woody_zimmerman_118_2007In 1933, early in his New Deal, FDR signed legislation that created the Agricultural Adjustment Administration (AAA) and the National Industrial Recovery Administration (NRA). Both laws were intended to blast the country out of depression, but their agents used often-bizarre tactics that defied both common sense and (arguably) morality. Note the following passage from John Hood’s book, Investor Politics (The New Force that will Transform American Business, Government and Politics in the 21st Century):

The AAA tried to prop up farm prices by paying producers to destroy food (even in the midst of hunger) and take arable land out of production. Federal agents fanned out across the countryside, trying to persuade reluctant farmers to plow their fields under for pay. They had an even harder time with the mules, who had been trained to walk between the rows but now had to be made to pull the plows right across the growing crops. The spectacle gave rise to a popular joke about Roosevelt and his advisors being quite literally dumber than mules, who at least knew that destroying valuable goods was unlikely to constitute a path to prosperity.”

The NRA tried to force higher wages on industry on the theory that increased wages would increase consumer purchasing power. Company executives were actually jailed for paying wages below the NRA-specified industry “code.” Almost alone among major manufacturers, Henry Ford refused sign the code and jack up his car prices, as his competitors at General Motors and Chrysler were doing. “I do not think that this country is ready to be treated like Russia for awhile,” Ford wrote. “There is a lot of that pioneer spirit here yet.”

Franklin Roosevelt and his government saw competition as evil. At a press conference, FDR said, “We have got to eliminate the purchase of Ford cars [because the company has not] gone along with the general [NRA] agreement.” This was by way of announcing that a bid from Ford to supply 500 trucks to the Civilian Conservation Corps (CCC) would be rejected, despite the fact that it was $169,000 lower than the second-lowest bid.

Finally, merchants appealed the NRA and AAA laws to the Supreme Court. The Court struck down the NRA (1935) and the AAA (1936), finding them unconstitutional. Writes Mr. Hood: “In both cases the argument was that the federal government had far exceeded its constitutional bounds. It was to be the last time the Court would so rigorously apply constitutional limitations on federal power over the economy.”

In his April 2009 article in The Freeman, “The NRA: How Price-fixing Perpetuated the Great Depression,” Professor Burton Folsom, Jr., describes what finished off the NRA:

No merchants wanted to pay fines or go to jail, but the more than 500 NRA codes often imposed such quirky regulations that it was hard for many to comply. Finally, in 1935, the Schechter brothers, who sold kosher chickens in Brooklyn, took their case to the Supreme Court to challenge the constitutionality of the NRA. Justice George Sutherland asked so many embarrassing questions about the NRA chicken code that the audience actually broke into laughter at some of the exchanges. By a 9-0 vote the NRA was found unconstitutional.”

This bizarre, mostly-forgotten segment of Great Depression history came to mind recently, when the Cash for Clunkers program hit the news. In case any readers have been on inter-galactic travel for several weeks, I’ll simply note that C4C is a government “stimulus” program that pays a buyer of a new car (very well) for a trade-in car, provided the new car’s gas mileage is higher. Various rules about the gas-mileage differential between the new and old cars determine whether the government refund is $3500 or $4500. Only certain cars qualify for the “clunker” stipend, as a friend learned when he tried to trade in his ‘84 Mercedes. (Gas mileage was too high.)

The wisdom of targeting specific commodities for government subsidization is debatable. I don’t think it’s wise, but others seem to see value in helping car dealers move inventory. That aside, the part of the program I object to most is the destruction of the old cars. Dealers may not resell the trade-ins, regardless of their mechanical condition. Instead, the rules dictate that each car must be run without oil until the engine seizes up – thus ruining it completely. The ruined car must then be crushed and recycled. Extraction of usable parts is not permitted. Being a lover of mechanical things – especially cars – I find this disgusting and immoral. To use a favorite word of President Obama, it’s also “stupid.”

I have seen 1930s newsreels of farmers dumping milk out onto the road and plowing crops under, as part of the NRA and AAA programs for raising commodity prices. People were going hungry at the time – really, literally, going hungry – while we were destroying food. The public properly raised hell and denounced the programs that required this wastage, but New Deal politicians were deaf to all protests. They thought they knew what was best for us. By all accounts, a great public cheer went up when the Supreme Court declared both programs unconstitutional.

Now we’re deliberately destroying functional cars that could be used by poorer people who might lack good (or any) transportation. As in the 1930s, it’s being done to “help” the economy. Is this really the best we can do? Are these the people who want to run our health care?

Not being a governmental expert, I can probably think of only a half-dozen ways that such a program might work effectively – and at much lower cost – without destroying perfectly good automobiles. Interested buyers of the traded cars could be allowed to bid on them. Or they could be sold to foreign countries. They could at least be junked so usable parts could be salvaged.

Certain acquaintances of mine claim that I can never applaud any of Mr. Obama’s ideas because I’m either a racist or else such a dyed-in-the-wool Republican that my mind is totally closed. I won’t bother answering the charge, but I will say that I’ll gladly applaud a good idea if one comes along. Ruining serviceable cars doesn’t qualify, I’m afraid. It’s a moronic idea.

You don’t create wealth by taking money from taxpayers and using it to buy old cars so you can crush them. This is “madhouse economics.” Who dreamed this up?

Get the hook!