Sunday, April 13, 2008

Why Obama & Clinton Are More Like Herbert Hoover than Bush Will Ever Be

A couple of weeks ago, Senator Schumer (a Democrat from New York) likened President Bush to Herbert Hoover because of the current credit crisis in this country. This is not new from the Democrats. During the run up to the 2004 election cycle, they tried to convince the voters that Bush had lost more jobs than since Herbert Hoover. That "stretch" of a "political lie" never actually materialized. But, the Democrats like to use Herbert Hoover because he was a Republican and because he was in office during the Stock Market Crash of '29 and when the Great Depression started.

Unlike Bush, but not unlike Hillary Clinton and Barack Obama of today, Hebert Hoover was really a protectionist who was against free trade in a simplistic view that job protection was needed to improve the economy. But, his protectionism achieved just the opposite effect. In early 1930, just after the stock market crash of 1929, Hoover signed the Smoot-Hawley Tariff Act that imposed high importation taxes on over 20,000 products. The result was retaliation by those countries that were affected by this tariff. They blocked the import of U.S. goods into their countries and our exports fell by nearly 60%. This devastated much of the industrial production in America and exacerbated what might have been only a short-term recession. Right now, both Hillary and Barack are hyping the repeal of the North American Free Trade Agreement (NAFTA) and are for the blockage of additional free trade deals with Columbia, Panama, and South Korea. These are small-minded attempts to "give into" the special interests of the AFL-CIO and other labor unions. It plays into the erroneous assumption that jobs have been lost as a result of free trade. In actuality, the repeal of NAFTA and the blockage of other free trade deals could send a negative signal to our trading partners that we might not just stop at the blockage of free trade agreements and that we may be on the verge of reviving trade tariffs. This could ignite a massive round of trade wars. Because we desperately need to sell our products overseas, this could be disastrous to our economy and we could see the same massive unemployment that was ultimately created by the Smoot-Hawley Tariff Act.

In 1930, the first half spending by the Federal Government was up by 10% for new government programs. This spending and the associated tax increases and the loss of jobs under Smoot-Hawley helped put America into an economic tail spin. Today, when we might be on the verge of another recession and any new and big government programs like Nationalized Health Care and "green collar" work programs should be avoided; just as in 1929-1930. Both Clinton and Obama have outlined, each, a near trillion dollars in new government spending. Because of the cost of these new programs, both have had to outline new taxes and the elimination of the Bush tax cuts. At best, they can expect to get about $250 billion by eliminating the so-called tax cuts for the rich and by eliminating the cost for the War in Iraq. Therefore, the reality is that taxes will have to be raised across the board to pay for all the new programs they have promised. Those new taxes along with the current high prices for gasoline and food will just take spending money out of the pockets of the average American. This will completely stifle spending on non-essential manufactured goods and services and it could bring our economy to a severe standstill. The ripple effect could be higher and higher unemployment; which was the hallmark of the Great Depression.

It is true that easy credit of the late 1920's was a significant reason for the Crash of 1929 and the subsequent Great Depression. In a way, the default of sub-prime mortgages, today, has it's parallels to the easy credit problems that spawned the Great Depression. Certainly, Hillary Clinton and Barack Obama cannot be blamed for those problems. However, their push for new taxes, the blockage of free trade, and massive new spending programs could, in fact, make them the new Herbert Hoover's of our day and push us beyond what might be just a recession and into another full-blown economic depression.

Please note: Economists are not fully in agreement with regard to all the factors that actually contributed to the Great Depression. It is certainly more complex than I have outlined above. However, the things that I have noted were generally regarded as the most significant issues that pushed us into the Great Depression.

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