President Barack Roosevelt?

THE NEW NEW DEAL?

I was reading today that President-elect Obama has a plan of creating 2.5 million new jobs in the first two years of his administration by re-building roads and bridges, modernizing schools, and developing alternative energy sources and more efficient cars. I am a little skeptical for three reasons.

1) The Unites States is projected to have a possible $500 billion deficit for the year 2008. Guaranteeing the creation of 2.5 million new jobs at the billing of the Ferderal Government seems to me, at this time, an unwise move. I would rather see the government cut spending than pick up a couple more million employees, or begin billions in spending for new projects. Adding in the contraction of the economy we are seeing right now and educated guess would project that the government will likely see less revenue over the next year than they did in 2008. More expenditures with even less funding is a losing proposition. In order to create more spending the government needs to raise more money. The government can only raise more revenue by taxing us more or when the entire economy expands. The later doesn't seem very likely at this point. As such, it would seem an unwise time to increase spending, since the end result is either taxing more in a down economy, or increasing the federal deficit.

2) The government cannot by itself create jobs unless they first take the money out of the private sector. The government is not in the business of making their own money, the only money they have was first produced by the private sector. I am not as confident in the government's ability to use that money in positive ways as I am the private sector. I have arrived at that conclusion by watching the government's lack of efficiency in other programs, mainly Social Security, Medicare, Medicaid. And that brings me to point number three.

3) I just finished reading a paper by two economists at UCLA. In 2004 they completed four years of research into what made the Great Depression so prolonged. What they found was that President Roosevelt's policies had a major play in it, as they were directly responsible for lengthening the recovery period by 7 years. In effect, without FDR's policies of pro-labor, misplaced stimulus and anti-competition, the Depression might have ended 7 years earlier.

It is also important to remember that not all policies have an immediate effect, whether for the good or the bad. Some really nefarious policies start out looking really good, but end up being very bad. For instance, in an earlier blog I wrote about the Community Reinvestment Act. Passed by the Carter Administration in 1977, it took 30 years for the effects of that piece of legislation to contribute to an economic implosion. One might even be able to suggest that Social Security, an original FDR policy, is another policy that is failing. Originally signed into law as part of FDR's New Deal in 1935, some historians have suggested that it led to what has been called the "Roosevelt Recession" in '37 and '38. Perhaps Medicare, adopted in 1965, is another social program that is on tract for failure.

To be fair, the President-elect hasn't done anything yet. It remains to be seen exactly what his economic plan would be. President-elect Obama deserves a fair shot at succes, but it does seem as though he is modeling his economic recovery efforts after FDR in some limited sense. It is impossible to know where he would go with things once he gets into office, but this plan to create 2.5 million new jobs by employing them in government projects is reminicent of FDR's New Deal.

Overall, I don't think that would be the best way to go. I think if we cut spending, cut taxes, and let the market correct itself, we would better be able to cut our losses. Nothing we do can stop the pain that occurs when a market corrects itself, as a contraction of the market necessitates job losses. But if we start passing measures that help in the short term while lengthening the overall economic recovery, I don't think we're the better for it. We need to get to a point where we can identify the problems, fix them, and go from there. Even more than that, we need to resist the desire to impliment anti-growth policies in order to lessen the pain in the short term. We need to be able to mass all our resources into figuring out the problem, fixing it, and starting from there. Using those funds to pretend that nothing is happening only hurts our recovery efforts over the long run.