The True Cost of "Change…": Economic Insecurity and a Prolonged Recession

In her book on the Great Depression, The Forgotten Man, Amity Shlaes argues that President Franklin Delano Roosevelt plunged the country into a depression within a depression in 1937 and 1938 through endless legislative “accomplishments” that caused investors craving stability to hunker down and wonder if they were going to be next to suffer the costs of legislative experimentation. The predicted recovery that should have occurred, Shlaes believes, was stifled not just by the legislation, but by the relentlessness with which Roosevelt pursued his ambitious agenda. Shlaes says of Roosevelt’s drive to intervene:

“Such forays prevented recovery and took the country into the depression within the Depression of 1937 and 1938… One of the most famous Roosevelt phrases in history, almost as famous as “fear itself,” was Roosevelt’s boast that he would promulgate “bold, persistent experimentation.” But Roosevelt’s commitment to experimentation itself created fear… The trouble, however, was not merely the new policies that were implemented, but also the threat of additional, unknown, policies. Fear froze the economy, but that uncertainty itself might have a cost was something the young experimenters simply did not consider.”

As Obama’s economic team considers very real concerns that their Neo-Keynsian experimentation is likely to lead to inflation or stagflation, they should learn from history and also consider the cost of rampant, unpredictable change that Shlaes describes. President Obama’s first few months in office proved to small businessmen across the country that almost any cost can be imposed under an Obama administration. As these small business owners consider how they will survive under cap-and-trade and looming health care reform measures, they also may be asking themselves, “Even if we can survive with this additional burden, can we make it through what the government will decide to do next?” Who would decide to expand and grow their business in an environment that could very well turn poisonous tomorrow.

Just as Roosevelt’s men did during the Great Depression, Obama’s men are insisting that the problem is not that the stimulus bill that Democratic lobbyists pieced together like Frankenstein’s monster has failed to work, but that their understanding of the depth of the recession was flawed. If they knew how bad the depression truly was, their predictions for stimulus success would have been more modest, but that doesn’t mean the stimulus didn’t work. On the contrary, they insist, think how bad things would be if there was no stimulus. This convenient reasoning allows Obama to name his own goals and then declare success regardless of whether he meets them.

There are two things that almost any modern President with the exception of Roosevelt would probably do when confronted with the tenacity of the recession: First, they would seek to create an economic and political environment of stability to calm investors at home and the world over and convince them that the United States is a safe and smart place to do business and not a laboratory for governmental experimentation. Second, they would announce a definite and certain intent and the framework for a plan for a return to fiscal responsibility, for reducing the national debt, and avoiding the inflation or stagflation that many investors and businessmen openly fear. Instead, President Obama and his team have taken the opposite approach, hanging on to their mandate for “change” and defending the efficacy of their stimulus legislation by discounting their ability to form predictions on a careful and sound reading of economic indicators.

The true cost of risky and controversial governmental “change” must include not only the growing tab on spending, but also the paralysis inflicted upon risk-averse, conservative investors and businesspeople. Before sending the signal that he would sign a second “stimulus” to distribute funds to large corporations and democratic-friendly industries, President Obama needs to convince investors and businesspeople that he understands their need for a stable legislative environment and that he can pay for the second stimulus without massive penalties, sales taxes, or the creation of a USA VAT. If he cannot convince investors and businesspeople, who remain the economic engine of the United States’ economy, he should veto the bill. It’s not a political necessity, but it is what good leadership in an economic downturn requires.