Mario Puzo’s blockbuster book, The Godfather, on which two Academy Award-winning films were based, contained a story about a Mafia company that had a contract for building roads in New Jersey. The company used inferior cement and other materials, making the roads too weak to bear heavy traffic. The same company also drove overweight trucks over those roads, causing them to break up and require more repair and rebuilding. It was a perfect self-perpetuating business model, which helps explain why New Jersey is in such a financial mess, and why no one has been able to get control of it for most of a century.
I thought of that business model recently, when President Obama stepped out with his latest proposals for billions in federal spending on “shovel-ready jobs” to get the anemic American economy going. (Haven’t we heard that “shovel-ready” song before?) The president and members of his administration no longer use the word “stimulus” to describe this newest round of spending, now that last year’s stimulus bill of nearly $1 trillion has become a political football for Republicans to kick around in this year’s elections.
The “shovel-ready” moniker was liberally applied as cover for every crack-brained spending scheme of the last half-century that Democrats threw into the 2009 bill. But most of that money went to prop up state and local governments – especially those under Democratic control – that had been spending like drunken sailors during the boom-decades of Reagan, Clinton, and Bush. Those local governments were shoveling something, but you didn’t want to stand downwind from it.
From a politician’s point of view, the great thing about government spending to “cure” an ailing economy is this: (1) it accomplishes nothing; and (2) the poor results always seem to demand more spending. At best, the “stimulus” has no effect; at worst, it actually does damage. In either case, politicians disingenuously call for more of the same to “get the economy moving again.” But each new dose produces the same result, or non-result. (Pols must think voters have a memory-span of about two weeks.) The cycle can go on endlessly – no improvement of the economy, but more and more government spending demanded, and more and more regulations accompanying that spending.
This is the Mafia Business Model, elevated to a new level of respectability. For politicians determined to bring more and more of the country’s economy under political control, what could be better? Whether you agree with the technique or not, you have to admire the chutzpah and persistence of its adherents. On the other hand, a classic definition of mental illness is to expect a different result from repetition of the same behavior. Somewhere in this mix of politics, media-hype and voter-expectations, something is deeply wrong. We can’t be this dumb? But maybe we are.
Part of our problem with regard to government “stimulus spending” is a longstanding political- and media-promoted disinformation campaign. This began not with President Franklin Roosevelt but with Herbert Hoover, soon after the stock market crash of 1929. During the next three years of his term, Mr. Hoover doubled government-spending, while raising taxes significantly – all in an effort to jump-start a shocked economy that had lost billions in wealth from the crash of both stocks and banks. President Hoover’s attempt to resuscitate the economy with government spending flopped, however. By 1932, 25% of the nation’s banks had failed, taking their depositors’ money with them into oblivion.
FDR rode to victory with a cigarette holder (cocked at a jaunty angle), promises of good times ahead, and a confident, patrician manner – grandly proclaiming that “…the only thing we have to fear is fear itself.” FDR’s spending and economic-control schemes worked just as poorly as Mr. Hoover’s, but the Roosevelt brain-trust was fully invested in Keynesian economics, not just trying random shots to see what might work. Dim-witted ideas like the National Recovery Act (NRA) – which enforced destruction of valuable crops to keep farm prices high, while people were literally starving – were mercifully struck down by the Supreme Court, but many New Deal programs survived for decades. The now-familiar liberal belief that raising taxes on higher-income people will actually produce more revenues worked no better for FDR than it does now. This liberal shibboleth has been repeatedly disproved.
By 1940, after his first two terms, FDR had racked up $43 billion in deficit spending – the equivalent of $1.35 trillion in today’s dollars, or approximately $10,200 per capita. The return from this unprecedented spree was a moribund economy, mired in a truly “great” depression, in which unemployment hovered near 20% until the very eve of World War II. No amount of Fireside Chats, deficit-spending, or jaunty cigarette-smoking could pull the economy out of the canyon into which Hoover and FDR had driven it. Only the aggression of Hitler, Tojo and Mussolini got America moving again with real manufacturing and production. War, not New Deal programs, ended the Great Depression.
Modern reporters and pundits – who obviously “don’t know much about history” – are the enablers of the myth (now elevated to the status of holy writ) that FDR “ended” the Great Depression by spending us into unprecedented debt. The reality was otherwise, but liberals have been successfully telling this tale for the last 70 years. What gives it continued life are new generations of ignorant voters who wouldn’t know the Great Depression from the Great Gildersleeve. These are the voters who elected Barack Hussein Obama on the strength of his promise to “fundamentally transform” America. He’s making good on that promise, but not in the way those gullible voters expected.
If Americans want to have a prayer of taking their country back, they will have to start with a serious educational effort about the destructive effects of the Mafia Business Model – used first by Hoover and FDR, and now by Mr. Obama. No amount of spending of borrowed money will bring prosperity. Unless we can grasp that truth, there will be no chance of keeping the Titanic from hitting the iceberg. When it does, many of us will wonder what happened as we go down with it.