In 1939, as the Great Depression persisted, Treasury Secretary Henry Morgenthau ruefully reported to Congress “Now, gentlemen, we have tried spending money. We are spending more than we have ever spent before and it does not work. ... We have just as much unemployment as when we started and an enormous debt, to boot.”
Despite abundant evidence that government spending does not create prosperity, today’s leaders have made the same dreadful mistake. We have spent so wildly, and with so little regard for those who will have to pay for this mess, that in this year alone we will fund only 63 percent of federal outlays with current income and will incur $1.3 trillion in debt. Yet total unemployment is 4.6 percent higher than the fourth quarter of 2007, when the stimulus gusher began.
President Obama and Treasury Secretary Timothy Geithner claim we would be even worse off without their efforts, that we would have “fallen off a cliff.” But where’s the evidence? Other countries didn’t follow our course. Yet employment is down only 1.7 percent in the Eurozone over the same period, just 0.6 percent in the U.K. The countries that did the worst were the most profligate, like Greece. The rest may not have great economies, but they successfully avoided that imaginary cliff.
It’s uncanny how Obama’s policies mirror FDR’s and are producing similar results. Federal spending grew by 77 percent from 1932 to 1934 and federal debt rose 150 percent by 1938, yet by then employment was still 20 percent below the pre-Depression level and industrial production had also declined 20 percent.
Nations which had not tried to spend their way to prosperity fared better. Ten years after the crash, industrial production in the six most developed countries had grown by 16 percent. In sharp contrast to the U.S., employment was up 10 percent in U.K., 12 percent in Italy.
Want more evidence that Big Government doesn’t create jobs? Only 214,000 net new jobs were created in the U.S. in the last 12 months. Of those, 119,000 were in Texas. Texans, more than most, have avoided over-spending and over-taxing, while limiting regulation and maintaining a business-friendly climate.
California meanwhile has pursued the opposite course, spending and taxing and regulating with abandon, while treating businesses as cash cows. You can see where this is going. California has lost 112,000 jobs since August 2009 and has an unemployment rate over 12 percent.
Many on the left argue that higher taxes are necessary to offset deficit spending and keep federal debt under control. That’s what FDR did and that’s what Congress can easily accomplish by letting the “Bush tax cuts” expire at the end of this year. But higher taxes, even if we mistakenly accept them as the responsible course of action, may not work to reduce the deficit.
The reason is that government can raise tax rates, but that doesn’t necessarily increase revenue. Economist Richard Rahn documents that in the 30 years from 1970 to 2000, the maximum individual tax rates ranged from 28 percent to 70 percent, yet tax revenue from individuals as a percentage of GDP only ranged from a low of 7.6 percent (when the maximum rate was 70 percent) to a high of 9.6 percent. Total tax revenues were between 17.1 and 19.8 percent, despite widely varying rates.
Rahn concludes, as have others, that a top rate around 25 percent (far less than even today’s top rates) would maximize federal revenues. Slapping around the rich may be good sport, but it produces neither jobs nor tax revenues, as Obama’s policies are now demonstrating.
In addition to fiscal policy, we’re mimicking Depression Era mistakes by manipulating financial markets, creating uncertainty for entrepreneurs and pulling back on free trade. The American people sense we’re on the wrong course.
The election Tuesday must be a referendum on radically changing our direction and salvaging our nation’s future. Nothing else matters unless we elect leaders who really will stop spending money we don’t have. They have to know this time we’re serious — yes, even when it comes to that one special program or the one perk that benefits us directly.
That’s hard to do but necessary. Ask Henry Morgenthau.
East Valley resident Tom Patterson (email@example.com) is a retired physician and former state senator.