the contention, to which “everybody” subscribes, that “the stock market crash of 1929 was a failure of the free market that led to massive unemployment in the 1930s–and that it was intervention of Roosevelt’s New Deal policies that rescued the economy.”
In the space of a few hundred words, Sowell shows that every piece of that nugget of conventional non-wisdom is wrong. The market crash of ’29 did not lead to higher unemployment, as a look at the employment figures of the time demonstrates. After an initial spike to 9 percent, unemployment settled back down to 6.3 percent by June 1930. The skyrocketing unemployment of the mid- to late 1930s was due not to the failure of the market, but rather to government meddling in the market. Exhibit A was the Smoot-Hawley Tariff Act, passed in June 1930, and which raised duty on thousands of imported goods, thus bringing international trade to a screeching halt. Five months after the Act was passed, Sowell points out, unemployment hit double digits. “Before the Great Depression,” Sowell explains,
it was not considered to be the business of the federal government to try to get the economy out of a depression. But the Smoot-Hawley tariff — designed to save American jobs by restricting imports — was one of Hoover’s interventions, followed by even bigger interventions by FDR.
The rise in unemployment after the stock market crash of 1929 was a blip on the screen compared to the soaring unemployment rates reached later, after a series of government interventions. . . .
In other words, the evidence suggests that it was not the “problem” of the financial crisis in 1929 that caused massive unemployment but politicians’ attempted “solutions.” Is that the history that we seem to be ready to repeat?
That’s a very good question. It saddens me beyond measure to say that the answer might very possibly be “yes.” First, there was the downpayment: the $700 billion “bailout.” No-one, certainly not the Secretary of the Treasury, knows why it was $700 billion. As one Treasury spokesman put it: there was no particular data point: they just wanted to pick “a really large number.” Then comes Obama with breezy talk of $1 trillion “stimulus” package. (“Bailout,” “stimulus”: why can’t we call things by their real names: deficit spending funded by taxpayers?). Then there was the preposterous gift of billions of dollars to Detroit. Washington might as well have shoveled the money into the toilet. As I’ve said before in this space, Chapter 11 bankruptcy was custom-made for the likes of GM: it would allow it to restructure and get relief from the impossible labor contracts and benefit obligations it has been crushed by. As Mark Steyn pointed out on NRO, GM now has a market valuation about a third of Bed, Bath and Beyond. Remind me: why is GM “too big to fail”?
General Motors [Steyn writes], like the other two geezers of the Old Three, is a vast retirement home with a small loss-making auto subsidiary. The UAW is the AARP in an Edsel: It has three times as many retirees and widows as “workers” (I use the term loosely). GM has 96,000 employees but provides health benefits to a million people
A prescription for disaster, you might say, and you would be right. Then how can we account for our antistrophe, provided by Arianna Huffington: “Laissez-Faire Capitalism Should Be as Dead as Soviet Communism“?
Where Thomas Sowell specializes in exploding pernicious myths, Arianna Huffington excels at reinforcing them. Huffington begins by parading a false comparison: between Marxism, under whose name tens of millions of people were murdered and hundreds of millions kept in poverty and servitude, and a bogey man she calls “laissez-faire capitalism.”
Where do we find this beast, “laissez-faire capitalism”? (Huffington also speaks of “laissez-faire fundamentalism,” “fundamentalism” being a word sure to send a shiver down the spine of any self-respecting liberal.) Good question. Something approaching laissez-faire capitalism might have existed for about 15 minutes in 19th-century Britain, but it hasn’t existed for over a hundred years–if, indeed, it ever really existed. It certainly does not exist in contemporary America.
Today, of course, the market economy is hemmed in on all sides by rules and regulations. Some of these regulations are no doubt prudent and conduce to the common weal. Many are expressions of the state’s penchant for meddling.
Huffington doesn’t understand this.
She quotes quotes Republican Governor Mark Sanford who, opposing bailouts for the auto industry, observed that they “threaten the very market-based system that has created the wealth that this country has enjoyed.”
Quite right, too.
But according to Huffington, Sanford’s observation is comparable in ideological toxicity to the Marxist dictum “from each according to his ability, to each according to his need.” If a politician said that today, Huffington writes, he would be “laughed off the stage.” Shouldn’t the Sanfords of the world suffer the same fate? (But here’s a question: would a politician espousing the Marxist line be laughed off the stage? I suspect that a trifling adjustment in rhetoric would make it entirely palatable. Consider the popularity of a recent proposal to “spread the wealth around.” Isn’t that exactly what Marx and Engels were about?)
Huffington inhabits a cloud-cuckoo land beyond the reach of basic economic realities–the reality, for example, that capitalism is the greatest engine for the production of wealth that the world has ever seen. You would think that she would recognize this. After all, she has been a conspicuous beneficiary of capitalism. But no. Some ideological scrim has inserted itself between her and the brute facts of economic life. Her preposterous comparison of Governor Sanford’s remark and the famous Marxist slogan about spreading the wealth around is one demonstration of that. But the pièce de la résistance is her citation of Sunday’s piece in The New York Times blaming the Bush administration’s policies for the economic crisis. Huffington calls is “a comprehensive piece on what led to the mortgage crisis and the subsequent financial meltdown.” In fact, that embarrassing piece was partisan reporting at its worst: a factually inaccurate political hit-job whose purpose was not to report or illuminate but to scapegoat and shift blame onto one’s ideological opponents.
Thomas Sowell is a public intellectual who helps us penetrate through the fog of ideology. Arianna Huffington is a prominent purveyor of that fog.